Question 1

In practice,it is not possible for the Bank of Canada to control the money supply because

Accepted Answer

A) the resulting effects on the value of the Canadian dollar are difficult to predict. 
B) it cannot control the process of deposit creation carried out by the commercial banks. 
C) it cannot control the amount of cash reserves that are injected into or withdrawn from the banking system. 
D) it does not have the legal power to do so. 
E) None of the above-the Bank of Canada could control the money supply if it chose to do so. 
A) the resulting effects on the value of the Canadian dollar are difficult to predict. 
B) it cannot control the process of deposit creation carried out by the commercial banks. 
C) it cannot control the amount of cash reserves that are injected into or withdrawn from the banking system. 
D) it does not have the legal power to do so. 
E) None of the above-the Bank of Canada could control the money supply if it chose to do so.

Question 2

During a period of renewed inflation fears in 1988,the governor of the Bank of Canada,Mr.John Crow,announced that monetary policy would henceforth be guided more by

Accepted Answer

A) exchange rate targets since depreciation of the Canadian dollar tends to be inflationary. 
B) real GDP growth. 
C) the goal of long-term "price stability." 
D) the level of real income growth and "price stability." 
E) unemployment levels and the level of prices. 
A) exchange rate targets since depreciation of the Canadian dollar tends to be inflationary. 
B) real GDP growth. 
C) the goal of long-term "price stability." 
D) the level of real income growth and "price stability." 
E) unemployment levels and the level of prices.

Question 3

Suppose the Canadian economy had an inflationary gap.To decrease the level of aggregate desired investment,the Bank of Canada could

Accepted Answer

A) buy securities in the open market. 
B) lower short-term interest rates. 
C) reduce its spending. 
D) raise its target for the overnight interest rate. 
E) raise the price level. 
A) buy securities in the open market. 
B) lower short-term interest rates. 
C) reduce its spending. 
D) raise its target for the overnight interest rate. 
E) raise the price level.

Question 4

Most central banks accept that,in the long run,monetary policy has an effect on

Accepted Answer

A) the level of aggregate demand. 
B) the price level and the inflation rate only. 
C) the level of investment demand. 
D) all real economic variables. 
E) real GDP and the price level. 
A) the level of aggregate demand. 
B) the price level and the inflation rate only. 
C) the level of investment demand. 
D) all real economic variables. 
E) real GDP and the price level.

Question 5

Which of the following provides the best example of how inflation targeting by the Bank of Canada helps to stabilize the economy?

Accepted Answer

A) Firms and households are aware of the announced inflation target and adjust their behaviour so as to maintain this level of actual inflation. 
B) When a recessionary gap reduces the rate of inflation (below the target level)the Bank of Canada will implement an expansionary monetary policy,which helps to close the gap. 
C) When the actual inflation rate falls below the targeted level of inflation,then commercial banks automatically increase deposit creation. 
D) When an output gap opens in the economy,the inflationary target adjusts to close the gap. 
E) When an output gap opens in the economy,the Bank of Canada chooses the inflation target appropriate for closing the gap. 
A) Firms and households are aware of the announced inflation target and adjust their behaviour so as to maintain this level of actual inflation. 
B) When a recessionary gap reduces the rate of inflation (below the target level)the Bank of Canada will implement an expansionary monetary policy,which helps to close the gap. 
C) When the actual inflation rate falls below the targeted level of inflation,then commercial banks automatically increase deposit creation. 
D) When an output gap opens in the economy,the inflationary target adjusts to close the gap. 
E) When an output gap opens in the economy,the Bank of Canada chooses the inflation target appropriate for closing the gap.

Question 6

Because of the volatility of food and energy prices,the Bank of Canada pays more attention in the short run to changes in ________ than to changes in ________.

Accepted Answer

A) total CPI inflation; core inflation 
B) total CPI inflation; inflation of the GDP deflator 
C) inflation of the GDP deflator; total CPI inflation 
D) core inflation; total CPI inflation 
E) the nominal exchange rate; the real exchange rate 
A) total CPI inflation; core inflation 
B) total CPI inflation; inflation of the GDP deflator 
C) inflation of the GDP deflator; total CPI inflation 
D) core inflation; total CPI inflation 
E) the nominal exchange rate; the real exchange rate

Question 7

The Bank of Canada's purchases and sales of government securities,when they occur,are referred to as

Accepted Answer

A) increases and decreases in government expenditure. 
B) margin requirements. 
C) open-market operations. 
D) reserve requirements. 
E) the setting of the bank rate. 
A) increases and decreases in government expenditure. 
B) margin requirements. 
C) open-market operations. 
D) reserve requirements. 
E) the setting of the bank rate.

Question 8

Suppose the Bank of Canada increases its target for the overnight interest rate by 0.25 percentage points.In this situation,the Bank will likely need to accommodate the resulting change in the demand for money by

Accepted Answer

A) increasing the supply of money by buying government securities on the open market. 
B) increasing the supply of money by selling government securities on the open market. 
C) decreasing the supply of money by buying government securities on the open market. 
D) decreasing the supply of money by selling government securities on the open market. 
E) maintaining the current supply of money which will increase the effectiveness of the change in the overnight interest rate. 
A) increasing the supply of money by buying government securities on the open market. 
B) increasing the supply of money by selling government securities on the open market. 
C) decreasing the supply of money by buying government securities on the open market. 
D) decreasing the supply of money by selling government securities on the open market. 
E) maintaining the current supply of money which will increase the effectiveness of the change in the overnight interest rate.

Question 9

The term structure of interest rates refers to

Accepted Answer

A) the general observation that the yield on 30-year government bonds is less than the yield on 90-day Treasury bills. 
B) the variance of the different interest rates available in the economy. 
C) the composition of the market interest rate. 
D) the variation of the market interest rate over the span of one year. 
E) the pattern of interest rates that corresponds to the varying terms to maturity of government securities. 
A) the general observation that the yield on 30-year government bonds is less than the yield on 90-day Treasury bills. 
B) the variance of the different interest rates available in the economy. 
C) the composition of the market interest rate. 
D) the variation of the market interest rate over the span of one year. 
E) the pattern of interest rates that corresponds to the varying terms to maturity of government securities.

Question 10

Suppose the actual overnight interest rate is 4%.If the Bank of Canada lowers its target for the overnight rate to 3.75%,the money supply will eventually

Accepted Answer

A) increase as a result of open-market operations. 
B) increase as a result of an increase in excess reserves in the banking system. 
C) decrease as a result of an increase in excess reserves in the banking system. 
D) decrease as a result of open-market operations. 
E) decrease as a result of a decrease in the demand for new loans. 
A) increase as a result of open-market operations. 
B) increase as a result of an increase in excess reserves in the banking system. 
C) decrease as a result of an increase in excess reserves in the banking system. 
D) decrease as a result of open-market operations. 
E) decrease as a result of a decrease in the demand for new loans.

Question 11

If desired investment spending is relatively sensitive to changes in interest rates,then monetary policy could be very useful because it would

Accepted Answer

A) be very effective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. 
B) be very effective in reducing expenditure during inflationary periods and ineffective in expanding expenditure during recessionary periods. 
C) be very ineffective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. 
D) be very ineffective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods. 
E) be somewhat effective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods. 
A) be very effective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. 
B) be very effective in reducing expenditure during inflationary periods and ineffective in expanding expenditure during recessionary periods. 
C) be very ineffective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. 
D) be very ineffective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods. 
E) be somewhat effective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods.

Question 12

If an economist supports targeting inflation as opposed to monetary fine-tuning,this economist probably believes that time lags in the implementation of monetary policy are

Accepted Answer

A) short but predictable. 
B) short but unpredictable. 
C) long and unpredictable. 
D) long but predictable. 
E) predictable in their short-run effects but unpredictable in the long run. 
A) short but predictable. 
B) short but unpredictable. 
C) long and unpredictable. 
D) long but predictable. 
E) predictable in their short-run effects but unpredictable in the long run.

Question 13

The diagrams below illustrate two alternative approaches to implementing monetary policy.The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to   .   FIGURE 28-1 Refer to Figure 28-1.If the Bank of Canada's goal is to increase the target interest rate from 2% to 3%,then the most effective approach is to

Accepted Answer

A) reduce the money supply to   ,as shown in part (ii),and then let the interest rate adjust to 3%. 
B) increase the money supply to   ,as shown in part (ii),and then let the interest rate adjust to 3%. 
C) allow the money supply to shift to   by market forces,which will cause the interest rate to rise to 3%. 
D) raise the interest rate to 3%,as shown in part (i),and then buy government securities in financial markets to accommodate the decline in the quantity of money demanded. 
E) raise the interest rate to 3%,as shown in part (i),and then sell government securities in financial markets to accommodate the decline in the quantity of money demanded. 
A) reduce the money supply to   ,as shown in part (ii),and then let the interest rate adjust to 3%. 
B) increase the money supply to   ,as shown in part (ii),and then let the interest rate adjust to 3%. 
C) allow the money supply to shift to   by market forces,which will cause the interest rate to rise to 3%. 
D) raise the interest rate to 3%,as shown in part (i),and then buy government securities in financial markets to accommodate the decline in the quantity of money demanded. 
E) raise the interest rate to 3%,as shown in part (i),and then sell government securities in financial markets to accommodate the decline in the quantity of money demanded.

Question 14

What is the "bank rate"?

Accepted Answer

A) The interest rate at which the Bank of Canada will lend funds to the Canadian government. 
B) The interest rate at which the Bank of Canada will lend funds to commercial banks. 
C) The interest rate that commercial banks charge their best customers. 
D) The interest rate that the Bank of Canada pays on deposits from the commercial banks. 
E) It is the same as a margin requirement. 
A) The interest rate at which the Bank of Canada will lend funds to the Canadian government. 
B) The interest rate at which the Bank of Canada will lend funds to commercial banks. 
C) The interest rate that commercial banks charge their best customers. 
D) The interest rate that the Bank of Canada pays on deposits from the commercial banks. 
E) It is the same as a margin requirement.

Question 15

In practice,the Bank of Canada uses monetary policy to reduce undesirable fluctuations in real GDP by

Accepted Answer

A) controlling business investment expenditures directly. 
B) controlling government spending. 
C) influencing market interest rates through changes in its target for the overnight interest rate. 
D) directly influencing the money supply which affects the interest rate and hence,consumption and investment. 
E) targeting the money supply directly. 
A) controlling business investment expenditures directly. 
B) controlling government spending. 
C) influencing market interest rates through changes in its target for the overnight interest rate. 
D) directly influencing the money supply which affects the interest rate and hence,consumption and investment. 
E) targeting the money supply directly.

Question 16

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By the spring of 2009,the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%.

Accepted Answer

A) 0 
B) 0.25 
C) 0.50 
D) 0.75 
E) 1.00 
A) 0 
B) 0.25 
C) 0.50 
D) 0.75 
E) 1.00

Question 17

Changes in monetary aggregates such as M2 and M2+ can be a poor guide to the stance of monetary policy if

Accepted Answer

A) commercial bank reserves are rising. 
B) interest rates are changing rapidly. 
C) interest rates are constant. 
D) money demand is changing in unpredictable ways. 
E) money demand is constant. 
A) commercial bank reserves are rising. 
B) interest rates are changing rapidly. 
C) interest rates are constant. 
D) money demand is changing in unpredictable ways. 
E) money demand is constant.

Question 18

The Bank of Canada initially implements a contractionary monetary policy by

Accepted Answer

A) directly decreasing the money supply. 
B) raising its target for the overnight interest rate. 
C) selling government securities on the open market. 
D) buying government securities on the open market. 
E) reducing its target for the overnight interest rate. 
A) directly decreasing the money supply. 
B) raising its target for the overnight interest rate. 
C) selling government securities on the open market. 
D) buying government securities on the open market. 
E) reducing its target for the overnight interest rate.

Question 19

In 1980,the annual inflation rate in Canada was

Accepted Answer

A) over 12%. 
B) roughly 8%. 
C) roughly 6%. 
D) roughly 2%. 
E) roughly zero. 
A) over 12%. 
B) roughly 8%. 
C) roughly 6%. 
D) roughly 2%. 
E) roughly zero.

Question 20

Suppose the economy is experiencing an inflationary gap.Which of the following describes a likely policy response by the Bank of Canada?

Accepted Answer

A) a contractionary monetary policy which leads to a lower interest rate,reduced investment demand,and a shift to the left of the AD curve 
B) an expansionary monetary policy which leads to an increase in investment demand,and a shift to the right of the AD curve 
C) an expansionary monetary policy which leads to a decrease in investment demand,and a shift to the left of the AD curve 
D) a contractionary monetary policy which leads to an increase in investment demand,and a shift to the right of the AD curve 
E) a contractionary monetary policy which leads to a reduction in investment demand,and a shift to the left of the AD curve 
A) a contractionary monetary policy which leads to a lower interest rate,reduced investment demand,and a shift to the left of the AD curve 
B) an expansionary monetary policy which leads to an increase in investment demand,and a shift to the right of the AD curve 
C) an expansionary monetary policy which leads to a decrease in investment demand,and a shift to the left of the AD curve 
D) a contractionary monetary policy which leads to an increase in investment demand,and a shift to the right of the AD curve 
E) a contractionary monetary policy which leads to a reduction in investment demand,and a shift to the left of the AD curve

In practice,it is not possible for the Bank of Canada to control the money supply because

During a period of renewed inflation fears in 1988,the governor of the Bank of Canada,Mr.John Crow,announced that monetary policy would henceforth be guided more by

Suppose the Canadian economy had an inflationary gap.To decrease the level of aggregate desired investment,the Bank of Canada could

Most central banks accept that,in the long run,monetary policy has an effect on

Which of the following provides the best example of how inflation targeting by the Bank of Canada helps to stabilize the economy?

Because of the volatility of food and energy prices,the Bank of Canada pays more attention in the short run to changes in than to changes in .

The Bank of Canada's purchases and sales of government securities,when they occur,are referred to as

Suppose the Bank of Canada increases its target for the overnight interest rate by 0.25 percentage points.In this situation,the Bank will likely need to accommodate the resulting change in the demand for money by

The term structure of interest rates refers to

Suppose the actual overnight interest rate is 4%.If the Bank of Canada lowers its target for the overnight rate to 3.75%,the money supply will eventually

If desired investment spending is relatively sensitive to changes in interest rates,then monetary policy could be very useful because it would

If an economist supports targeting inflation as opposed to monetary fine-tuning,this economist probably believes that time lags in the implementation of monetary policy are

What is the "bank rate"?

In practice,the Bank of Canada uses monetary policy to reduce undesirable fluctuations in real GDP by

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By the spring of 2009,the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%.

Changes in monetary aggregates such as M2 and M2+ can be a poor guide to the stance of monetary policy if

The Bank of Canada initially implements a contractionary monetary policy by

In 1980,the annual inflation rate in Canada was

Suppose the economy is experiencing an inflationary gap.Which of the following describes a likely policy response by the Bank of Canada?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Exam 28: Monetary Policy in Canada

In practice,it is not possible for the Bank of Canada to control the money supply because

During a period of renewed inflation fears in 1988,the governor of the Bank of Canada,Mr.John Crow,announced that monetary policy would henceforth be guided more by

Suppose the Canadian economy had an inflationary gap.To decrease the level of aggregate desired investment,the Bank of Canada could

Most central banks accept that,in the long run,monetary policy has an effect on

Which of the following provides the best example of how inflation targeting by the Bank of Canada helps to stabilize the economy?

Because of the volatility of food and energy prices,the Bank of Canada pays more attention in the short run to changes in ________ than to changes in ________.

The Bank of Canada's purchases and sales of government securities,when they occur,are referred to as

Suppose the Bank of Canada increases its target for the overnight interest rate by 0.25 percentage points.In this situation,the Bank will likely need to accommodate the resulting change in the demand for money by

The term structure of interest rates refers to

Suppose the actual overnight interest rate is 4%.If the Bank of Canada lowers its target for the overnight rate to 3.75%,the money supply will eventually

If desired investment spending is relatively sensitive to changes in interest rates,then monetary policy could be very useful because it would

If an economist supports targeting inflation as opposed to monetary fine-tuning,this economist probably believes that time lags in the implementation of monetary policy are

What is the "bank rate"?

In practice,the Bank of Canada uses monetary policy to reduce undesirable fluctuations in real GDP by

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By the spring of 2009,the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%.

Changes in monetary aggregates such as M2 and M2+ can be a poor guide to the stance of monetary policy if

The Bank of Canada initially implements a contractionary monetary policy by

In 1980,the annual inflation rate in Canada was

Suppose the economy is experiencing an inflationary gap.Which of the following describes a likely policy response by the Bank of Canada?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Because of the volatility of food and energy prices,the Bank of Canada pays more attention in the short run to changes in than to changes in .