Question 1

If we observe that the actual rate of CPI inflation has increased,we can certainly conclude that the

Accepted Answer

A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above. 
A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above.

Question 2

How does the Bank of Canada communicate its target for the overnight interest rate to the public?

Accepted Answer

A) monthly announcements at fixed announcement dates (FADs) 
B) in its quarterly publication,"Monetary Policy Report" 
C) announcements made 8 times per year at pre-specified fixed announcement dates (FADs) 
D) The target is communicated to the minister of finance for approval and then released to the public on a quarterly basis. 
E) The target is communicated to the Prime Minister for approval and then released to the public at 8 pre-specified fixed announcement dates (FADs). 
A) monthly announcements at fixed announcement dates (FADs) 
B) in its quarterly publication,"Monetary Policy Report" 
C) announcements made 8 times per year at pre-specified fixed announcement dates (FADs) 
D) The target is communicated to the minister of finance for approval and then released to the public on a quarterly basis. 
E) The target is communicated to the Prime Minister for approval and then released to the public at 8 pre-specified fixed announcement dates (FADs).

Question 3

In the early 1980s,the Bank of Canada contracted the rate of growth of the money supply in an attempt to reduce inflation.One problem with this policy was that

Accepted Answer

A) an unexpected increase in the demand for money caused the policy to be more contractionary than necessary,leading to a recession. 
B) an unexpected increase in the demand for money caused the policy to be more expansionary than necessary,leading to further inflation. 
C) the demand for money dropped at the same time,causing the policy to be more contractionary than necessary,leading to an undesirable boom. 
D) the demand for money dropped at the same time,causing the policy to be more expansionary than necessary,leading to further inflation. 
E) it proved completely ineffective in influencing either real GDP or the price level. 
A) an unexpected increase in the demand for money caused the policy to be more contractionary than necessary,leading to a recession. 
B) an unexpected increase in the demand for money caused the policy to be more expansionary than necessary,leading to further inflation. 
C) the demand for money dropped at the same time,causing the policy to be more contractionary than necessary,leading to an undesirable boom. 
D) the demand for money dropped at the same time,causing the policy to be more expansionary than necessary,leading to further inflation. 
E) it proved completely ineffective in influencing either real GDP or the price level.

Question 4

The Bank of Canada's formal policy target is ________.It's current target is to keep the annual inflation rate close to ________%.

Accepted Answer

A) core inflation; 1 
B) core inflation; 0 
C) the money supply; 2 
D) CPI inflation; 2 
E) the money supply; 1 
A) core inflation; 1 
B) core inflation; 0 
C) the money supply; 2 
D) CPI inflation; 2 
E) the money supply; 1

Question 5

In general,if a central bank chooses to target the money supply in its implementation of monetary policy,then

Accepted Answer

A) the interest rate is determined by monetary equilibrium,and cannot be precisely predicted because of possible shocks to money demand. 
B) the interest rate can be more carefully controlled. 
C) implementation of policy is more straightforward because money supply is more easily controlled than the interest rate. 
D) the interest rate is determined by the Minister of Finance. 
E) the implementation of policy is more straightforward because the central bank can control the process of deposit creation. 
A) the interest rate is determined by monetary equilibrium,and cannot be precisely predicted because of possible shocks to money demand. 
B) the interest rate can be more carefully controlled. 
C) implementation of policy is more straightforward because money supply is more easily controlled than the interest rate. 
D) the interest rate is determined by the Minister of Finance. 
E) the implementation of policy is more straightforward because the central bank can control the process of deposit creation.

Question 6

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 raises the target interest rate from 2% to 3%,it is pursuing a(n)________ monetary policy and the quantity of money demanded will ________.

Accepted Answer

A) contractionary; rise 
B) contractionary; fall 
C) expansionary; not change 
D) expansionary; rise 
E) expansionary; fall 
A) contractionary; rise 
B) contractionary; fall 
C) expansionary; not change 
D) expansionary; rise 
E) expansionary; fall

Question 7

Loans from the Bank of Canada are

Accepted Answer

A) made only to the Canadian federal government and to provincial governments. 
B) made to commercial banks at the bank rate. 
C) made to commercial banks at the prime rate and are short-term in nature. 
D) made to large non-bank corporations. 
E) the Bank's major policy instrument. 
A) made only to the Canadian federal government and to provincial governments. 
B) made to commercial banks at the bank rate. 
C) made to commercial banks at the prime rate and are short-term in nature. 
D) made to large non-bank corporations. 
E) the Bank's major policy instrument.

Question 8

Consider the implementation of monetary policy.One difficulty in attempting to stabilize the economy by controlling the money supply is that

Accepted Answer

A) firms may be sensitive to changes in the rate of interest. 
B) the Bank of Canada can print more money. 
C) the commercial banks may choose not to hold excess reserves. 
D) the money demand function may be unstable. 
E) the Canadian government requires long-term loans. 
A) firms may be sensitive to changes in the rate of interest. 
B) the Bank of Canada can print more money. 
C) the commercial banks may choose not to hold excess reserves. 
D) the money demand function may be unstable. 
E) the Canadian government requires long-term loans.

Question 9

To remove a recessionary gap,the Bank of Canada would probably seek to

Accepted Answer

A) increase its target for the overnight interest rate. 
B) increase the bank rate. 
C) decrease its target for the overnight interest rate. 
D) sell government securities through open-market operations. 
E) decrease its target for the money supply. 
A) increase its target for the overnight interest rate. 
B) increase the bank rate. 
C) decrease its target for the overnight interest rate. 
D) sell government securities through open-market operations. 
E) decrease its target for the money supply.

Question 10

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result.Households' and firms' demand for new loans from the commercial banks would ________.In order to make the new loans,the commercial banks require more ________.

Accepted Answer

A) rise; government securities 
B) fall; currency 
C) rise; cash reserves 
D) remain stable; excess reserves 
E) fall; excess reserves 
A) rise; government securities 
B) fall; currency 
C) rise; cash reserves 
D) remain stable; excess reserves 
E) fall; excess reserves

Question 11

The interest rate that commercial banks charge each other for the shortest period of borrowing or lending is called the

Accepted Answer

A) term interest rate. 
B) prime rate. 
C) overnight interest rate. 
D) bank rate. 
E) preferred lending rate. 
A) term interest rate. 
B) prime rate. 
C) overnight interest rate. 
D) bank rate. 
E) preferred lending rate.

Question 12

Most central banks in the developed countries focus their attention on

Accepted Answer

A) the elimination of output gaps. 
B) reducing unemployment. 
C) the reduction and control of inflation. 
D) alleviating the harmful effects of inflation. 
E) the growth of potential output. 
A) the elimination of output gaps. 
B) reducing unemployment. 
C) the reduction and control of inflation. 
D) alleviating the harmful effects of inflation. 
E) the growth of potential output.

Question 13

Consider a central bank that chooses to implement its monetary policy by expanding the money supply by a fixed percentage amount in every year.One important disadvantage with this approach to monetary policy is that it may

Accepted Answer

A) lead to sustained inflation. 
B) be destabilizing if the demand for money is unstable. 
C) lead to stable growth of national income. 
D) be inconsistent with the Bank of Canada Act. 
E) create a recessionary output gap. 
A) lead to sustained inflation. 
B) be destabilizing if the demand for money is unstable. 
C) lead to stable growth of national income. 
D) be inconsistent with the Bank of Canada Act. 
E) create a recessionary output gap.

Question 14

As of 2018,the Bank of Canada's policy objective is to maintain inflation at or near the target of

Accepted Answer

A) 0%. 
B) 1%. 
C) 2%. 
D) 3%. 
E) 4%. 
A) 0%. 
B) 1%. 
C) 2%. 
D) 3%. 
E) 4%.

Question 15

Most economists now accept the proposition that

Accepted Answer

A) an ideal monetary policy would allow the money supply to grow at a constant rate. 
B) to reduce the long-run rate of inflation there must be a sustained monetary contraction. 
C) monetary policy leaves real GDP and the overnight lending rate unaffected in the short run. 
D) lowering the Bank Rate will have no effect on desired investment in the short run but will have a direct effect on core inflation. 
E) monetary policy is the only policy tool available for influencing aggregate demand. 
A) an ideal monetary policy would allow the money supply to grow at a constant rate. 
B) to reduce the long-run rate of inflation there must be a sustained monetary contraction. 
C) monetary policy leaves real GDP and the overnight lending rate unaffected in the short run. 
D) lowering the Bank Rate will have no effect on desired investment in the short run but will have a direct effect on core inflation. 
E) monetary policy is the only policy tool available for influencing aggregate demand.

Question 16

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.The Bank of Canada must be able to easily communicate its monetary policy actions to the public.Which approach is more amenable to this requirement,and why?

Accepted Answer

A) Part (ii)- targeting the money supply: because an announcement of a 1% decrease in the money supply is more easily understood than an increase in the interest rate. 
B) Part (i)- targeting the interest rate: because the Bank of Canada can more easily instruct the commercial banks to raise their interest rates. 
C) Part (ii)- targeting the money supply: because the public can more easily understand that a decrease in reserves in the banking system makes it more difficult to get a loan or mortgage. 
D) Part (i)- targeting the interest rate: because changes in the interest rate are much more meaningful and understandable to the public than changes in the money supply. 
A) Part (ii)- targeting the money supply: because an announcement of a 1% decrease in the money supply is more easily understood than an increase in the interest rate. 
B) Part (i)- targeting the interest rate: because the Bank of Canada can more easily instruct the commercial banks to raise their interest rates. 
C) Part (ii)- targeting the money supply: because the public can more easily understand that a decrease in reserves in the banking system makes it more difficult to get a loan or mortgage. 
D) Part (i)- targeting the interest rate: because changes in the interest rate are much more meaningful and understandable to the public than changes in the money supply.

Question 17

Which of the following describes the cause of a sustained inflation?

Accepted Answer

A) the monetary transmission mechanism 
B) an aggregate demand shock significant enough to cause a substantial rise in the price level 
C) continual monetary expansion 
D) an aggregate supply shock significant enough to cause a substantial rise in the price level 
E) simultaneous AD and AS shocks 
A) the monetary transmission mechanism 
B) an aggregate demand shock significant enough to cause a substantial rise in the price level 
C) continual monetary expansion 
D) an aggregate supply shock significant enough to cause a substantial rise in the price level 
E) simultaneous AD and AS shocks

Question 18

The Bank of Canada initially implements an expansionary monetary policy by

Accepted Answer

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

Question 19

Time lags in the conduct of monetary policy can cause

Accepted Answer

A) monetary policy to work in the opposite direction to what was initially predicted by economists. 
B) expansionary or contractionary policies to have the precise effects predicted by policymakers. 
C) monetary expansions to work very quickly but cause monetary contractions to work very slowly. 
D) difficulty in the timing of appropriate policy and can even lead to destabilization. 
E) short-term monetary policy to work more effectively than long-term targeting. 
A) monetary policy to work in the opposite direction to what was initially predicted by economists. 
B) expansionary or contractionary policies to have the precise effects predicted by policymakers. 
C) monetary expansions to work very quickly but cause monetary contractions to work very slowly. 
D) difficulty in the timing of appropriate policy and can even lead to destabilization. 
E) short-term monetary policy to work more effectively than long-term targeting.

Question 20

Many central banks have established formal targets for the rate of inflation because of the following fundamental observations about economic relationships: 1.There are high costs associated with inflation.
2.High inflation causes high unemployment.
3.Monetary policy is the cause of sustained inflation.

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 3 only 
E) 1,2,and 3 
A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 3 only 
E) 1,2,and 3

If we observe that the actual rate of CPI inflation has increased,we can certainly conclude that the

How does the Bank of Canada communicate its target for the overnight interest rate to the public?

In the early 1980s,the Bank of Canada contracted the rate of growth of the money supply in an attempt to reduce inflation.One problem with this policy was that

The Bank of Canada's formal policy target is .It's current target is to keep the annual inflation rate close to %.

In general,if a central bank chooses to target the money supply in its implementation of monetary policy,then

Loans from the Bank of Canada are

Consider the implementation of monetary policy.One difficulty in attempting to stabilize the economy by controlling the money supply is that

To remove a recessionary gap,the Bank of Canada would probably seek to

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result.Households' and firms' demand for new loans from the commercial banks would .In order to make the new loans,the commercial banks require more .

The interest rate that commercial banks charge each other for the shortest period of borrowing or lending is called the

Most central banks in the developed countries focus their attention on

Consider a central bank that chooses to implement its monetary policy by expanding the money supply by a fixed percentage amount in every year.One important disadvantage with this approach to monetary policy is that it may

As of 2018,the Bank of Canada's policy objective is to maintain inflation at or near the target of

Most economists now accept the proposition that

Which of the following describes the cause of a sustained inflation?

The Bank of Canada initially implements an expansionary monetary policy by

Time lags in the conduct of monetary policy can cause

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

If we observe that the actual rate of CPI inflation has increased,we can certainly conclude that the

How does the Bank of Canada communicate its target for the overnight interest rate to the public?

In the early 1980s,the Bank of Canada contracted the rate of growth of the money supply in an attempt to reduce inflation.One problem with this policy was that

The Bank of Canada's formal policy target is ________.It's current target is to keep the annual inflation rate close to ________%.

In general,if a central bank chooses to target the money supply in its implementation of monetary policy,then

Loans from the Bank of Canada are

Consider the implementation of monetary policy.One difficulty in attempting to stabilize the economy by controlling the money supply is that

To remove a recessionary gap,the Bank of Canada would probably seek to

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result.Households' and firms' demand for new loans from the commercial banks would ________.In order to make the new loans,the commercial banks require more ________.

The interest rate that commercial banks charge each other for the shortest period of borrowing or lending is called the

Most central banks in the developed countries focus their attention on

Consider a central bank that chooses to implement its monetary policy by expanding the money supply by a fixed percentage amount in every year.One important disadvantage with this approach to monetary policy is that it may

As of 2018,the Bank of Canada's policy objective is to maintain inflation at or near the target of

Most economists now accept the proposition that

Which of the following describes the cause of a sustained inflation?

The Bank of Canada initially implements an expansionary monetary policy by

Time lags in the conduct of monetary policy can cause

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

The Bank of Canada's formal policy target is .It's current target is to keep the annual inflation rate close to %.

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result.Households' and firms' demand for new loans from the commercial banks would .In order to make the new loans,the commercial banks require more .