Question 1

The best description of the cause-and-effect chain of a contractionary monetary policy in the short run is that it will

Accepted Answer

A) lower the interest rate,increase investment spending,and increase real GDP. 
B) raise the interest rate,decrease investment spending,and decrease real GDP. 
C) lower the interest rate,lower investment spending,and decrease real GDP. 
D) raise the interest rate,decrease investment spending,and increase real GDP. 
E) raise the interest rate,increase investment spending,and decrease real GDP. 
A) lower the interest rate,increase investment spending,and increase real GDP. 
B) raise the interest rate,decrease investment spending,and decrease real GDP. 
C) lower the interest rate,lower investment spending,and decrease real GDP. 
D) raise the interest rate,decrease investment spending,and increase real GDP. 
E) raise the interest rate,increase investment spending,and decrease real GDP.

Question 2

How does the Bank of Canada set in motion the monetary transmission mechanism?

Accepted Answer

A) by altering its target for the overnight interest rate 
B) by altering the price level 
C) by influencing the demand for money directly 
D) by influencing the exchange rate directly 
E) by influencing aggregate supply directly 
A) by altering its target for the overnight interest rate 
B) by altering the price level 
C) by influencing the demand for money directly 
D) by influencing the exchange rate directly 
E) by influencing aggregate supply directly

Question 3

Suppose the Bank of Canada chooses to expand the M2 measure of money supply by exactly $10 million.The Bank could implement this expansion by

Accepted Answer

A) buying $10 million worth of government securities on the open market. 
B) selling $10 million worth of government securities on the open market. 
C) increasing reserves at the commercial banks by $10 million. 
D) decreasing reserves at the commercial banks by $10 million. 
E) None of the above would lead to an increase of M2 by $10 million. 
A) buying $10 million worth of government securities on the open market. 
B) selling $10 million worth of government securities on the open market. 
C) increasing reserves at the commercial banks by $10 million. 
D) decreasing reserves at the commercial banks by $10 million. 
E) None of the above would lead to an increase of M2 by $10 million.

Question 4

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in a contractionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

Accepted Answer

A) a decrease in the overnight lending rate. 
B) an increase in the desire of non-residents to purchase Canadian financial assets. 
C) an increase in the desire of non-residents to purchase more Canadian goods and services. 
D) a reduction in Canada's core inflation rate. 
E) a recession in Canada. 
A) a decrease in the overnight lending rate. 
B) an increase in the desire of non-residents to purchase Canadian financial assets. 
C) an increase in the desire of non-residents to purchase more Canadian goods and services. 
D) a reduction in Canada's core inflation rate. 
E) a recession in Canada.

Question 5

The Bank of Canada conducts its open-market operations directly in response to

Accepted Answer

A) changes in aggregate demand. 
B) orders from Parliament. 
C) its announced changes in the money supply. 
D) changes in the price level. 
E) the changing demand for cash reserves from the commercial banks. 
A) changes in aggregate demand. 
B) orders from Parliament. 
C) its announced changes in the money supply. 
D) changes in the price level. 
E) the changing demand for cash reserves from the commercial banks.

Question 6

Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy,just like the automatic fiscal stabilizers.Choose the most appropriate response to this statement.The statement is

Accepted Answer

A) true,because an inflationary gap is met with a contractionary monetary policy. 
B) true,because a recessionary gap is met with an expansionary monetary policy. 
C) not true,because inflation targeting requires active policy decisions by the Bank of Canada,whereas automatic fiscal stabilizers need no policy implementation. 
D) not true,because inflation targeting automatically maintains inflation within the target range,whereas fiscal stabilizers require government policy decisions. 
E) true,because inflation targeting and fiscal stabilizers are essentially the same policy tool. 
A) true,because an inflationary gap is met with a contractionary monetary policy. 
B) true,because a recessionary gap is met with an expansionary monetary policy. 
C) not true,because inflation targeting requires active policy decisions by the Bank of Canada,whereas automatic fiscal stabilizers need no policy implementation. 
D) not true,because inflation targeting automatically maintains inflation within the target range,whereas fiscal stabilizers require government policy decisions. 
E) true,because inflation targeting and fiscal stabilizers are essentially the same policy tool.

Question 7

Suppose we have inflation that is fully anticipated by workers,firms,and consumers.In this case,the inflation

Accepted Answer

A) leads to reductions in real incomes for all workers. 
B) is hard to predict. 
C) improves the efficiency of the price system. 
D) does not impact the purchasing power of individuals whose incomes are fully indexed to inflation. 
E) has no real or nominal effects in the economy. 
A) leads to reductions in real incomes for all workers. 
B) is hard to predict. 
C) improves the efficiency of the price system. 
D) does not impact the purchasing power of individuals whose incomes are fully indexed to inflation. 
E) has no real or nominal effects in the economy.

Question 8

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By early 2009,the Canadian economy was in a recession with Y < Y*.What economic policies were implemented to close the output gap?

Accepted Answer

A) expansionary monetary policy 
B) expansionary fiscal policy 
C) contractionary monetary policy and contractionary fiscal policy 
D) contractionary monetary policy and expansionary fiscal policy 
E) expansionary monetary policy and expansionary fiscal policy 
A) expansionary monetary policy 
B) expansionary fiscal policy 
C) contractionary monetary policy and contractionary fiscal policy 
D) contractionary monetary policy and expansionary fiscal policy 
E) expansionary monetary policy and expansionary fiscal policy

Question 9

If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them,this would result in

Accepted Answer

A) higher inflation in the long run. 
B) longer time lags in monetary policy. 
C) permanently higher unemployment. 
D) permanently higher exchange rates for the Canadian dollar. 
E) temporary reductions in the interest rate. 
A) higher inflation in the long run. 
B) longer time lags in monetary policy. 
C) permanently higher unemployment. 
D) permanently higher exchange rates for the Canadian dollar. 
E) temporary reductions in the interest rate.

Question 10

An expansionary monetary policy would ________ and would eventually increase the money supply.

Accepted Answer

A) reduce short-term interest rates 
B) involve selling foreign-currency reserves in the foreign-exchange market 
C) involve selling government bonds on the open market 
D) increase short-term interest rates 
E) involve increasing the target for the overnight interest rate 
A) reduce short-term interest rates 
B) involve selling foreign-currency reserves in the foreign-exchange market 
C) involve selling government bonds on the open market 
D) increase short-term interest rates 
E) involve increasing the target for the overnight interest rate

Question 11

The Bank of Canada establishes a rate at which they will lend to commercial banks and a rate at which they will borrow from commercial banks.By doing so,

Accepted Answer

A) the Bank of Canada can ensure that the actual overnight interest rate will never fall below 2%. 
B) the Bank of Canada can ensure that the commercial banks will not be earning excess profits. 
C) the Bank of Canada can ensure that money demand remains at the level necessary for monetary equilibrium. 
D) the Bank of Canada establishes a spread,into which all interest rates in the economy fall. 
E) the Bank of Canada can ensure that the actual overnight interest rate will fall between these two interest rates. 
A) the Bank of Canada can ensure that the actual overnight interest rate will never fall below 2%. 
B) the Bank of Canada can ensure that the commercial banks will not be earning excess profits. 
C) the Bank of Canada can ensure that money demand remains at the level necessary for monetary equilibrium. 
D) the Bank of Canada establishes a spread,into which all interest rates in the economy fall. 
E) the Bank of Canada can ensure that the actual overnight interest rate will fall between these two interest rates.

Question 12

If we observe a small increase in the actual overnight interest rate over a several-day period,we can definitely 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 13

If we observe a small decrease in the actual overnight interest rate over a several-day period,we can definitely 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 14

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar on the foreign-exchange market then requires the Bank of Canada to

Accepted Answer

A) engage in expansionary monetary policy to counter the rise in the dollar. 
B) engage in contractionary monetary policy to counter the rise in the dollar. 
C) identify the cause of the change in the exchange rate before taking any action to adjust policy. 
D) increase the target band for the inflation rate. 
E) increase the target band for the overnight lending rate. 
A) engage in expansionary monetary policy to counter the rise in the dollar. 
B) engage in contractionary monetary policy to counter the rise in the dollar. 
C) identify the cause of the change in the exchange rate before taking any action to adjust policy. 
D) increase the target band for the inflation rate. 
E) increase the target band for the overnight lending rate.

Question 15

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in an expansionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

Accepted Answer

A) a decrease in the overnight lending rate. 
B) an increase in the desire of non-residents to purchase Canadian financial assets. 
C) an increase in the desire of non-residents to purchase more Canadian goods and services. 
D) a reduction in Canada's core inflation rate. 
E) a recession in Canada. 
A) a decrease in the overnight lending rate. 
B) an increase in the desire of non-residents to purchase Canadian financial assets. 
C) an increase in the desire of non-residents to purchase more Canadian goods and services. 
D) a reduction in Canada's core inflation rate. 
E) a recession in Canada.

Question 16

When the Bank of Canada reduces the interest rate we call this an expansionary monetary policy.Why?

Accepted Answer

A) The lower interest rate leads to an increase in the level of national saving. 
B) The lower interest rate causes an expansion of money demand. 
C) The lower interest rate leads to a rightward shift of the aggregate demand curve. 
D) The lower interest rate causes the money demand curve to shift to the right. 
E) The lower interest rate causes the money supply curve to shift to the left. 
A) The lower interest rate leads to an increase in the level of national saving. 
B) The lower interest rate causes an expansion of money demand. 
C) The lower interest rate leads to a rightward shift of the aggregate demand curve. 
D) The lower interest rate causes the money demand curve to shift to the right. 
E) The lower interest rate causes the money supply curve to shift to the left.

The best description of the cause-and-effect chain of a contractionary monetary policy in the short run is that it will

How does the Bank of Canada set in motion the monetary transmission mechanism?

Suppose the Bank of Canada chooses to expand the M2 measure of money supply by exactly $10 million.The Bank could implement this expansion by

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in a contractionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

The Bank of Canada conducts its open-market operations directly in response to

Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy,just like the automatic fiscal stabilizers.Choose the most appropriate response to this statement.The statement is

Suppose we have inflation that is fully anticipated by workers,firms,and consumers.In this case,the inflation

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By early 2009,the Canadian economy was in a recession with Y < Y*.What economic policies were implemented to close the output gap?

If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them,this would result in

An expansionary monetary policy would ________ and would eventually increase the money supply.

The Bank of Canada establishes a rate at which they will lend to commercial banks and a rate at which they will borrow from commercial banks.By doing so,

If we observe a small increase in the actual overnight interest rate over a several-day period,we can definitely conclude that the

If we observe a small decrease in the actual overnight interest rate over a several-day period,we can definitely conclude that the

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar on the foreign-exchange market then requires the Bank of Canada to

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in an expansionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

When the Bank of Canada reduces the interest rate we call this an expansionary monetary policy.Why?

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

The best description of the cause-and-effect chain of a contractionary monetary policy in the short run is that it will

How does the Bank of Canada set in motion the monetary transmission mechanism?

Suppose the Bank of Canada chooses to expand the M2 measure of money supply by exactly $10 million.The Bank could implement this expansion by

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in a contractionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

The Bank of Canada conducts its open-market operations directly in response to

Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy,just like the automatic fiscal stabilizers.Choose the most appropriate response to this statement.The statement is

Suppose we have inflation that is fully anticipated by workers,firms,and consumers.In this case,the inflation

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By early 2009,the Canadian economy was in a recession with Y < Y*.What economic policies were implemented to close the output gap?

If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them,this would result in

An expansionary monetary policy would ________ and would eventually increase the money supply.

The Bank of Canada establishes a rate at which they will lend to commercial banks and a rate at which they will borrow from commercial banks.By doing so,

If we observe a small increase in the actual overnight interest rate over a several-day period,we can definitely conclude that the

If we observe a small decrease in the actual overnight interest rate over a several-day period,we can definitely conclude that the

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar on the foreign-exchange market then requires the Bank of Canada to

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in an expansionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

When the Bank of Canada reduces the interest rate we call this an expansionary monetary policy.Why?

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