Question 1

Suppose the public decides to hold more currency and fewer deposits in banks. Which statement describes the effects of this decision?

Accepted Answer

A)  Bank reserves decrease, and the money supply eventually decreases. 
B)  Bank reserves decrease, but the money supply does not change. 
C)  Bank reserves increase, and the money supply eventually increases. 
D)  Bank reserves increase, but the money supply does not change. 
A)  Bank reserves decrease, and the money supply eventually decreases. 
B)  Bank reserves decrease, but the money supply does not change. 
C)  Bank reserves increase, and the money supply eventually increases. 
D)  Bank reserves increase, but the money supply does not change.

Question 2

Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?

Accepted Answer

1. Prices rise when the govern

Question 3

The money supply of Hooba is $10,000 under a 100 percent reserve banking system. If Hooba decreases the reserve requirement to 10 percent, the money supply could increase by no more than $9000.

Accepted Answer

A) True 
 B)False

Question 4

Assume that banks do not hold excess reserves. The banking system has $20 million in reserves and has a reserve requirement of 20 percent. The public holds $10 million in currency. Then the public decides to withdraw $5 million in currency from the banking system. If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement, then what will the new reserve requirement be?

Accepted Answer

A)  16 percent 
B)  18.2 percent 
C)  20 percent 
D)  25 percent 
A)  16 percent 
B)  18.2 percent 
C)  20 percent 
D)  25 percent

Question 5

Who chairs the Board of Directors of the Bank of Canada?

Accepted Answer

A)  the governor of the Bank of Canada 
B)  the Prime Minister 
C)  the Minister of Finance 
D)  the Governor General 
A)  the governor of the Bank of Canada 
B)  the Prime Minister 
C)  the Minister of Finance 
D)  the Governor General

Question 6

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Accepted Answer

A)  The Bank of Canada buys Treasury bills, which increases the money supply. 
B)  The Bank of Canada buys Treasury bills, which decreases the money supply. 
C)  The Bank of Canada borrows from member banks, which increases the money supply. 
D)  The Bank of Canada lends money to member banks, which decreases the money supply. 
A)  The Bank of Canada buys Treasury bills, which increases the money supply. 
B)  The Bank of Canada buys Treasury bills, which decreases the money supply. 
C)  The Bank of Canada borrows from member banks, which increases the money supply. 
D)  The Bank of Canada lends money to member banks, which decreases the money supply.

Question 7

Fallout from which event led to the creation of the Bank of Canada?

Accepted Answer

A)  World War I 
B)  the Great Depression 
C)  the 1970s oil crisis 
D)  September 11, 2001 
A)  World War I 
B)  the Great Depression 
C)  the 1970s oil crisis 
D)  September 11, 2001

Question 8

Which of the following is included in M2 but not in M1+?

Accepted Answer

A)  demand deposits 
B)  corporate bonds 
C)  currency 
D)  term deposits 
A)  demand deposits 
B)  corporate bonds 
C)  currency 
D)  term deposits

Question 9

A central bank raised the reserve requirement ratio from 5 percent to 8 percent. Other things the same, how does the money multiplier change?

Accepted Answer

A)  It increases by 3. 
B)  It decreases by 3. 
C)  It increases by 7.5 
D)  It decreases by 7.5 
A)  It increases by 3. 
B)  It decreases by 3. 
C)  It increases by 7.5 
D)  It decreases by 7.5

Question 10

Suppose the reserve ratio is 20 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $50 million of bonds to the public. Which statement best describes the effects of this open-market operation?

Accepted Answer

A)  Bank reserves increase by $50 million, and the money supply eventually increases by $250 million. 
B)  Bank reserves increase by $50 million, and the money supply eventually increases by $300 million. 
C)  Bank reserves decrease by $50 million, and the money supply eventually decreases by $250 million. 
D)  Bank reserves decrease by $50 million, and the money supply eventually decreases by $300 million. 
A)  Bank reserves increase by $50 million, and the money supply eventually increases by $250 million. 
B)  Bank reserves increase by $50 million, and the money supply eventually increases by $300 million. 
C)  Bank reserves decrease by $50 million, and the money supply eventually decreases by $250 million. 
D)  Bank reserves decrease by $50 million, and the money supply eventually decreases by $300 million.

Question 11

Explain how each of the following actions changes the money supply.
a. The Bank of Canada buys bonds.
b. The Bank of Canada raises the bank rate.
c. The Bank of Canada raises the reserve requirement.

Accepted Answer

a. If the Bank of Canada buys bonds, it

Question 12

What do the Bank of Canada's policy decisions have an important influence on?

Accepted Answer

A)  both the rate of inflation and the level of employment in the short run 
B)  the rate of inflation in the long run and the level of employment in the short run 
C)  the rate of inflation in the short run and the level of employment in the long run 
D)  both the rate of inflation and the level of employment in both the short run and the long run 
A)  both the rate of inflation and the level of employment in the short run 
B)  the rate of inflation in the long run and the level of employment in the short run 
C)  the rate of inflation in the short run and the level of employment in the long run 
D)  both the rate of inflation and the level of employment in both the short run and the long run

Question 13

Denote a bank's assets by A, the bank's debt (deposits plus debt issued by the bank) by D, and the bank's capital by C. Starting from the identity A = C + D and using the definition of leverage ratio L = A/C, show that the percentage change in capital is equal to the leverage ratio times the percentage change in assets.

Accepted Answer

Let us denote an absolute (not percentag

Question 14

If the central bank lowered the reserve requirement, what happens to the money multiplier and the money supply?

Accepted Answer

A)  The money multiplier increases, but the money supply decreases. 
B)  The money multiplier decreases, but the money supply increases. 
C)  The money multiplier and the money supply both increase. 
D)  The money multiplier and the money supply both decrease. 
A)  The money multiplier increases, but the money supply decreases. 
B)  The money multiplier decreases, but the money supply increases. 
C)  The money multiplier and the money supply both increase. 
D)  The money multiplier and the money supply both decrease.

Question 15

When was the Bank of Canada Act first enacted?

Accepted Answer

A)  1867 
B)  1934 
C)  1945 
D)  1991 
A)  1867 
B)  1934 
C)  1945 
D)  1991

Question 16

How may the Bank of Canada influence the price level?

Accepted Answer

A)  by conducting open-market sales and raising the bank rate 
B)  by conducting open-market sales and lowering the bank rate 
C)  by conducting open-market purchases and raising the bank rate 
D)  by conducting open-market purchases and lowering the bank rate 
A)  by conducting open-market sales and raising the bank rate 
B)  by conducting open-market sales and lowering the bank rate 
C)  by conducting open-market purchases and raising the bank rate 
D)  by conducting open-market purchases and lowering the bank rate

Question 17

Which statement best characterizes credit cards?

Accepted Answer

A)  They are a payment form of money. 
B)  They are part of the M1+ money supply. 
C)  They are a method of deferring payment. 
D)  They are a unit of account. 
A)  They are a payment form of money. 
B)  They are part of the M1+ money supply. 
C)  They are a method of deferring payment. 
D)  They are a unit of account.

Question 18

What is the function of debit cards?

Accepted Answer

A)  They defer payments. 
B)  They are equivalent to credit cards. 
C)  They are included in M2. 
D)  They are used as a method of payment. 
A)  They defer payments. 
B)  They are equivalent to credit cards. 
C)  They are included in M2. 
D)  They are used as a method of payment.

Question 19

What happened during the Great Depression in the early 1930s?

Accepted Answer

A)  the Great Depression was as bad in Canada as it was in the United States. 
B)  more banks in Canada closed than in the United States 
C)  the money supply rose sharply. 
D)  the value of Canadian exports increased considerably. 
A)  the Great Depression was as bad in Canada as it was in the United States. 
B)  more banks in Canada closed than in the United States 
C)  the money supply rose sharply. 
D)  the value of Canadian exports increased considerably.

Question 20

During wars, the public tends to hold relatively more currency and relatively fewer deposits. Which statement best describes the effects of this increase in currency holdings?

Accepted Answer

A)  Reserves would decrease, and the money supply would increase. 
B)  Reserves and the money supply would decrease. 
C)  Reserves would increase, but the money supply would be unchanged. 
D)  Reserves would decrease, but the money supply would be unchanged. 
A)  Reserves would decrease, and the money supply would increase. 
B)  Reserves and the money supply would decrease. 
C)  Reserves would increase, but the money supply would be unchanged. 
D)  Reserves would decrease, but the money supply would be unchanged.

Suppose the public decides to hold more currency and fewer deposits in banks. Which statement describes the effects of this decision?

Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?

The money supply of Hooba is $10,000 under a 100 percent reserve banking system. If Hooba decreases the reserve requirement to 10 percent, the money supply could increase by no more than $9000.

Who chairs the Board of Directors of the Bank of Canada?

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Fallout from which event led to the creation of the Bank of Canada?

Which of the following is included in M2 but not in M1+?

A central bank raised the reserve requirement ratio from 5 percent to 8 percent. Other things the same, how does the money multiplier change?

Suppose the reserve ratio is 20 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $50 million of bonds to the public. Which statement best describes the effects of this open-market operation?

Explain how each of the following actions changes the money supply. a. The Bank of Canada buys bonds. b. The Bank of Canada raises the bank rate. c. The Bank of Canada raises the reserve requirement.

What do the Bank of Canada's policy decisions have an important influence on?

If the central bank lowered the reserve requirement, what happens to the money multiplier and the money supply?

When was the Bank of Canada Act first enacted?

How may the Bank of Canada influence the price level?

Which statement best characterizes credit cards?

What is the function of debit cards?

What happened during the Great Depression in the early 1930s?

During wars, the public tends to hold relatively more currency and relatively fewer deposits. Which statement best describes the effects of this increase in currency holdings?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 10: The Monetary System

Suppose the public decides to hold more currency and fewer deposits in banks. Which statement describes the effects of this decision?

Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?

The money supply of Hooba is $10,000 under a 100 percent reserve banking system. If Hooba decreases the reserve requirement to 10 percent, the money supply could increase by no more than $9000.

Who chairs the Board of Directors of the Bank of Canada?

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Fallout from which event led to the creation of the Bank of Canada?

Which of the following is included in M2 but not in M1+?

A central bank raised the reserve requirement ratio from 5 percent to 8 percent. Other things the same, how does the money multiplier change?

Suppose the reserve ratio is 20 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $50 million of bonds to the public. Which statement best describes the effects of this open-market operation?

Explain how each of the following actions changes the money supply. a. The Bank of Canada buys bonds. b. The Bank of Canada raises the bank rate. c. The Bank of Canada raises the reserve requirement.

What do the Bank of Canada's policy decisions have an important influence on?

If the central bank lowered the reserve requirement, what happens to the money multiplier and the money supply?

When was the Bank of Canada Act first enacted?

How may the Bank of Canada influence the price level?

Which statement best characterizes credit cards?

What is the function of debit cards?

What happened during the Great Depression in the early 1930s?

During wars, the public tends to hold relatively more currency and relatively fewer deposits. Which statement best describes the effects of this increase in currency holdings?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters