Question 1

The amount of real money people want to hold will decrease if either _______ or the interest rate _______.

Accepted Answer

A) the price of bonds increase; rises 
B) real GDP decreases; rises 
C) real GDP increases; falls 
D) the price level increases; rises 
E) the price level decreases; falls 
A) the price of bonds increase; rises 
B) real GDP decreases; rises 
C) real GDP increases; falls 
D) the price level increases; rises 
E) the price level decreases; falls

Question 2

Bank of Canada notes are

Accepted Answer

A) an asset of the chartered banks. 
B) part of M1 when they are held in a bank's vault. 
C) a liability of the Bank of Canada. 
D) a liability of the chartered banks. 
E) an asset of the Bank of Canada. 
A) an asset of the chartered banks. 
B) part of M1 when they are held in a bank's vault. 
C) a liability of the Bank of Canada. 
D) a liability of the chartered banks. 
E) an asset of the Bank of Canada.

Question 3

In Canada

Accepted Answer

A) the money multiplier increases when the desired reserve ratio increases. 
B) the M1 multiplier decreases over time. 
C) the money multiplier increases when the currency drain ratio increases. 
D) the M1 multiplier is less than the M2 multiplier. 
E) the M2 multiplier decreases over time. 
A) the money multiplier increases when the desired reserve ratio increases. 
B) the M1 multiplier decreases over time. 
C) the money multiplier increases when the currency drain ratio increases. 
D) the M1 multiplier is less than the M2 multiplier. 
E) the M2 multiplier decreases over time.

Question 4

Use the table below to answer the following questions.
Table 8.5.1  
-Refer to Table 8.5.1.The spreadsheet provides information about the demand for money in Minland. Column A is the nominal interest rate, r.Columns B and C show the quantity of money demanded at two differe levels of real GDP: Y0 is $10 billion and Y1 is $20 billion.
The quantity of money is $3 billion.Real GDP is $20 billion.If the interest rate is less than 4 percent a year,

Accepted Answer

A) people sell bonds, the price of a bond falls, and the interest rate falls. 
B) people buy bonds, the price of a bond rises, and the interest rate falls. 
C) people buy bonds, the price of a bond rises, and the interest rate rises. 
D) people sell bonds, the price of a bond falls, and the interest rate rises. 
E) the demand for money increases. 
A) people sell bonds, the price of a bond falls, and the interest rate falls. 
B) people buy bonds, the price of a bond rises, and the interest rate falls. 
C) people buy bonds, the price of a bond rises, and the interest rate rises. 
D) people sell bonds, the price of a bond falls, and the interest rate rises. 
E) the demand for money increases.

Question 5

According to the quantity theory of money, an increase in the quantity of money will increase the price level,

Accepted Answer

A) increase real GDP, but decrease the velocity of circulation. 
B) decrease real GDP, and increase the velocity of circulation. 
C) but have no effect on real GDP or the velocity of circulation. 
D) have no effect on real GDP, and will decrease the velocity of circulation. 
E) increase real GDP, and increase the velocity of circulation. 
A) increase real GDP, but decrease the velocity of circulation. 
B) decrease real GDP, and increase the velocity of circulation. 
C) but have no effect on real GDP or the velocity of circulation. 
D) have no effect on real GDP, and will decrease the velocity of circulation. 
E) increase real GDP, and increase the velocity of circulation.

Question 6

The largest component of M1 is

Accepted Answer

A) personal chequable deposits. 
B) currency outside banks. 
C) fixed term deposits. 
D) non- personal chequable deposits. 
E) non- personal non- chequable deposits. 
A) personal chequable deposits. 
B) currency outside banks. 
C) fixed term deposits. 
D) non- personal chequable deposits. 
E) non- personal non- chequable deposits.

Question 7

Money is

Accepted Answer

A) any commodity or token that is generally acceptable as a means of payment. 
B) the same as gold. 
C) equivalent to barter. 
D) any commodity that can act as a store of value. 
E) currency plus credit cards plus debit cards. 
A) any commodity or token that is generally acceptable as a means of payment. 
B) the same as gold. 
C) equivalent to barter. 
D) any commodity that can act as a store of value. 
E) currency plus credit cards plus debit cards.

Question 8

Use the table below to answer the following questions.
Table 8.5.1  
-Refer to Table 8.5.1.The spreadsheet provides information about the demand for money in Minland. Column A is the nominal interest rate, r.Columns B and C show the quantity of money demanded at two differe levels of real GDP: Y0 is $10 billion and Y1 is $20 billion.
The quantity of money is $3 billion.Real GDP is $20 billion.If the interest rate is greater than 4 percent a year,

Accepted Answer

A) people sell bonds, the price of a bond falls, and the interest rate rises. 
B) people buy bonds, the price of a bond rises, and the interest rate falls. 
C) people buy bonds, the price of a bond rises, and the interest rate rises. 
D) people sell bonds, the price of a bond falls, and the interest rate falls. 
E) the demand for money decreases. 
A) people sell bonds, the price of a bond falls, and the interest rate rises. 
B) people buy bonds, the price of a bond rises, and the interest rate falls. 
C) people buy bonds, the price of a bond rises, and the interest rate rises. 
D) people sell bonds, the price of a bond falls, and the interest rate falls. 
E) the demand for money decreases.

Question 9

Using a credit card can best be likened to

Accepted Answer

A) withdrawing money from a savings account. 
B) using any other form of money, because you can immediately take the goods you purchase home. 
C) writing a cheque on your chequable deposit. 
D) taking out a loan. 
E) a barter exchange. 
A) withdrawing money from a savings account. 
B) using any other form of money, because you can immediately take the goods you purchase home. 
C) writing a cheque on your chequable deposit. 
D) taking out a loan. 
E) a barter exchange.

Question 10

Which one of the following is considered to be money?

Accepted Answer

A) a Van Gogh painting 
B) a cheque 
C) a credit card 
D) currency 
E) a debit card 
A) a Van Gogh painting 
B) a cheque 
C) a credit card 
D) currency 
E) a debit card

Question 11

The velocity of circulation is

Accepted Answer

A) the average number of times a dollar of money is used annually to buy the goods and services that make up GDP. 
B) constantly increasing over time. 
C) equal to zero in the long run. 
D) the average number of times that a dollar of money is used annually to buy the goods and services that make up consumption expenditure. 
E) calculated as Y ÷ M. 
A) the average number of times a dollar of money is used annually to buy the goods and services that make up GDP. 
B) constantly increasing over time. 
C) equal to zero in the long run. 
D) the average number of times that a dollar of money is used annually to buy the goods and services that make up consumption expenditure. 
E) calculated as Y ÷ M.

Question 12

Which one of the following items is not included in the M1 definition of money?

Accepted Answer

A) currency outside banks. 
B) personal chequable deposits 
C) non- personal chequable deposits 
D) fixed term deposits 
E) Neither C nor D are part of M1. 
A) currency outside banks. 
B) personal chequable deposits 
C) non- personal chequable deposits 
D) fixed term deposits 
E) Neither C nor D are part of M1.

Question 13

Money can take the form of any one of the following except

Accepted Answer

A) coins. 
B) a non- chequable deposit. 
C) Bank of Canada notes. 
D) a credit card. 
E) a chequable deposit. 
A) coins. 
B) a non- chequable deposit. 
C) Bank of Canada notes. 
D) a credit card. 
E) a chequable deposit.

Question 14

Pooling risk

Accepted Answer

A) refers to the lower cost of obtaining funds from a depository institution. 
B) is now illegal under the Nuisance Act of 2014. 
C) occurs when one person lends to an entire group or pool of borrowers. 
D) refers to a default contract made by a bank to other banks. 
E) refers to spreading the risk of loan default among all the depositors within the depository institution. 
A) refers to the lower cost of obtaining funds from a depository institution. 
B) is now illegal under the Nuisance Act of 2014. 
C) occurs when one person lends to an entire group or pool of borrowers. 
D) refers to a default contract made by a bank to other banks. 
E) refers to spreading the risk of loan default among all the depositors within the depository institution.

Question 15

In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent of deposits.What is the monetary base?

Accepted Answer

A) $39.50 billion 
B) $12.00 billion 
C) $46.24 billion 
D) $395.12 billion 
E) $49.50 billion 
A) $39.50 billion 
B) $12.00 billion 
C) $46.24 billion 
D) $395.12 billion 
E) $49.50 billion

Question 16

The money creation process begins when

Accepted Answer

A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) banks lend reserves. 
E) bank deposits increase. 
A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) banks lend reserves. 
E) bank deposits increase.

Question 17

_______ is the interest rate that the Bank of Canada charges on short- term loans that it makes to major depository institutions when the banking system is temporarily short of reserves.

Accepted Answer

A) The Treasury bill rate 
B) Bank rate 
C) The overnight loans rate 
D) Prime 
E) The federal funds rate 
A) The Treasury bill rate 
B) Bank rate 
C) The overnight loans rate 
D) Prime 
E) The federal funds rate

Question 18

Choose the statement that is incorrect.

Accepted Answer

A) A chartered bank is a private firm, chartered under the Bank Act of 1991 to receive deposits and make loans. 
B) A caisse populaire is similar to a credit union. 
C) Trust and mortgage loan companies receive deposits, make loans, and act as trustee for pension funds and for estates. 
D) A credit union is a cooperative organization that operates under the Co- operative Credit Association Act of 1991. 
E) Trust and mortgage loan companies have the bulk of the deposits in M1 and M2. 
A) A chartered bank is a private firm, chartered under the Bank Act of 1991 to receive deposits and make loans. 
B) A caisse populaire is similar to a credit union. 
C) Trust and mortgage loan companies receive deposits, make loans, and act as trustee for pension funds and for estates. 
D) A credit union is a cooperative organization that operates under the Co- operative Credit Association Act of 1991. 
E) Trust and mortgage loan companies have the bulk of the deposits in M1 and M2.

Question 19

The Bank of Canada is the lender of last resort.This means banks may borrow money from the Bank of Canada

Accepted Answer

A) overnight. 
B) whenever they are short of reserves. 
C) to finance a sudden and dramatic increase in overseas reserves. 
D) if they have sufficient securities to support the loan. 
E) if the banking system as a whole is short of reserves. 
A) overnight. 
B) whenever they are short of reserves. 
C) to finance a sudden and dramatic increase in overseas reserves. 
D) if they have sufficient securities to support the loan. 
E) if the banking system as a whole is short of reserves.

Question 20

Use the figure below to answer the following questions.
   Figure 8.5.1
-Refer to Figure 8.5.1.Everything else remaining the same, which graph best shows the effect of an increase in real GDP?

Accepted Answer

A) a 
B) b 
C) c 
D) d 
E) a and c 
A) a 
B) b 
C) c 
D) d 
E) a and c

The amount of real money people want to hold will decrease if either _ or the interest rate _.

Bank of Canada notes are

In Canada

According to the quantity theory of money, an increase in the quantity of money will increase the price level,

The largest component of M1 is

Money is

Using a credit card can best be likened to

Which one of the following is considered to be money?

The velocity of circulation is

Which one of the following items is not included in the M1 definition of money?

Money can take the form of any one of the following except

Pooling risk

In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent of deposits.What is the monetary base?

The money creation process begins when

_______ is the interest rate that the Bank of Canada charges on short- term loans that it makes to major depository institutions when the banking system is temporarily short of reserves.

Choose the statement that is incorrect.

The Bank of Canada is the lender of last resort.This means banks may borrow money from the Bank of Canada

Use the figure below to answer the following questions. Figure 8.5.1 -Refer to Figure 8.5.1.Everything else remaining the same, which graph best shows the effect of an increase in real GDP?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 8: Money, the Price Level, and Inflation

The amount of real money people want to hold will decrease if either _______ or the interest rate _______.

Bank of Canada notes are

In Canada

According to the quantity theory of money, an increase in the quantity of money will increase the price level,

The largest component of M1 is

Money is

Using a credit card can best be likened to

Which one of the following is considered to be money?

The velocity of circulation is

Which one of the following items is not included in the M1 definition of money?

Money can take the form of any one of the following except

Pooling risk

In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent of deposits.What is the monetary base?

The money creation process begins when

_______ is the interest rate that the Bank of Canada charges on short- term loans that it makes to major depository institutions when the banking system is temporarily short of reserves.

Choose the statement that is incorrect.

The Bank of Canada is the lender of last resort.This means banks may borrow money from the Bank of Canada

Use the figure below to answer the following questions. Figure 8.5.1 -Refer to Figure 8.5.1.Everything else remaining the same, which graph best shows the effect of an increase in real GDP?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

The amount of real money people want to hold will decrease if either _ or the interest rate _.