Question 1

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

Accepted Answer

A) a restrictive monetary policy 
B) an expansionary monetary policy 
C) a contractionary fiscal policy 
D) an expansionary fiscal policy 
A) a restrictive monetary policy 
B) an expansionary monetary policy 
C) a contractionary fiscal policy 
D) an expansionary fiscal policy

Question 2

When the Bank of Canada wants to see an increase in the interest rates, it:

Accepted Answer

A) sells government securities by entering into SRA (a sale and repurchase agreement). 
B) buys government securities by entering into SRA (a sale and repurchase agreement). 
C) sells government securities by entering into SPRA (special purchase and resale agreement). 
D) buys government securities by entering into SPRA (special purchase and resale agreement). 
A) sells government securities by entering into SRA (a sale and repurchase agreement). 
B) buys government securities by entering into SRA (a sale and repurchase agreement). 
C) sells government securities by entering into SPRA (special purchase and resale agreement). 
D) buys government securities by entering into SPRA (special purchase and resale agreement).

Question 3

When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

Accepted Answer

A) True 
 B)False

Question 4

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal, the use of appropriate monetary policy to reduce inflation would:

Accepted Answer

A) cause the dollar to depreciate in value. 
B) have no impact on our trade deficit. 
C) decrease our trade deficit. 
D) increase our trade deficit. 
A) cause the dollar to depreciate in value. 
B) have no impact on our trade deficit. 
C) decrease our trade deficit. 
D) increase our trade deficit.

Question 5

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

Accepted Answer

A) the money supply as the policy target. 
B) overnight lending rate as the policy target. 
C) net exports as the policy target. 
D) the prime interest rate as a policy target. 
A) the money supply as the policy target. 
B) overnight lending rate as the policy target. 
C) net exports as the policy target. 
D) the prime interest rate as a policy target.

Question 6

In 2018, the Bank of Canada set an annual inflation target range of:

Accepted Answer

A) 1 percent to 3 percent. 
B) 2 percent to 4 percent. 
C) 3 percent to 4 percent. 
D) 2 percent to 3 percent. 
A) 1 percent to 3 percent. 
B) 2 percent to 4 percent. 
C) 3 percent to 4 percent. 
D) 2 percent to 3 percent.

Question 7

There is an asset demand for money because households and business firms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the demand for money and the supply of money increase simultaneously.We can:

Accepted Answer

A) expect the interest rate to rise and bond prices to fall. 
B) expect the interest rate to fall and bond prices to rise. 
C) the nominal GDP to expand. 
D) not predict what will happen to interest rates or bond prices. 
A) expect the interest rate to rise and bond prices to fall. 
B) expect the interest rate to fall and bond prices to rise. 
C) the nominal GDP to expand. 
D) not predict what will happen to interest rates or bond prices.

Question 9

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Accepted Answer

A) not affected. 
B) decreased by a multiple of the amount of the purchase. 
C) decreased by the amount of the purchase. 
D) increased initially by the amount of the purchase. 
A) not affected. 
B) decreased by a multiple of the amount of the purchase. 
C) decreased by the amount of the purchase. 
D) increased initially by the amount of the purchase.

Question 10

Assume that there is a 25 percent desired reserve ratio and that Bank of Canada buys $200 million worth of government securities.If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

Accepted Answer

A) $600 million, and also by $600 million if the securities are purchased directly from chartered banks. 
B) $800 million, and also by $800 million if the securities are purchased directly from chartered banks. 
C) $600 million, but by $800 million if the securities are purchased directly from chartered banks. 
D) $800 million, but only by $600 million if the securities are purchased directly from chartered banks. 
A) $600 million, and also by $600 million if the securities are purchased directly from chartered banks. 
B) $800 million, and also by $800 million if the securities are purchased directly from chartered banks. 
C) $600 million, but by $800 million if the securities are purchased directly from chartered banks. 
D) $800 million, but only by $600 million if the securities are purchased directly from chartered banks.

Question 11

The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy.Which action by the Bank of Canada would be most consistent with this policy?

Accepted Answer

A) buying government securities 
B) selling government securities 
C) raising the desired reserve ratio 
D) raising the bank rate 
A) buying government securities 
B) selling government securities 
C) raising the desired reserve ratio 
D) raising the bank rate

Question 12

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

Accepted Answer

A) fall, causing households and businesses to hold less money. 
B) rise, causing households and businesses to hold less money. 
C) rise, causing households and businesses to hold more money. 
D) fall, causing households and businesses to hold more money. 
A) fall, causing households and businesses to hold less money. 
B) rise, causing households and businesses to hold less money. 
C) rise, causing households and businesses to hold more money. 
D) fall, causing households and businesses to hold more money.

Question 13

The effect of quantitative easing is to:

Accepted Answer

A) lowering bond prices and thus reduce interest rates. 
B) raising bond prices and thus increase interest rates. 
C) raising bond prices and thus reduce interest rates. 
D) lowering bond prices and thus increase interest rates. 
A) lowering bond prices and thus reduce interest rates. 
B) raising bond prices and thus increase interest rates. 
C) raising bond prices and thus reduce interest rates. 
D) lowering bond prices and thus increase interest rates.

Question 14

Refer to the market for money diagram below.The downward slope of the money demand curve Dm can best be explained in terms of the:

Accepted Answer

A) transactions demand for money. 
B) direct or positive relationship between bond prices and interest rates. 
C) asset demand for money. 
D) wealth or real-balances effect. 
A) transactions demand for money. 
B) direct or positive relationship between bond prices and interest rates. 
C) asset demand for money. 
D) wealth or real-balances effect.

Question 15

Refer to the market for money diagram above.Curve D1 represents the:

Accepted Answer

A) speculative demand for money. 
B) transactions demand for money. 
C) asset demand for money. 
D) stock of money. 
A) speculative demand for money. 
B) transactions demand for money. 
C) asset demand for money. 
D) stock of money.

Question 16

Which of the following is not a tool of monetary policy?

Accepted Answer

A) changes in the bank rate 
B) open-market operations 
C) changes in tax rates 
D) switching government deposits into and out of the chartered banks 
A) changes in the bank rate 
B) open-market operations 
C) changes in tax rates 
D) switching government deposits into and out of the chartered banks

Question 17

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 18

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

Accepted Answer

A) True 
 B)False

Question 19

The asset demand for money is downward sloping because:

Accepted Answer

A) the opportunity cost of holding money increases as the interest rate rises. 
B) it is more attractive to hold money at high interest rates than at low interest rates. 
C) bond prices rise as interest rates rise. 
D) the opportunity cost of holding money declines as the interest rate rises. 
A) the opportunity cost of holding money increases as the interest rate rises. 
B) it is more attractive to hold money at high interest rates than at low interest rates. 
C) bond prices rise as interest rates rise. 
D) the opportunity cost of holding money declines as the interest rate rises.

Exam 15: Part B: Interest Rates and Monetary Policy

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

When the Bank of Canada wants to see an increase in the interest rates, it:

When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal, the use of appropriate monetary policy to reduce inflation would:

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

In 2018, the Bank of Canada set an annual inflation target range of:

There is an asset demand for money because households and business firms use money as a store of value.

Suppose the demand for money and the supply of money increase simultaneously.We can:

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Assume that there is a 25 percent desired reserve ratio and that Bank of Canada buys $200 million worth of government securities.If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy.Which action by the Bank of Canada would be most consistent with this policy?

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

The effect of quantitative easing is to:

Refer to the market for money diagram below.The downward slope of the money demand curve Dm can best be explained in terms of the:

Refer to the market for money diagram above.Curve D1 represents the:

Which of the following is not a tool of monetary policy?

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

The asset demand for money is downward sloping because:

Part A: Limits, Alternatives, and Choices

Part B: Limits, Alternatives, and Choices

Part A: The Market System and the Circular Flow

Part B: The Market System and the Circular Flow

Part A: Demand, Supply, and Market Equilibrium

Part B: Demand, Supply, and Market Equilibrium

Part A: Market Failures: Public Goods and Externalities

Part B: Market Failures: Public Goods and Externalities

Part A: Governments Role and Government Failure

Part B: Governments Role and Government Failure

Part A: An Introduction to Macroeconomics

Part B: An Introduction to Macroeconomics

Part A: Measuring the Economys Output

Part B: Measuring the Economys Output

Part A: Economic Growth

Part B: Economic Growth

Part A: Business Cycles, Unemployment, and Inflation

Part B: Business Cycles, Unemployment, and Inflation

Part A: Basic Macroeconomic Relationships

Part B: Basic Macroeconomic Relationships

Part A: The Aggregate Expenditures Model

Part B: The Aggregate Expenditures Model

Part A: Aggregate Demand and Aggregate Supply

Part B: Aggregate Demand and Aggregate Supply

Part A: Fiscal Policy, Deficits, Surpluses, and Debt

Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Part A: Money, Banking, and Money Creation

Part B: Money, Banking, and Money Creation

Part A: Interest Rates and Monetary Policy

Part A: Long-Run Macroeconomic Adjustments

Part B: Long-Run Macroeconomic Adjustments

Part A: International Trade

Part B: International Trade

Part C: Financial Economics

Part A: The Balance of Payments and Exchange Rates

Part B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

Refer to the market for money diagram below.The downward slope of the money demand curve D_m can best be explained in terms of the:

Refer to the market for money diagram above.Curve D₁ represents the: