Question 1

Which is considered a strength of monetary policy compared to fiscal policy?

Accepted Answer

A) the ability to increase the velocity of money 
B) the ability to decrease the velocity of money 
C) its cyclical asymmetry. 
D) its protection from political pressure. 
A) the ability to increase the velocity of money 
B) the ability to decrease the velocity of money 
C) its cyclical asymmetry. 
D) its protection from political pressure.

Question 2

In the Canadian economy, the money supply is controlled by:

Accepted Answer

A) Parliament. 
B) the House of Commons Committee on Finance. 
C) the Department of Finance the Bank of Canada. 
D) the Bank of Canada. 
A) Parliament. 
B) the House of Commons Committee on Finance. 
C) the Department of Finance the Bank of Canada. 
D) the Bank of Canada.

Question 3

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

Accepted Answer

A) contracts and chartered bank reserves increase. 
B) expands and chartered bank reserves decrease. 
C) contracts and chartered bank reserves decrease. 
D) expands and chartered bank reserves increase. 
A) contracts and chartered bank reserves increase. 
B) expands and chartered bank reserves decrease. 
C) contracts and chartered bank reserves decrease. 
D) expands and chartered bank reserves increase.

Question 4

When the market for money is in equilibrium:

Accepted Answer

A) the quantity of money demanded equals the quantity of money supplied. 
B) the interest rate is neither increasing nor decreasing. 
C) bond prices are stable. 
D) all of the above hold true. 
A) the quantity of money demanded equals the quantity of money supplied. 
B) the interest rate is neither increasing nor decreasing. 
C) bond prices are stable. 
D) all of the above hold true.

Question 5

Open-market operations change:

Accepted Answer

A) the size of the monetary multiplier, but not chartered bank reserves. 
B) chartered bank reserves, but not the size of the monetary multiplier. 
C) neither chartered bank reserves nor the size of the monetary multiplier. 
D) both chartered bank reserves and the size of the monetary multiplier. 
A) the size of the monetary multiplier, but not chartered bank reserves. 
B) chartered bank reserves, but not the size of the monetary multiplier. 
C) neither chartered bank reserves nor the size of the monetary multiplier. 
D) both chartered bank reserves and the size of the monetary multiplier.

Question 6

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 7

The transactions demand for money curve is assumed to be:

Accepted Answer

A) vertical. 
B) horizontal. 
C) downward sloping. 
D) upward sloping. 
A) vertical. 
B) horizontal. 
C) downward sloping. 
D) upward sloping.

Question 8

In the autumn of 2010, the Bank of Canada began to:

Accepted Answer

A) increase interest rates, yet rates stayed at historic lows throughout 2012. 
B) decrease interest rates even further to the point that they were at their lowest by 2012. 
C) increase interest rates, but then decreased them again in 2012. 
D) decrease interest rates, but then started increasing them again in 2012. 
A) increase interest rates, yet rates stayed at historic lows throughout 2012. 
B) decrease interest rates even further to the point that they were at their lowest by 2012. 
C) increase interest rates, but then decreased them again in 2012. 
D) decrease interest rates, but then started increasing them again in 2012.

Question 9

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM   BALANCE SHEET: BANK OF CANADA
  Refer to the above information.The maximum money-creating potential of the chartered banking system is:

Accepted Answer

A) $5 
B) $19 
C) $20 
D) $0 
A) $5 
B) $19 
C) $20 
D) $0

Question 10

An increase in the money supply will tend to:

Accepted Answer

A) lower interest rates and lower the equilibrium GDP. 
B) lower interest rates and increase the equilibrium GDP. 
C) increase interest rates and increase the equilibrium GDP. 
D) increase interest rates and lower the equilibrium GDP. 
A) lower interest rates and lower the equilibrium GDP. 
B) lower interest rates and increase the equilibrium GDP. 
C) increase interest rates and increase the equilibrium GDP. 
D) increase interest rates and lower the equilibrium GDP.

Question 11

International flows of financial capital in response to interest rate changes in Canada:

Accepted Answer

A) weaken domestic monetary policy through an offsetting net export effect. 
B) strengthen domestic monetary policy through a supporting net export effect. 
C) strengthen domestic fiscal policy through an offsetting net export effect. 
D) weaken domestic monetary policy through an offsetting real wealth effect. 
A) weaken domestic monetary policy through an offsetting net export effect. 
B) strengthen domestic monetary policy through a supporting net export effect. 
C) strengthen domestic fiscal policy through an offsetting net export effect. 
D) weaken domestic monetary policy through an offsetting real wealth effect.

Question 12

Lower bond prices reduce interest rates.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is not correct?

Accepted Answer

A) The supply of money decreases when the Bank of Canada buys government securities from households or businesses. 
B) Excess reserves are the amount by which actual reserves exceed desired reserves. 
C) Chartered banks increase the supply of money when they purchase government bonds from households or businesses. 
D) Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada. 
A) The supply of money decreases when the Bank of Canada buys government securities from households or businesses. 
B) Excess reserves are the amount by which actual reserves exceed desired reserves. 
C) Chartered banks increase the supply of money when they purchase government bonds from households or businesses. 
D) Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada.

Question 14

Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: Refer to the above information.These data suggest that the amount of money that society wishes to hold as an asset:

Accepted Answer

A) varies directly with the interest rate. 
B) varies inversely with the interest rate. 
C) varies inversely with the GDP. 
D) is independent of the interest rate. 
A) varies directly with the interest rate. 
B) varies inversely with the interest rate. 
C) varies inversely with the GDP. 
D) is independent of the interest rate.

Question 15

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Accepted Answer

A) decrease by $9 billion. 
B) increase by $9 billion. 
C) increase by $15 billion. 
D) increase by $12 billion. 
A) decrease by $9 billion. 
B) increase by $9 billion. 
C) increase by $15 billion. 
D) increase by $12 billion.

Question 16

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 17

The total demand for money will shift to the left as a result of:

Accepted Answer

A) a decline in nominal GDP. 
B) an increase in the price level. 
C) a change in the interest rate. 
D) an increase in nominal GDP. 
A) a decline in nominal GDP. 
B) an increase in the price level. 
C) a change in the interest rate. 
D) an increase in nominal GDP.

Question 18

Refer to the graph given below.   In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Accepted Answer

A) $125. 
B) $175. 
C) $200. 
D) $225. 
A) $125. 
B) $175. 
C) $200. 
D) $225.

Question 19

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

Accepted Answer

A) True 
 B)False

Question 20

The opportunity cost of holding money:

Accepted Answer

A) is zero because money is not an economic resource. 
B) varies inversely with the interest rate. 
C) varies directly with the interest rate. 
D) varies inversely with the level of economic activity. 
A) is zero because money is not an economic resource. 
B) varies inversely with the interest rate. 
C) varies directly with the interest rate. 
D) varies inversely with the level of economic activity.

Exam 15: Part B: Interest Rates and Monetary Policy

Which is considered a strength of monetary policy compared to fiscal policy?

In the Canadian economy, the money supply is controlled by:

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

When the market for money is in equilibrium:

Open-market operations change:

Bond prices and interest rates are directly related.

The transactions demand for money curve is assumed to be:

In the autumn of 2010, the Bank of Canada began to:

An increase in the money supply will tend to:

International flows of financial capital in response to interest rate changes in Canada:

Lower bond prices reduce interest rates.

Which of the following statements is not correct?

Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: Refer to the above information.These data suggest that the amount of money that society wishes to hold as an asset:

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

The total demand for money will shift to the left as a result of:

Refer to the graph given below. In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

The opportunity cost of holding money:

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

Columns (1) and (2) indicate the transactions demand (D_t) for money and columns (1) and (3) show the asset demand (D_a) for money: Refer to the above information.These data suggest that the amount of money that society wishes to hold as an asset:

Refer to the graph given below. In the above graph, D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.At an interest rate of 4 percent, the asset demand for money would be: