Question 1

What is the advantage of money as a store of value?

Accepted Answer

A)  its purchasing power 
B)  its liquidity 
C)  its portability 
D)  its uniformity 
A)  its purchasing power 
B)  its liquidity 
C)  its portability 
D)  its uniformity B

Question 2

Suppose nominal GDP is $2 trillion and the money supply is $0.5 trillion.According to the equation of exchange, what is the velocity of money?

Accepted Answer

A)  $0.25 trillion 
B)  $1 trillion 
C)  $2.5 trillion 
D)  $4 trillion 
A)  $0.25 trillion 
B)  $1 trillion 
C)  $2.5 trillion 
D)  $4 trillion D

Question 3

Which way does the money demand curve slope?

Accepted Answer

A)  downward, because the cost of holding money decreases as the interest rate decreases 
B)  downward, because the cost of holding money increases as the interest rate decreases 
C)  upward, because people demand more money as GDP increases 
D)  upward, because people demand more money as GDP decreases 
A)  downward, because the cost of holding money decreases as the interest rate decreases 
B)  downward, because the cost of holding money increases as the interest rate decreases 
C)  upward, because people demand more money as GDP increases 
D)  upward, because people demand more money as GDP decreases A

Question 4

In which of the following situations would people want to hold more money?

Accepted Answer

A)  when the price level increases and the interest rate increases 
B)  when the price level decreases and the interest rate decreases 
C)  when the price level increases and the interest rate decreases 
D)  when the price level decreases and the interest rate increases 
A)  when the price level increases and the interest rate increases 
B)  when the price level decreases and the interest rate decreases 
C)  when the price level increases and the interest rate decreases 
D)  when the price level decreases and the interest rate increases

Question 5

Exhibit 14-5
  
-Refer to the graph in the exhibit.What does the graph illustrate about the state of the economy?

Accepted Answer

A)  The economy is in a long-run equilibrium at the price level P and income level Y. 
B)  The economy is in a short-run equilibrium at the price level P and income level Y. 
C)  The economy is experiencing a recessionary gap at price level P and income level Y. 
D)  The economy is in a short-run equilibrium at the price level P′ and income level Y. 
A)  The economy is in a long-run equilibrium at the price level P and income level Y. 
B)  The economy is in a short-run equilibrium at the price level P and income level Y. 
C)  The economy is experiencing a recessionary gap at price level P and income level Y. 
D)  The economy is in a short-run equilibrium at the price level P′ and income level Y.

Question 6

In the history of Canada's monetary policy, why was the period from 1975 to 1982 notable?

Accepted Answer

A)  because it was a time of steady prices and low unemployment 
B)  because of the emphasis placed on controlling interest rates 
C)  because of the emphasis placed on controlling the money supply 
D)  because of the emphasis placed on controlling money demand 
A)  because it was a time of steady prices and low unemployment 
B)  because of the emphasis placed on controlling interest rates 
C)  because of the emphasis placed on controlling the money supply 
D)  because of the emphasis placed on controlling money demand

Question 7

What effect will an increase in the interest rate have on investment?

Accepted Answer

A)  An increase in the interest rate will lead to an increase in investment, because holding stocks and bonds will be more profitable. 
B)  An increase in the interest rate will lead to an increase in investment, because people will be less willing to hold money. 
C)  An increase in the interest rate will lead to a decrease investment only if firms have to borrow money to make investments. 
D)  An increase in the interest rate will lead to a decrease investment regardless of whether firms have to borrow money to make an investment. 
A)  An increase in the interest rate will lead to an increase in investment, because holding stocks and bonds will be more profitable. 
B)  An increase in the interest rate will lead to an increase in investment, because people will be less willing to hold money. 
C)  An increase in the interest rate will lead to a decrease investment only if firms have to borrow money to make investments. 
D)  An increase in the interest rate will lead to a decrease investment regardless of whether firms have to borrow money to make an investment.

Question 8

Which of the following, other things constant, will shift the money demand curve to the left?

Accepted Answer

A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  a decrease in real GDP 
D)  an increase in real GDP 
A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  a decrease in real GDP 
D)  an increase in real GDP

Question 9

Suppose the money supply increases when there is much idle capacity in the economy.Which of the following will be the major contributor to the consequent rise in nominal GDP?

Accepted Answer

A)  increases in velocity 
B)  increases in real output 
C)  increases in the price level 
D)  increases in the interest rate 
A)  increases in velocity 
B)  increases in real output 
C)  increases in the price level 
D)  increases in the interest rate

Question 10

Which of the following has been a main emphasis of the Bank of Canada's policy in recent years?

Accepted Answer

A)  controlling short-term interest rates 
B)  implementing a system of price controls 
C)  regulating bank managers 
D)  controlling the money supply 
A)  controlling short-term interest rates 
B)  implementing a system of price controls 
C)  regulating bank managers 
D)  controlling the money supply

Question 11

As the interest rate decreases, what is the effect on the demand for investment curve?

Accepted Answer

A)  The demand for investment curve shifts to the right. 
B)  The demand for investment curve shifts to the left. 
C)  There is a downward movement along the demand for investment curve. 
D)  There is an upward movement along the demand for investment curve. 
A)  The demand for investment curve shifts to the right. 
B)  The demand for investment curve shifts to the left. 
C)  There is a downward movement along the demand for investment curve. 
D)  There is an upward movement along the demand for investment curve.

Question 12

Which of the following will cause the money demand curve to shift?

Accepted Answer

A)  a change in interest rates 
B)  a change in the velocity of money 
C)  a change in the money supply 
D)  a change in nominal GDP 
A)  a change in interest rates 
B)  a change in the velocity of money 
C)  a change in the money supply 
D)  a change in nominal GDP

Question 13

Exhibit 14-6
  
-Refer to the graph in the exhibit.Suppose the Bank of Canada is targeting interest rates, and money demand shifts from Dm to Dm′.How will the Bank of Canada react?

Accepted Answer

A)  The Bank of Canada will do nothing, and the interest rate will rise to i′. 
B)  The Bank of Canada will do nothing, and the interest rate will settle at i. 
C)  The Bank of Canada will decrease the money supply to restore its target of i. 
D)  The Bank of Canada will increase the money supply to restore its target of i. 
A)  The Bank of Canada will do nothing, and the interest rate will rise to i′. 
B)  The Bank of Canada will do nothing, and the interest rate will settle at i. 
C)  The Bank of Canada will decrease the money supply to restore its target of i. 
D)  The Bank of Canada will increase the money supply to restore its target of i.

Question 14

Exhibit 14-1
  
-Refer to the graph in the exhibit.Suppose the price level increases.What will this move cause?

Accepted Answer

A)  a move from B to A 
B)  a move from A to B 
C)  a move from DM to DM' 
D)  a move from DM to DM* 
A)  a move from B to A 
B)  a move from A to B 
C)  a move from DM to DM' 
D)  a move from DM to DM*

Question 15

Which of the following describes how the opportunity cost of holding money affects people's desire to hold money?

Accepted Answer

A)  The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold more money. 
B)  The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold less money. 
C)  The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold more money. 
D)  The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold less money. 
A)  The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold more money. 
B)  The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold less money. 
C)  The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold more money. 
D)  The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold less money.

Question 16

Suppose money supply decreases, causing the interest rate to rise.What is the effect on GDP?

Accepted Answer

A)  GDP decreases by more than the increase in the interest rate because of the multiplier. 
B)  GDP decreases by the same amount as the decrease in investment. 
C)  GDP decreases by more than the decrease in investment because of the multiplier. 
D)  GDP decreases by less than the decrease in investment because of the multiplier. 
A)  GDP decreases by more than the increase in the interest rate because of the multiplier. 
B)  GDP decreases by the same amount as the decrease in investment. 
C)  GDP decreases by more than the decrease in investment because of the multiplier. 
D)  GDP decreases by less than the decrease in investment because of the multiplier.

Question 17

When would an increase in aggregate demand have the greatest short-run effect on real output?

Accepted Answer

A)  when the aggregate demand curve is horizontal 
B)  when the aggregate demand curve is vertical 
C)  when the short-run aggregate supply curve is vertical 
D)  when the short-run aggregate supply curve is horizontal 
A)  when the aggregate demand curve is horizontal 
B)  when the aggregate demand curve is vertical 
C)  when the short-run aggregate supply curve is vertical 
D)  when the short-run aggregate supply curve is horizontal

Question 18

Suppose the money supply is $600, the price level is $2, and real GDP is $300.What is velocity?

Accepted Answer

A)  1 
B)  150 
C)  300 
D)  600 
A)  1 
B)  150 
C)  300 
D)  600

Question 19

Suppose the money supply is $300, the price level is $4, and real GDP is $1,500.What is the nominal value of output?

Accepted Answer

A)  $1,200 
B)  $4,500 
C)  $6,000 
D)  $180,000 
A)  $1,200 
B)  $4,500 
C)  $6,000 
D)  $180,000

Question 20

Suppose the money supply expands.What will be the shape of the short-run aggregate supply curve that yields the largest short-run increase in real GDP?

Accepted Answer

A)  vertical 
B)  steeply sloped 
C)  45 degrees 
D)  relatively flat 
A)  vertical 
B)  steeply sloped 
C)  45 degrees 
D)  relatively flat

What is the advantage of money as a store of value?

Suppose nominal GDP is $2 trillion and the money supply is $0.5 trillion.According to the equation of exchange, what is the velocity of money?

Which way does the money demand curve slope?

In which of the following situations would people want to hold more money?

Exhibit 14-5 -Refer to the graph in the exhibit.What does the graph illustrate about the state of the economy?

In the history of Canada's monetary policy, why was the period from 1975 to 1982 notable?

What effect will an increase in the interest rate have on investment?

Which of the following, other things constant, will shift the money demand curve to the left?

Suppose the money supply increases when there is much idle capacity in the economy.Which of the following will be the major contributor to the consequent rise in nominal GDP?

Which of the following has been a main emphasis of the Bank of Canada's policy in recent years?

As the interest rate decreases, what is the effect on the demand for investment curve?

Which of the following will cause the money demand curve to shift?

Exhibit 14-6 -Refer to the graph in the exhibit.Suppose the Bank of Canada is targeting interest rates, and money demand shifts from Dm to Dm′.How will the Bank of Canada react?

Exhibit 14-1 -Refer to the graph in the exhibit.Suppose the price level increases.What will this move cause?

Which of the following describes how the opportunity cost of holding money affects people's desire to hold money?

Suppose money supply decreases, causing the interest rate to rise.What is the effect on GDP?

When would an increase in aggregate demand have the greatest short-run effect on real output?

Suppose the money supply is $600, the price level is $2, and real GDP is $300.What is velocity?

Suppose the money supply is $300, the price level is $4, and real GDP is $1,500.What is the nominal value of output?

Suppose the money supply expands.What will be the shape of the short-run aggregate supply curve that yields the largest short-run increase in real GDP?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters

Exam 15: Monetary Theory and Policy in an Open Economy

What is the advantage of money as a store of value?

Suppose nominal GDP is $2 trillion and the money supply is $0.5 trillion.According to the equation of exchange, what is the velocity of money?

Which way does the money demand curve slope?

In which of the following situations would people want to hold more money?

Exhibit 14-5 -Refer to the graph in the exhibit.What does the graph illustrate about the state of the economy?

In the history of Canada's monetary policy, why was the period from 1975 to 1982 notable?

What effect will an increase in the interest rate have on investment?

Which of the following, other things constant, will shift the money demand curve to the left?

Suppose the money supply increases when there is much idle capacity in the economy.Which of the following will be the major contributor to the consequent rise in nominal GDP?

Which of the following has been a main emphasis of the Bank of Canada's policy in recent years?

As the interest rate decreases, what is the effect on the demand for investment curve?

Which of the following will cause the money demand curve to shift?

Exhibit 14-6 -Refer to the graph in the exhibit.Suppose the Bank of Canada is targeting interest rates, and money demand shifts from Dm to Dm′.How will the Bank of Canada react?

Exhibit 14-1 -Refer to the graph in the exhibit.Suppose the price level increases.What will this move cause?

Which of the following describes how the opportunity cost of holding money affects people's desire to hold money?

Suppose money supply decreases, causing the interest rate to rise.What is the effect on GDP?

When would an increase in aggregate demand have the greatest short-run effect on real output?

Suppose the money supply is $600, the price level is $2, and real GDP is $300.What is velocity?

Suppose the money supply is $300, the price level is $4, and real GDP is $1,500.What is the nominal value of output?

Suppose the money supply expands.What will be the shape of the short-run aggregate supply curve that yields the largest short-run increase in real GDP?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters