Question 1

After the money supply decreases, which of the following would most likely decrease as well?

Accepted Answer

A)  planned investment, because interest rates increase 
B)  planned investment, because interest rates decrease 
C)  government spending, because interest rates increase 
D)  government spending, because interest rates decrease 
A)  planned investment, because interest rates increase 
B)  planned investment, because interest rates decrease 
C)  government spending, because interest rates increase 
D)  government spending, because interest rates decrease

Question 2

As the interest rate increases, 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 movement downward along the demand for investment curve. 
D)  There is a movement upward 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 movement downward along the demand for investment curve. 
D)  There is a movement upward along the demand for investment curve.

Question 3

Which of the following explains why the demand for money depends upon the interest rate?

Accepted Answer

A)  because money is an interest-earning asset 
B)  because money is NOT an interest-earning asset 
C)  because the alternatives to holding money are NOT interest-earning assets 
D)  because the alternatives to holding money earn more interest than money does 
A)  because money is an interest-earning asset 
B)  because money is NOT an interest-earning asset 
C)  because the alternatives to holding money are NOT interest-earning assets 
D)  because the alternatives to holding money earn more interest than money does

Question 4

Suppose the Bank of Canada sells government securities to banks.Consequently, which of the following is likely to eventually increase?

Accepted Answer

A)  the price level 
B)  planned investment expenditures 
C)  aggregate demand 
D)  interest rates 
A)  the price level 
B)  planned investment expenditures 
C)  aggregate demand 
D)  interest rates

Question 5

Suppose the Bank of Canada increases the money supply.How will the interest rate and the quantity of money demanded be affected?

Accepted Answer

A)  The interest rate will decline, and the quantity of money demanded will increase. 
B)  The interest rate will decline, and the quantity of money demanded will decline. 
C)  The interest rate will increase, and the quantity of money demanded will increase. 
D)  The interest rate will increase, and the quantity of money demanded will decline. 
A)  The interest rate will decline, and the quantity of money demanded will increase. 
B)  The interest rate will decline, and the quantity of money demanded will decline. 
C)  The interest rate will increase, and the quantity of money demanded will increase. 
D)  The interest rate will increase, and the quantity of money demanded will decline.

Question 6

What should an individual compare when deciding how much money to hold?

Accepted Answer

A)  the disadvantage of liquidity with the advantage of earning more interest 
B)  the advantage of liquidity with the disadvantage of losing interest 
C)  the disadvantage of storing wealth with the advantage of having a medium of exchange 
D)  the advantage of storing wealth with the advantage of having a medium of exchange 
A)  the disadvantage of liquidity with the advantage of earning more interest 
B)  the advantage of liquidity with the disadvantage of losing interest 
C)  the disadvantage of storing wealth with the advantage of having a medium of exchange 
D)  the advantage of storing wealth with the advantage of having a medium of exchange

Question 7

Suppose the amount of money in the economy times the velocity of money equals $800 million.According to the equation of exchange, what does the $800 million represent?

Accepted Answer

A)  real GDP 
B)  nominal GDP 
C)  velocity 
D)  quantity of money 
A)  real GDP 
B)  nominal GDP 
C)  velocity 
D)  quantity of money

Question 8

Which of the following will cause planned investment expenditures to eventually increase?

Accepted Answer

A)  a decrease in money supply 
B)  an increase in demand for money 
C)  a fall in interest rate 
D)  managers who are pessimistic about the future 
A)  a decrease in money supply 
B)  an increase in demand for money 
C)  a fall in interest rate 
D)  managers who are pessimistic about the future

Question 9

When the demand curve for investment is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis?

Accepted Answer

A)  The interest rate is on the vertical axis, and investment is on the horizontal axis. 
B)  Investment is on the vertical axis, and the interest rate is on the horizontal axis. 
C)  The price level is on the vertical axis, and investment is on the horizontal axis. 
D)  Investment is on the vertical axis, and the price level is on the horizontal axis. 
A)  The interest rate is on the vertical axis, and investment is on the horizontal axis. 
B)  Investment is on the vertical axis, and the interest rate is on the horizontal axis. 
C)  The price level is on the vertical axis, and investment is on the horizontal axis. 
D)  Investment is on the vertical axis, and the price level is on the horizontal axis.

Question 10

Which of the following is caused by an increase in the expected inflation rate?

Accepted Answer

A)  an increase in the velocity of money 
B)  a decrease in the velocity of money 
C)  an increase in the effectiveness of money as a better store of wealth 
D)  a decrease in the actual price level 
A)  an increase in the velocity of money 
B)  a decrease in the velocity of money 
C)  an increase in the effectiveness of money as a better store of wealth 
D)  a decrease in the actual price level

Question 11

How is the opportunity cost of holding money measured?

Accepted Answer

A)  by the interest rate 
B)  by the liquidity lost due to holding money 
C)  by the money supply curve 
D)  by the inflation rate 
A)  by the interest rate 
B)  by the liquidity lost due to holding money 
C)  by the money supply curve 
D)  by the inflation rate

Question 12

Exhibit 14-5
  
-Refer to the graph in the exhibit.To bring the economy to its potential output level, what should the Bank of Canada do?

Accepted Answer

A)  The Bank of Canada should do nothing, and the price level will fall to P′. 
B)  The Bank of Canada should do nothing, and the price level will remain at its current level. 
C)  The Bank of Canada should increase the money supply and decrease the price level to P′. 
D)  The Bank of Canada should decrease the money supply and decrease the price level to P′. 
A)  The Bank of Canada should do nothing, and the price level will fall to P′. 
B)  The Bank of Canada should do nothing, and the price level will remain at its current level. 
C)  The Bank of Canada should increase the money supply and decrease the price level to P′. 
D)  The Bank of Canada should decrease the money supply and decrease the price level to P′.

Question 13

Suppose the economy's velocity is constant and the same level of real output is produced year after year.What would be the result of a slow increase in the money supply?

Accepted Answer

A)  a slowly increasing price level 
B)  a rapidly increasing price level 
C)  a slowly increasing real GDP 
D)  a rapidly increasing real GDP 
A)  a slowly increasing price level 
B)  a rapidly increasing price level 
C)  a slowly increasing real GDP 
D)  a rapidly increasing real GDP

Question 14

Which of the following will allow monetary policy to be most effective in changing aggregate demand?

Accepted Answer

A)  Interest rates need to be responsive to changes in the money supply, and investment needs to be sensitive to changes in interest rates. 
B)  Interest rates need to be responsive to changes in the money supply, but investment does NOT need to be sensitive to changes in interest rates. 
C)  Interest rates do NOT need to be responsive to changes in the money supply, but investment does need to be sensitive to changes in interest rates. 
D)  Interest rates do NOT need to be responsive to changes in the money supply, and investment does NOT need to be sensitive to changes in interest rates. 
A)  Interest rates need to be responsive to changes in the money supply, and investment needs to be sensitive to changes in interest rates. 
B)  Interest rates need to be responsive to changes in the money supply, but investment does NOT need to be sensitive to changes in interest rates. 
C)  Interest rates do NOT need to be responsive to changes in the money supply, but investment does need to be sensitive to changes in interest rates. 
D)  Interest rates do NOT need to be responsive to changes in the money supply, and investment does NOT need to be sensitive to changes in interest rates.

Question 15

Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand?

Accepted Answer

A)  Aggregate demand will increase. 
B)  Aggregate demand will decrease. 
C)  Aggregate demand will remain the same. 
D)  Aggregate demand will become negative. 
A)  Aggregate demand will increase. 
B)  Aggregate demand will decrease. 
C)  Aggregate demand will remain the same. 
D)  Aggregate demand will become negative.

Question 16

What does the quantity theory of money state?

Accepted Answer

A)  Fiscal policy plays an important role in determining economic activity. 
B)  The quantity of money in circulation determines aggregate spending. 
C)  The quantity of money in circulation determines only the price level in the long run. 
D)  The quantity of money in circulation determines only real spending in the short run. 
A)  Fiscal policy plays an important role in determining economic activity. 
B)  The quantity of money in circulation determines aggregate spending. 
C)  The quantity of money in circulation determines only the price level in the long run. 
D)  The quantity of money in circulation determines only real spending in the short run.

Question 17

Under which of the following circumstances will velocity of money be higher?

Accepted Answer

A)  when workers are paid less frequently 
B)  when fewer transactions are made 
C)  when money is less effective as a store of value 
D)  when fewer people use credit cards to make purchases 
A)  when workers are paid less frequently 
B)  when fewer transactions are made 
C)  when money is less effective as a store of value 
D)  when fewer people use credit cards to make purchases

Question 18

How will an increase in the money supply affect money markets?

Accepted Answer

A)  An increase in the money supply will increase the demand for money at each interest rate. 
B)  An increase in the money supply will decrease the demand for money at each interest rate. 
C)  An increase in the money supply will lead people to try to exchange money for interest-bearing assets. 
D)  An increase in the money supply will lead people to try to exchange interest-bearing assets for money. 
A)  An increase in the money supply will increase the demand for money at each interest rate. 
B)  An increase in the money supply will decrease the demand for money at each interest rate. 
C)  An increase in the money supply will lead people to try to exchange money for interest-bearing assets. 
D)  An increase in the money supply will lead people to try to exchange interest-bearing assets for money.

Question 19

Suppose the Bank of Canada is targeting the interest rate when the demand for money increases.What is the proper monetary response in terms of the money supply?

Accepted Answer

A)  decrease the money supply 
B)  keep the money supply constant 
C)  increase the money supply 
D)  stimulate inflation to increase the demand for money 
A)  decrease the money supply 
B)  keep the money supply constant 
C)  increase the money supply 
D)  stimulate inflation to increase the demand for money

Question 20

Suppose the short-run aggregate supply curve is steep.For a given increase in aggregate demand, how much will real GDP and price level increase?

Accepted Answer

A)  The increase in real GDP will be relatively small, and the increase in the price level will be relatively large. 
B)  The increase in real GDP will be relatively large, and the increase in the price level will be relatively small. 
C)  The increase in real GDP will be large, and the increase in price level will be large. 
D)  The increase in real GDP will be small, and the increase in price level will be small. 
A)  The increase in real GDP will be relatively small, and the increase in the price level will be relatively large. 
B)  The increase in real GDP will be relatively large, and the increase in the price level will be relatively small. 
C)  The increase in real GDP will be large, and the increase in price level will be large. 
D)  The increase in real GDP will be small, and the increase in price level will be small.

After the money supply decreases, which of the following would most likely decrease as well?

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

Which of the following explains why the demand for money depends upon the interest rate?

Suppose the Bank of Canada sells government securities to banks.Consequently, which of the following is likely to eventually increase?

Suppose the Bank of Canada increases the money supply.How will the interest rate and the quantity of money demanded be affected?

What should an individual compare when deciding how much money to hold?

Suppose the amount of money in the economy times the velocity of money equals $800 million.According to the equation of exchange, what does the $800 million represent?

Which of the following will cause planned investment expenditures to eventually increase?

When the demand curve for investment is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis?

Which of the following is caused by an increase in the expected inflation rate?

How is the opportunity cost of holding money measured?

Exhibit 14-5 -Refer to the graph in the exhibit.To bring the economy to its potential output level, what should the Bank of Canada do?

Suppose the economy's velocity is constant and the same level of real output is produced year after year.What would be the result of a slow increase in the money supply?

Which of the following will allow monetary policy to be most effective in changing aggregate demand?

Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand?

What does the quantity theory of money state?

Under which of the following circumstances will velocity of money be higher?

How will an increase in the money supply affect money markets?

Suppose the Bank of Canada is targeting the interest rate when the demand for money increases.What is the proper monetary response in terms of the money supply?

Suppose the short-run aggregate supply curve is steep.For a given increase in aggregate demand, how much will real GDP and price level increase?

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

After the money supply decreases, which of the following would most likely decrease as well?

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

Which of the following explains why the demand for money depends upon the interest rate?

Suppose the Bank of Canada sells government securities to banks.Consequently, which of the following is likely to eventually increase?

Suppose the Bank of Canada increases the money supply.How will the interest rate and the quantity of money demanded be affected?

What should an individual compare when deciding how much money to hold?

Suppose the amount of money in the economy times the velocity of money equals $800 million.According to the equation of exchange, what does the $800 million represent?

Which of the following will cause planned investment expenditures to eventually increase?

When the demand curve for investment is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis?

Which of the following is caused by an increase in the expected inflation rate?

How is the opportunity cost of holding money measured?

Exhibit 14-5 -Refer to the graph in the exhibit.To bring the economy to its potential output level, what should the Bank of Canada do?

Suppose the economy's velocity is constant and the same level of real output is produced year after year.What would be the result of a slow increase in the money supply?

Which of the following will allow monetary policy to be most effective in changing aggregate demand?

Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand?

What does the quantity theory of money state?

Under which of the following circumstances will velocity of money be higher?

How will an increase in the money supply affect money markets?

Suppose the Bank of Canada is targeting the interest rate when the demand for money increases.What is the proper monetary response in terms of the money supply?

Suppose the short-run aggregate supply curve is steep.For a given increase in aggregate demand, how much will real GDP and price level increase?

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