Question 1

In the aggregate demand-aggregate supply model, what will be the effects of a decrease in the money supply in the short run?

Accepted Answer

A)  an increase in the price level, and an increase in real GDP 
B)  a decrease in the price level, and a decrease in real GDP 
C)  an increase in real GDP, and a decrease in the price level 
D)  a decrease in real GDP, and an increase in the price level 
A)  an increase in the price level, and an increase in real GDP 
B)  a decrease in the price level, and a decrease in real GDP 
C)  an increase in real GDP, and a decrease in the price level 
D)  a decrease in real GDP, and an increase in the price level

Question 2

Exhibit 14-3
  
-Refer to the graph in the exhibit.How could the Bank of Canada return the economy to potential output?

Accepted Answer

A)  by decreasing government spending 
B)  by decreasing taxes 
C)  by selling Canadian government bonds to banks 
D)  by lowering the bank rate 
A)  by decreasing government spending 
B)  by decreasing taxes 
C)  by selling Canadian government bonds to banks 
D)  by lowering the bank rate

Question 3

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 the price level?

Accepted Answer

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

Question 4

For the quantity theory of money to yield useful predictions, which of the following must be stable or predictable?

Accepted Answer

A)  interest rates 
B)  fiscal policy 
C)  price level 
D)  velocity 
A)  interest rates 
B)  fiscal policy 
C)  price level 
D)  velocity

Question 5

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

Accepted Answer

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

Question 6

If the interest rate rises, how does this affect how much money people hold?

Accepted Answer

A)  People hold less money, because its opportunity cost has increased. 
B)  People hold more money, because its opportunity cost has increased. 
C)  People hold less money, because its opportunity cost has declined. 
D)  People hold more money, because its opportunity cost has declined. 
A)  People hold less money, because its opportunity cost has increased. 
B)  People hold more money, because its opportunity cost has increased. 
C)  People hold less money, because its opportunity cost has declined. 
D)  People hold more money, because its opportunity cost has declined.

Question 7

Which of the following would cause an increase in the velocity of money?

Accepted Answer

A)  an increase in the use of credit cards 
B)  an increase in the money supply 
C)  an increase in demand for money 
D)  a decrease in interest rates 
A)  an increase in the use of credit cards 
B)  an increase in the money supply 
C)  an increase in demand for money 
D)  a decrease in interest rates

Question 8

How will a decrease in the money supply affect interest rates and aggregate demand in the short term?

Accepted Answer

A)  Interest rates will increase, and aggregate demand will shift to the right. 
B)  Interest rates will increase, and aggregate demand will shift to the left. 
C)  Interest rates will decrease, and aggregate demand will shift to the right. 
D)  Interest rates will decrease, and aggregate demand will shift to the left. 
A)  Interest rates will increase, and aggregate demand will shift to the right. 
B)  Interest rates will increase, and aggregate demand will shift to the left. 
C)  Interest rates will decrease, and aggregate demand will shift to the right. 
D)  Interest rates will decrease, and aggregate demand will shift to the left.

Question 9

Exhibit 14-4
  
-Refer to the graph in the exhibit.At what point does short-run equilibrium occur?

Accepted Answer

A)  at point a 
B)  at point b 
C)  at point c, where the actual price level exceeds the expected price level 
D)  at the origin point c, where the actual price level is less than the expected price level 
A)  at point a 
B)  at point b 
C)  at point c, where the actual price level exceeds the expected price level 
D)  at the origin point c, where the actual price level is less than the expected price level

Question 10

Exhibit 14-2
  
-Refer to the graph in the exhibit.Which of the following CANNOT cause the supply of money to decrease from S to S*?

Accepted Answer

A)  a decrease in the desired reserve ratio 
B)  the sale of Government of Canada Treasury securities by the Bank of Canada 
C)  a decrease in the bank rate 
D)  an increase in excess reserves in the banking system 
A)  a decrease in the desired reserve ratio 
B)  the sale of Government of Canada Treasury securities by the Bank of Canada 
C)  a decrease in the bank rate 
D)  an increase in excess reserves in the banking system

Question 11

When does the opportunity cost of holding money increase?

Accepted Answer

A)  when the interest rate rises 
B)  when the interest rate falls 
C)  when nominal GDP rises 
D)  when nominal GDP falls 
A)  when the interest rate rises 
B)  when the interest rate falls 
C)  when nominal GDP rises 
D)  when nominal GDP falls

Question 12

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

Accepted Answer

A)  Quantity of money is on the vertical axis, and interest rate is on the horizontal axis. 
B)  Interest rate is on the vertical axis, and quantity of money is on the horizontal axis. 
C)  Price level is on the vertical axis, and quantity of money is on the horizontal axis. 
D)  Quantity of money is on the vertical axis, and price level is on the horizontal axis. 
A)  Quantity of money is on the vertical axis, and interest rate is on the horizontal axis. 
B)  Interest rate is on the vertical axis, and quantity of money is on the horizontal axis. 
C)  Price level is on the vertical axis, and quantity of money is on the horizontal axis. 
D)  Quantity of money is on the vertical axis, and price level is on the horizontal axis.

Question 13

How does a rising rate of inflation influence the functions of money and the velocity of money?

Accepted Answer

A)  Rising inflation makes people more willing to hold money as an asset, thus increasing the velocity of money. 
B)  Rising inflation reduces the usefulness of money as a store of value, thus increasing the velocity of money. 
C)  Rising inflation increases the usefulness of money as a medium of exchange, thus reducing the velocity of money. 
D)  Rising inflation reduces the usefulness of money as a store of value, thus reducing the velocity of money. 
A)  Rising inflation makes people more willing to hold money as an asset, thus increasing the velocity of money. 
B)  Rising inflation reduces the usefulness of money as a store of value, thus increasing the velocity of money. 
C)  Rising inflation increases the usefulness of money as a medium of exchange, thus reducing the velocity of money. 
D)  Rising inflation reduces the usefulness of money as a store of value, thus reducing the velocity of money.

Question 14

Suppose money demand increases and the Bank of Canada attempts to keep interest rates stable.What will be the effect on money supply?

Accepted Answer

A)  The money supply will increase. 
B)  The money supply will decrease. 
C)  The money supply will stay the same. 
D)  The money supply will first increase, and then decrease. 
A)  The money supply will increase. 
B)  The money supply will decrease. 
C)  The money supply will stay the same. 
D)  The money supply will first increase, and then decrease.

Question 15

How is the equilibrium interest rate determined?

Accepted Answer

A)  by the price of money 
B)  by the demand for money alone 
C)  by the supply of money alone 
D)  by the supply of money and by the demand for money 
A)  by the price of money 
B)  by the demand for money alone 
C)  by the supply of money alone 
D)  by the supply of money and by the demand for money

Question 16

Which of the following is most likely to occur if there is a decrease in the supply of money?

Accepted Answer

A)  The demand for money will increase. 
B)  Planned investment spending will increase. 
C)  Interest rates will rise. 
D)  The demand for money will decrease. 
A)  The demand for money will increase. 
B)  Planned investment spending will increase. 
C)  Interest rates will rise. 
D)  The demand for money will decrease.

Question 17

Suppose nominal GDP equals $6 trillion and the money supply equals $1 trillion.According to the equation of exchange, what is the velocity of money?

Accepted Answer

A)  6 
B)  1/6 
C)  1/6 trillion 
D)  6 trillion 
A)  6 
B)  1/6 
C)  1/6 trillion 
D)  6 trillion

Question 18

Why is demand for money relevant in a modern economy?

Accepted Answer

A)  because the primary payment for purchases is made by cash 
B)  because demand deposits are included in M1+ 
C)  because credit cards are included in M1+ 
D)  because all accounts must eventually be settled with money 
A)  because the primary payment for purchases is made by cash 
B)  because demand deposits are included in M1+ 
C)  because credit cards are included in M1+ 
D)  because all accounts must eventually be settled with money

Question 19

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

Accepted Answer

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

Question 20

Exhibit 14-2
  
-Refer to the graph in the exhibit.Suppose the supply of money is given by the supply curve labelled S.Given the demand for money, what is the equilibrium interest rate and what is the quantity of money?

Accepted Answer

A)  the equilibrium interest rate is r and the quantity of money is m 
B)  the equilibrium interest rate is r* and the quantity of money is m* 
C)  the equilibrium interest rate is r′ and the quantity of money is m′ 
D)  the equilibrium interest rate is r and the quantity of money is m′ 
A)  the equilibrium interest rate is r and the quantity of money is m 
B)  the equilibrium interest rate is r* and the quantity of money is m* 
C)  the equilibrium interest rate is r′ and the quantity of money is m′ 
D)  the equilibrium interest rate is r and the quantity of money is m′

In the aggregate demand-aggregate supply model, what will be the effects of a decrease in the money supply in the short run?

Exhibit 14-3 -Refer to the graph in the exhibit.How could the Bank of Canada return the economy to potential 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 the price level?

For the quantity theory of money to yield useful predictions, which of the following must be stable or predictable?

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

If the interest rate rises, how does this affect how much money people hold?

Which of the following would cause an increase in the velocity of money?

How will a decrease in the money supply affect interest rates and aggregate demand in the short term?

Exhibit 14-4 -Refer to the graph in the exhibit.At what point does short-run equilibrium occur?

Exhibit 14-2 -Refer to the graph in the exhibit.Which of the following CANNOT cause the supply of money to decrease from S to S*?

When does the opportunity cost of holding money increase?

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

How does a rising rate of inflation influence the functions of money and the velocity of money?

Suppose money demand increases and the Bank of Canada attempts to keep interest rates stable.What will be the effect on money supply?

How is the equilibrium interest rate determined?

Which of the following is most likely to occur if there is a decrease in the supply of money?

Suppose nominal GDP equals $6 trillion and the money supply equals $1 trillion.According to the equation of exchange, what is the velocity of money?

Why is demand for money relevant in a modern economy?

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

Exhibit 14-2 -Refer to the graph in the exhibit.Suppose the supply of money is given by the supply curve labelled S.Given the demand for money, what is the equilibrium interest rate and what is the quantity of money?

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

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Exam 15: Monetary Theory and Policy in an Open Economy

In the aggregate demand-aggregate supply model, what will be the effects of a decrease in the money supply in the short run?

Exhibit 14-3 -Refer to the graph in the exhibit.How could the Bank of Canada return the economy to potential 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 the price level?

For the quantity theory of money to yield useful predictions, which of the following must be stable or predictable?

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

If the interest rate rises, how does this affect how much money people hold?

Which of the following would cause an increase in the velocity of money?

How will a decrease in the money supply affect interest rates and aggregate demand in the short term?

Exhibit 14-4 -Refer to the graph in the exhibit.At what point does short-run equilibrium occur?

Exhibit 14-2 -Refer to the graph in the exhibit.Which of the following CANNOT cause the supply of money to decrease from S to S*?

When does the opportunity cost of holding money increase?

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

How does a rising rate of inflation influence the functions of money and the velocity of money?

Suppose money demand increases and the Bank of Canada attempts to keep interest rates stable.What will be the effect on money supply?

How is the equilibrium interest rate determined?

Which of the following is most likely to occur if there is a decrease in the supply of money?

Suppose nominal GDP equals $6 trillion and the money supply equals $1 trillion.According to the equation of exchange, what is the velocity of money?

Why is demand for money relevant in a modern economy?

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

Exhibit 14-2 -Refer to the graph in the exhibit.Suppose the supply of money is given by the supply curve labelled S.Given the demand for money, what is the equilibrium interest rate and what is the quantity of money?

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