Question 1

Moral hazard is a problem in providing deposit insurance because insured banks are

Accepted Answer

A)  more likely to make bookkeeping errors. 
B)  overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C)  more likely to provide bank managers with lavish perquisites. 
D)  encouraged to take on more risk. 
E)  more likely to offer interest rates on loans that are greater than market interest rates. 
A)  more likely to make bookkeeping errors. 
B)  overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C)  more likely to provide bank managers with lavish perquisites. 
D)  encouraged to take on more risk. 
E)  more likely to offer interest rates on loans that are greater than market interest rates.

Question 2

A liquidity trap is where

Accepted Answer

A)  real interest rates are greater than nominal interest rates. 
B)  nominal interest rates are greater than real interest rates. 
C)  real interest rates are zero. 
D)  nominal interest rates on government securities are zero. 
E)  capital influences are less than capital outflows. 
A)  real interest rates are greater than nominal interest rates. 
B)  nominal interest rates are greater than real interest rates. 
C)  real interest rates are zero. 
D)  nominal interest rates on government securities are zero. 
E)  capital influences are less than capital outflows.

Question 3

If the Friedman rule for long-term monetary policy were implemented,the result would be

Accepted Answer

A)  inflation. 
B)  neither inflation nor deflation. 
C)  deflation. 
D)  hyperinflation. 
E)  constant inflation. 
A)  inflation. 
B)  neither inflation nor deflation. 
C)  deflation. 
D)  hyperinflation. 
E)  constant inflation.

Question 4

Bank failures are less likely to occur in Canada than in the U.S.because Canadian banks are

Accepted Answer

A)  relatively small. 
B)  relatively large and well diversified geographically. 
C)  have larger liquid asset bases. 
D)  the Bank of Canada monitors the behaviour of the chartered banks. 
E)  in smaller numbers than in the U.S. 
A)  relatively small. 
B)  relatively large and well diversified geographically. 
C)  have larger liquid asset bases. 
D)  the Bank of Canada monitors the behaviour of the chartered banks. 
E)  in smaller numbers than in the U.S.

Question 5

Recent bank failures in Canada were primarily due to the banks

Accepted Answer

A)  lending mostly to U.S. customers. 
B)  lending mostly to firms in the developing nations. 
C)  lending practices exposing the banks to local shocks within the economy. 
D)  historically low interest rates. 
E)  facing a severe economy recession in Canada. 
A)  lending mostly to U.S. customers. 
B)  lending mostly to firms in the developing nations. 
C)  lending practices exposing the banks to local shocks within the economy. 
D)  historically low interest rates. 
E)  facing a severe economy recession in Canada.

Question 6

In the monetary intertemporal model,money is

Accepted Answer

A)  neutral but not superneutral. 
B)  superneutral but not neutral. 
C)  superneutral. 
D)  unrealted to the inflation rate. 
E)  superneutral only if the Fisher effect is large. 
A)  neutral but not superneutral. 
B)  superneutral but not neutral. 
C)  superneutral. 
D)  unrealted to the inflation rate. 
E)  superneutral only if the Fisher effect is large.

Question 7

The most recent Canadian chartered bank failure involved the failure of the

Accepted Answer

A)  Bank of Canada. 
B)  Home Bank. 
C)  Washington Mutual Bank. 
D)  Bank of America. 
E)  Northland Bank and the Canadian Commercial Bank. 
A)  Bank of Canada. 
B)  Home Bank. 
C)  Washington Mutual Bank. 
D)  Bank of America. 
E)  Northland Bank and the Canadian Commercial Bank.

Question 8

The Friedman rule describes optimal monetary policy and is

Accepted Answer

A)  always followed in practice by central banks. 
B)  too difficult to implement in practice. 
C)  never followed in practice by central banks. 
D)  a policy central banks would like to follow but do not know how to. 
E)  only followed by central banks during expansions. 
A)  always followed in practice by central banks. 
B)  too difficult to implement in practice. 
C)  never followed in practice by central banks. 
D)  a policy central banks would like to follow but do not know how to. 
E)  only followed by central banks during expansions.

Question 9

According to Thomas Sargent,a key to stopping a hyperinflation is to

Accepted Answer

A)  reduce the money supply. 
B)  increase the money supply. 
C)  dramatically increase nominal interest rates. 
D)  gain control over fiscal policy by reducing the government deficit. 
E)  slow the economy by reducing government spending and/or raising taxes. 
A)  reduce the money supply. 
B)  increase the money supply. 
C)  dramatically increase nominal interest rates. 
D)  gain control over fiscal policy by reducing the government deficit. 
E)  slow the economy by reducing government spending and/or raising taxes.

Question 10

The Friedman rule is optimal because which of the following relationships holds in equilibrium?

Accepted Answer

A)   
B)   
C)   
D)   
E)   
A)   
B)   
C)   
D)   
E)

Question 11

The Fisher effect posits a long-run one-to-one relationship between the

Accepted Answer

A)  inflation rate and the nominal interest rate. 
B)  nominal interest rate and the real interest rate. 
C)  real interest rate and the real exchange rate. 
D)  the nominal exchange rate and the inflation rate. 
E)  inflation rate and the real interest rate. 
A)  inflation rate and the nominal interest rate. 
B)  nominal interest rate and the real interest rate. 
C)  real interest rate and the real exchange rate. 
D)  the nominal exchange rate and the inflation rate. 
E)  inflation rate and the real interest rate.

Question 12

The cheque-clearing system is

Accepted Answer

A)  only found in the U.S. 
B)  is one mechanism by which consumers carry out exchanges. 
C)  is one mechanism by which banks carry out exchanges with each other. 
D)  includes debit card transactions. 
E)  is slowly being replaced by credit cards. 
A)  only found in the U.S. 
B)  is one mechanism by which consumers carry out exchanges. 
C)  is one mechanism by which banks carry out exchanges with each other. 
D)  includes debit card transactions. 
E)  is slowly being replaced by credit cards.

Question 13

Use of Yap stones on the island of Yap was essentially a commodity-backed money

Accepted Answer

A)  employing Yap stone certificates issued by the Yap tribal council. 
B)  which was problematic because the Yap stones were not in limited supply. 
C)  whose record of ownership was recorded on stone tablets. 
D)  whose record of ownership was stored in the collective memory of the islanders. 
E)  which was easy to transport. 
A)  employing Yap stone certificates issued by the Yap tribal council. 
B)  which was problematic because the Yap stones were not in limited supply. 
C)  whose record of ownership was recorded on stone tablets. 
D)  whose record of ownership was stored in the collective memory of the islanders. 
E)  which was easy to transport.

Question 14

In Canada,the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

Accepted Answer

A)  $50,000. 
B)  $100,000. 
C)  $500,000. 
D)  $1,000,000. 
E)  $2,000,000. 
A)  $50,000. 
B)  $100,000. 
C)  $500,000. 
D)  $1,000,000. 
E)  $2,000,000.

Question 15

In a bank run,the equilibrium deposit contract in the Diamond-Dybvig model

Accepted Answer

A)  makes both early and late consumers better off. 
B)  makes early consumers no better off and makes late consumers worse off. 
C)  makes early consumers worse off and makes late consumers better off. 
D)  makes both early consumers and late consumers worse off. 
E)  provides an illiquidity transformation service to consumers. 
A)  makes both early and late consumers better off. 
B)  makes early consumers no better off and makes late consumers worse off. 
C)  makes early consumers worse off and makes late consumers better off. 
D)  makes both early consumers and late consumers worse off. 
E)  provides an illiquidity transformation service to consumers.

Question 16

The Friedman rule for optimal money growth is that

Accepted Answer

A)  inflation and aggregate output grow at the same rate. 
B)  the money supply and aggregate output grow at the same rate. 
C)  the real wage rate and aggregate output grow at the same rate. 
D)  money should grow at a rate that implies that the nominal interest rate is zero. 
E)  money should grow at a rate that implies that the real interest rate is zero. 
A)  inflation and aggregate output grow at the same rate. 
B)  the money supply and aggregate output grow at the same rate. 
C)  the real wage rate and aggregate output grow at the same rate. 
D)  money should grow at a rate that implies that the nominal interest rate is zero. 
E)  money should grow at a rate that implies that the real interest rate is zero.

Question 17

Rao Aiyagai argues that the

Accepted Answer

A)  costs of reducing the inflation rate to zero would exceed the benefits. 
B)  costs of reducing the nominal interest rate to zero would exceed the benefits. 
C)  benefits of reducing the inflation rate to zero would exceed the costs. 
D)  benefits of reducing the nominal interest rate to zero would exceed the costs. 
E)  optimal performance of an economy is where nominal and real interest rates are equal. 
A)  costs of reducing the inflation rate to zero would exceed the benefits. 
B)  costs of reducing the nominal interest rate to zero would exceed the benefits. 
C)  benefits of reducing the inflation rate to zero would exceed the costs. 
D)  benefits of reducing the nominal interest rate to zero would exceed the costs. 
E)  optimal performance of an economy is where nominal and real interest rates are equal.

Question 18

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example of

Accepted Answer

A)  foolish behavior. 
B)  adverse selection. 
C)  moral hazard. 
D)  double coincidence of wants. 
E)  nondiversifiable risk. 
A)  foolish behavior. 
B)  adverse selection. 
C)  moral hazard. 
D)  double coincidence of wants. 
E)  nondiversifiable risk.

Question 19

The optimal trade-off between current leisure and current consumption goods is expressed as

Accepted Answer

A)   
B)   
C)   
D)   
E)   
A)   
B)   
C)   
D)   
E)

Question 20

What are the costs of inflation?

Accepted Answer

Inflation in the long run is determined

Moral hazard is a problem in providing deposit insurance because insured banks are

A liquidity trap is where

If the Friedman rule for long-term monetary policy were implemented,the result would be

Bank failures are less likely to occur in Canada than in the U.S.because Canadian banks are

Recent bank failures in Canada were primarily due to the banks

In the monetary intertemporal model,money is

The most recent Canadian chartered bank failure involved the failure of the

The Friedman rule describes optimal monetary policy and is

According to Thomas Sargent,a key to stopping a hyperinflation is to

The Friedman rule is optimal because which of the following relationships holds in equilibrium?

The Fisher effect posits a long-run one-to-one relationship between the

The cheque-clearing system is

Use of Yap stones on the island of Yap was essentially a commodity-backed money

In Canada,the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

In a bank run,the equilibrium deposit contract in the Diamond-Dybvig model

The Friedman rule for optimal money growth is that

Rao Aiyagai argues that the

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example of

The optimal trade-off between current leisure and current consumption goods is expressed as

What are the costs of inflation?

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 17: Money in the Open Economy

Moral hazard is a problem in providing deposit insurance because insured banks are

A liquidity trap is where

If the Friedman rule for long-term monetary policy were implemented,the result would be

Bank failures are less likely to occur in Canada than in the U.S.because Canadian banks are

Recent bank failures in Canada were primarily due to the banks

In the monetary intertemporal model,money is

The most recent Canadian chartered bank failure involved the failure of the

The Friedman rule describes optimal monetary policy and is

According to Thomas Sargent,a key to stopping a hyperinflation is to

The Friedman rule is optimal because which of the following relationships holds in equilibrium?

The Fisher effect posits a long-run one-to-one relationship between the

The cheque-clearing system is

Use of Yap stones on the island of Yap was essentially a commodity-backed money

In Canada,the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

In a bank run,the equilibrium deposit contract in the Diamond-Dybvig model

The Friedman rule for optimal money growth is that

Rao Aiyagai argues that the

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example of

The optimal trade-off between current leisure and current consumption goods is expressed as

What are the costs of inflation?

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money, Inflation, and Banking: A Deeper Look

Filters