Question 1

Proponents of the modern central banking theory of interest rate determination agree that central banks can control

Accepted Answer

A)  short-term market interest rates. 
B)  medium-term market interest rates. 
C)  long-term market interest rates. 
D)  long-term real interest rates. 
E)  medium-term real interest rates. 
A)  short-term market interest rates. 
B)  medium-term market interest rates. 
C)  long-term market interest rates. 
D)  long-term real interest rates. 
E)  medium-term real interest rates. A

Question 2

In a certain economy,the components of planned aggregate expenditure are given by:
C = 60 + 0.6(Y - T)- 1,000r
I = 200 - 1,000r
G = 200
NX = 50
If net taxes equal 100 and the central bank sets the interest rate equal to 0.05 (5%),short-run equilibrium output equals

Accepted Answer

A)  825. 
B)  875. 
C)  925. 
D)  975. 
E)  1,025. 
A)  825. 
B)  875. 
C)  925. 
D)  975. 
E)  1,025. B

Question 3

If potential output equals 8,000 and short-run equilibrium output equals 8,500,there is a(n)______ gap and the Bank of Canada must _______ real interest rates in order to close the gap.

Accepted Answer

A)  recessionary;raise 
B)  recessionary;lower 
C)  recessionary;not change 
D)  expansionary;raise 
E)  expansionary;lower 
A)  recessionary;raise 
B)  recessionary;lower 
C)  recessionary;not change 
D)  expansionary;raise 
E)  expansionary;lower D

Question 4

When the Bank of Canada conducts expansionary monetary policy,the nominal interest rate ______ and the real interest rate _______.

Accepted Answer

A)  increases;increases 
B)  increases;decreases 
C)  decreases;increases 
D)  decreases;decreases 
E)  decreases;stays the same 
A)  increases;increases 
B)  increases;decreases 
C)  decreases;increases 
D)  decreases;decreases 
E)  decreases;stays the same

Question 5

The overnight rate refers to

Accepted Answer

A)  the interest rate that commercial banks charge to their least risky business borrowers. 
B)  the market interest rate that financial institutions charge each other for overnight loans. 
C)  a term used to describe the range of possible overnight interest rates. 
D)  the interest rate that the Bank of Canada charges commercial banks for overnight loans. 
E)  accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another. 
A)  the interest rate that commercial banks charge to their least risky business borrowers. 
B)  the market interest rate that financial institutions charge each other for overnight loans. 
C)  a term used to describe the range of possible overnight interest rates. 
D)  the interest rate that the Bank of Canada charges commercial banks for overnight loans. 
E)  accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another.

Question 6

To close an expansionary gap,the Bank of Canada ________ interest rates,which ______ planned aggregate expenditure and ________ short-run equilibrium output.

Accepted Answer

A)  raises;increases;increases 
B)  raises;decreases;increases 
C)  raises;decreases;decreases 
D)  lowers;increases;decreases 
E)  lowers;increases;increases 
A)  raises;increases;increases 
B)  raises;decreases;increases 
C)  raises;decreases;decreases 
D)  lowers;increases;decreases 
E)  lowers;increases;increases

Question 7

Which of the following is NOT stated in the Bank of Canada Act as a policy objective of the Bank of Canada?

Accepted Answer

A)  Regulate credit. 
B)  Regulate currency. 
C)  Mitigate fluctuations in prices. 
D)  Mitigate fluctuations in employment. 
E)  Promote government budget surpluses. 
A)  Regulate credit. 
B)  Regulate currency. 
C)  Mitigate fluctuations in prices. 
D)  Mitigate fluctuations in employment. 
E)  Promote government budget surpluses.

Question 8

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 10,800,the central bank must __________ the interest rate to ________ to restore full employment.

Accepted Answer

A)  lower;3% 
B)  lower;4% 
C)  raise;6% 
D)  raise;7% 
E)  raise;8% 
A)  lower;3% 
B)  lower;4% 
C)  raise;6% 
D)  raise;7% 
E)  raise;8%

Question 9

To close a recessionary gap,the Bank of Canada _______ interest rates,which ______ planned aggregate expenditure and _______ short-run equilibrium output.

Accepted Answer

A)  raises;increases;increases 
B)  raises;decreases;increases 
C)  raises;decreases;decreases 
D)  lowers;increases;decreases 
E)  lowers;increases;increases 
A)  raises;increases;increases 
B)  raises;decreases;increases 
C)  raises;decreases;decreases 
D)  lowers;increases;decreases 
E)  lowers;increases;increases

Question 10

To eliminate the output gap shown in the figure below,with a view to prevent inflation from emerging,the central bank should take a(n)_______ and _______ the official interest rate by a sufficient amount.If successful,such a policy may be expected shift the expenditure line _______.

Accepted Answer

A)  expansionary monetary policy action;raise;down 
B)  contractionary monetary policy action;raise;down 
C)  expansionary monetary policy action;lower;down 
D)  contractionary monetary policy action;raise;up 
E)  expansionary monetary policy action;raise;up 
A)  expansionary monetary policy action;raise;down 
B)  contractionary monetary policy action;raise;down 
C)  expansionary monetary policy action;lower;down 
D)  contractionary monetary policy action;raise;up 
E)  expansionary monetary policy action;raise;up

Question 11

The tools or techniques that a central bank employs to achieve its monetary policy objectives are called

Accepted Answer

A)  monetary policy instruments. 
B)  monetary policy targets. 
C)  settlement balances. 
D)  benchmark rates. 
E)  large value transfers. 
A)  monetary policy instruments. 
B)  monetary policy targets. 
C)  settlement balances. 
D)  benchmark rates. 
E)  large value transfers.

Question 12

In Macroland,the components of planned aggregate expenditure are given by:
C = 100 + 0.9(Y - T)- 500r
I = 150 - 1,000r
G = 200
NX = 50
If potential output equals 3,500,net taxes equal 100,and the central bank sets the interest rate to equal 0.05 (5%),then at the short-run equilibrium,there is a(n)_________ gap of ________.

Accepted Answer

A)  expansionary;100 
B)  expansionary;150 
C)  recessionary;50 
D)  recessionary;100 
E)  recessionary;150 
A)  expansionary;100 
B)  expansionary;150 
C)  recessionary;50 
D)  recessionary;100 
E)  recessionary;150

Question 13

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 9,200,the central bank must _______ the interest rate to ______ to restore full employment.

Accepted Answer

A)  lower;3% 
B)  lower;4% 
C)  raise;6% 
D)  raise;7% 
E)  raise;8% 
A)  lower;3% 
B)  lower;4% 
C)  raise;6% 
D)  raise;7% 
E)  raise;8%

Question 14

The Bank of Canada has a great deal of control over the ________,but has less control over the ________ or the ________.

Accepted Answer

A)  long-term government bond rate;overnight rate;rate on bonds issued by corporations 
B)  rate on bonds issued by corporations;overnight rate;long-term government bond rate 
C)  overnight rate;long-term government bond rate;rate on bonds issued by corporations 
D)  overnight rate;bank rate;prime business rate 
E)  prime business rate;overnight rate;bank rate 
A)  long-term government bond rate;overnight rate;rate on bonds issued by corporations 
B)  rate on bonds issued by corporations;overnight rate;long-term government bond rate 
C)  overnight rate;long-term government bond rate;rate on bonds issued by corporations 
D)  overnight rate;bank rate;prime business rate 
E)  prime business rate;overnight rate;bank rate

Question 15

The Bank of Canada's official interest rate is the _______.This is the interest rate that prevails in the _______,and the rate at which commercial banks lend and borrow _______ funds from each other.

Accepted Answer

A)  overnight rate target;overnight loans market;overnight 
B)  prime business rate;money markets;short term 
C)  overnight rate target;money markets;long term 
D)  prime business rate;overnight loans market;long term 
E)  bank rate;money markets;overnight 
A)  overnight rate target;overnight loans market;overnight 
B)  prime business rate;money markets;short term 
C)  overnight rate target;money markets;long term 
D)  prime business rate;overnight loans market;long term 
E)  bank rate;money markets;overnight

Question 16

Core CPI inflation is _________ than total CPI inflation in the _________ term.

Accepted Answer

A)  more volatile;short 
B)  more volatile;long 
C)  more volatile;medium 
D)  less volatile;short 
E)  less volatile;long 
A)  more volatile;short 
B)  more volatile;long 
C)  more volatile;medium 
D)  less volatile;short 
E)  less volatile;long

Question 17

In Macroland,the components of planned aggregate expenditure are given by:
C = 100 + 0.9(Y - T)- 500r
I = 150 - 1,000r
G = 200
NX = 50
If potential output equals 3,200,net taxes equal 100,and the central bank sets the interest rate to equal 0.05 (5%),then the bank must _____ the interest rate to ______ to restore full employment.

Accepted Answer

A)  raise;6% 
B)  raise;7% 
C)  lower;4% 
D)  lower;3% 
E)  lower;2% 
A)  raise;6% 
B)  raise;7% 
C)  lower;4% 
D)  lower;3% 
E)  lower;2%

Question 18

The interest rate spread is the difference between

Accepted Answer

A)  a nominal rate and a real rate of interest. 
B)  a benchmark rate and the effective lower bound. 
C)  a benchmark rate and a related market interest rate. 
D)  the key policy rate and the official interest rate 
E)  the upper and lower bound of the operating band. 
A)  a nominal rate and a real rate of interest. 
B)  a benchmark rate and the effective lower bound. 
C)  a benchmark rate and a related market interest rate. 
D)  the key policy rate and the official interest rate 
E)  the upper and lower bound of the operating band.

Question 19

Financial markets pay close attention to changes in the overnight rate target because these changes

Accepted Answer

A)  directly affect a large volume of loans. 
B)  indicate the Bank of Canada's plans for monetary policy. 
C)  indicate commercial bank lending policies. 
D)  directly affect the interest payments on the national debt. 
E)  directly impact consumer interest burdens. 
A)  directly affect a large volume of loans. 
B)  indicate the Bank of Canada's plans for monetary policy. 
C)  indicate commercial bank lending policies. 
D)  directly affect the interest payments on the national debt. 
E)  directly impact consumer interest burdens.

Question 20

Accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another are called

Accepted Answer

A)  transfer accounts. 
B)  payment accounts. 
C)  financial balances. 
D)  settlement balances. 
E)  institutional balances. 
A)  transfer accounts. 
B)  payment accounts. 
C)  financial balances. 
D)  settlement balances. 
E)  institutional balances.

Proponents of the modern central banking theory of interest rate determination agree that central banks can control

In a certain economy,the components of planned aggregate expenditure are given by: C = 60 + 0.6(Y - T)- 1,000r I = 200 - 1,000r G = 200 NX = 50 If net taxes equal 100 and the central bank sets the interest rate equal to 0.05 (5%),short-run equilibrium output equals

If potential output equals 8,000 and short-run equilibrium output equals 8,500,there is a(n) gap and the Bank of Canada must _ real interest rates in order to close the gap.

When the Bank of Canada conducts expansionary monetary policy,the nominal interest rate and the real interest rate _.

The overnight rate refers to

To close an expansionary gap,the Bank of Canada interest rates,which planned aggregate expenditure and __ short-run equilibrium output.

Which of the following is NOT stated in the Bank of Canada Act as a policy objective of the Bank of Canada?

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 10,800,the central bank must __ the interest rate to to restore full employment.

To close a recessionary gap,the Bank of Canada _ interest rates,which planned aggregate expenditure and ___ short-run equilibrium output.

To eliminate the output gap shown in the figure below,with a view to prevent inflation from emerging,the central bank should take a(n)___ and _ the official interest rate by a sufficient amount.If successful,such a policy may be expected shift the expenditure line _____.

The tools or techniques that a central bank employs to achieve its monetary policy objectives are called

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 9,200,the central bank must _ the interest rate to to restore full employment.

The Bank of Canada has a great deal of control over the ,but has less control over the or the .

The Bank of Canada's official interest rate is the ___.This is the interest rate that prevails in the _,and the rate at which commercial banks lend and borrow _____ funds from each other.

Core CPI inflation is _ than total CPI inflation in the _ term.

The interest rate spread is the difference between

Financial markets pay close attention to changes in the overnight rate target because these changes

Accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another are called

Measuring Macroeconomic Performance: Output and Prices

Measuring Macroeconomic Performance: Saving and Wealth

Measuring Macroeconomic Performance: Wages, Employment and the Labour Market

Short-Term Economic Fluctuations

Spending and Output in the Short Run

Fiscal Policy

Money, Prices and the Reserve Bank

The Reserve Bank and the Economy

The Aggregate Demand - Aggregate Supply Model

The Economy in the Long Run: an Introduction to Economic Growth

The Production Function Approach to Understanding Growth

Savings, Capital Formation and Comparative Economic Growth

International Trade

Exchange Rates and the Open Economy

The Balance of Payments: Net Exports and International Capital Flows

Filters

Exam 10: Macroeconomic Policy

Proponents of the modern central banking theory of interest rate determination agree that central banks can control

In a certain economy,the components of planned aggregate expenditure are given by: C = 60 + 0.6(Y - T)- 1,000r I = 200 - 1,000r G = 200 NX = 50 If net taxes equal 100 and the central bank sets the interest rate equal to 0.05 (5%),short-run equilibrium output equals

If potential output equals 8,000 and short-run equilibrium output equals 8,500,there is a(n)______ gap and the Bank of Canada must _______ real interest rates in order to close the gap.

When the Bank of Canada conducts expansionary monetary policy,the nominal interest rate ______ and the real interest rate _______.

The overnight rate refers to

To close an expansionary gap,the Bank of Canada ________ interest rates,which ______ planned aggregate expenditure and ________ short-run equilibrium output.

Which of the following is NOT stated in the Bank of Canada Act as a policy objective of the Bank of Canada?

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 10,800,the central bank must __________ the interest rate to ________ to restore full employment.

To close a recessionary gap,the Bank of Canada _______ interest rates,which ______ planned aggregate expenditure and _______ short-run equilibrium output.

To eliminate the output gap shown in the figure below,with a view to prevent inflation from emerging,the central bank should take a(n)_______ and _______ the official interest rate by a sufficient amount.If successful,such a policy may be expected shift the expenditure line _______.

The tools or techniques that a central bank employs to achieve its monetary policy objectives are called

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 9,200,the central bank must _______ the interest rate to ______ to restore full employment.

The Bank of Canada has a great deal of control over the ________,but has less control over the ________ or the ________.

The Bank of Canada's official interest rate is the _______.This is the interest rate that prevails in the _______,and the rate at which commercial banks lend and borrow _______ funds from each other.

Core CPI inflation is _________ than total CPI inflation in the _________ term.

The interest rate spread is the difference between

Financial markets pay close attention to changes in the overnight rate target because these changes

Accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another are called

Measuring Macroeconomic Performance: Output and Prices

Measuring Macroeconomic Performance: Saving and Wealth

Measuring Macroeconomic Performance: Wages, Employment and the Labour Market

Short-Term Economic Fluctuations

Spending and Output in the Short Run

Fiscal Policy

Money, Prices and the Reserve Bank

The Reserve Bank and the Economy

The Aggregate Demand - Aggregate Supply Model

The Economy in the Long Run: an Introduction to Economic Growth

The Production Function Approach to Understanding Growth

Savings, Capital Formation and Comparative Economic Growth

International Trade

Exchange Rates and the Open Economy

The Balance of Payments: Net Exports and International Capital Flows

Filters

If potential output equals 8,000 and short-run equilibrium output equals 8,500,there is a(n) gap and the Bank of Canada must _ real interest rates in order to close the gap.

When the Bank of Canada conducts expansionary monetary policy,the nominal interest rate and the real interest rate _.

To close an expansionary gap,the Bank of Canada interest rates,which planned aggregate expenditure and __ short-run equilibrium output.

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 10,800,the central bank must __ the interest rate to to restore full employment.

To close a recessionary gap,the Bank of Canada _ interest rates,which planned aggregate expenditure and ___ short-run equilibrium output.

To eliminate the output gap shown in the figure below,with a view to prevent inflation from emerging,the central bank should take a(n)___ and _ the official interest rate by a sufficient amount.If successful,such a policy may be expected shift the expenditure line _____.

In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r,the central bank is currently setting the interest rate at 0.05 (5%).If potential output equals 9,200,the central bank must _ the interest rate to to restore full employment.

The Bank of Canada has a great deal of control over the ,but has less control over the or the .

The Bank of Canada's official interest rate is the ___.This is the interest rate that prevails in the _,and the rate at which commercial banks lend and borrow _____ funds from each other.

Core CPI inflation is _ than total CPI inflation in the _ term.