Question 1

The conduct of monetary policy in Canada is a real-world application of the modern central banking theory.Thus,the Bank of Canada's main monetary policy tool is

Accepted Answer

A)  the money supply. 
B)  the bank rate. 
C)  the key policy rate. 
D)  the prime business rate. 
E)  potential output. 
A)  the money supply. 
B)  the bank rate. 
C)  the key policy rate. 
D)  the prime business rate. 
E)  potential output.

Question 2

The lowest feasible level for a central bank's key policy rate is called the

Accepted Answer

A)  minimum prime business rate. 
B)  minimum overnight lending rate. 
C)  benchmark rate. 
D)  lowest official interest rate. 
E)  effective lower bound 
A)  minimum prime business rate. 
B)  minimum overnight lending rate. 
C)  benchmark rate. 
D)  lowest official interest rate. 
E)  effective lower bound

Question 3

A reduction in interest rates by the Bank of Canada with the intention of reducing a recessionary gap is called

Accepted Answer

A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  monetary tightening. 
D)  negative monetary policy. 
E)  autonomous monetary policy. 
A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  monetary tightening. 
D)  negative monetary policy. 
E)  autonomous monetary policy.

Question 4

If potential output equals 10,000 and short-run equilibrium output equals 8,500,there is a ______ 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

Question 5

Assume that the economy faces high unemployment but stable prices.Which combination of government policies is most likely to reduce unemployment?

Accepted Answer

A)  A lower key policy rate and an increase in taxes. 
B)  A higher key policy rate and a decrease in taxes. 
C)  A higher key policy rate and a decrease in government purchases. 
D)  A lower key policy rate and an increase in government purchases. 
E)  An increase in government purchases and an increase in taxes. 
A)  A lower key policy rate and an increase in taxes. 
B)  A higher key policy rate and a decrease in taxes. 
C)  A higher key policy rate and a decrease in government purchases. 
D)  A lower key policy rate and an increase in government purchases. 
E)  An increase in government purchases and an increase in taxes.

Question 6

A significant reduction of the official interest rate by the Bank of Canada would be expected to

Accepted Answer

A)  increase consumption spending on domestic goods. 
B)  increase investment spending on domestic goods. 
C)  increase net foreign spending on domestic goods. 
D)  shift up the expenditure line. 
E)  increase consumption,investment,and net foreign spending,and shift up the expenditure linE. 
A)  increase consumption spending on domestic goods. 
B)  increase investment spending on domestic goods. 
C)  increase net foreign spending on domestic goods. 
D)  shift up the expenditure line. 
E)  increase consumption,investment,and net foreign spending,and shift up the expenditure linE.

Question 7

If inflation does not adjust rapidly,then when the Bank of Canada decreases the nominal interest rate,the real interest rate in the short run will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not change. 
D)  equal the nominal interest rate. 
E)  be determined by saving and investment decisions. 
A)  increase. 
B)  decrease. 
C)  not change. 
D)  equal the nominal interest rate. 
E)  be determined by saving and investment decisions.

Question 8

The Bank of Canada's inflation-control target is to keep annual inflation at __________ percent.

Accepted Answer

A)  zero 
B)  one 
C)  two. 
D)  three. 
E)  four. 
A)  zero 
B)  one 
C)  two. 
D)  three. 
E)  four.

Question 9

When the Bank of Canada conducts contractionary 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)  increases;stays the same 
A)  increases;increases 
B)  increases;decreases 
C)  decreases;increases 
D)  decreases;decreases 
E)  increases;stays the same

Question 10

If planned aggregate expenditure in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r,and potential output equals 36,000,what real interest rate must the central bank set to bring the economy to full employment?

Accepted Answer

A)  2%. 
B)  3%. 
C)  4%. 
D)  5%. 
E)  6%. 
A)  2%. 
B)  3%. 
C)  4%. 
D)  5%. 
E)  6%.

Question 11

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 net taxes equal 100 and the central bank sets the interest rate to equal 0.04 (4%),what is short-run equilibrium output?

Accepted Answer

A)  3,200. 
B)  3,350. 
C)  3,500. 
D)  3,650. 
E)  3,800. 
A)  3,200. 
B)  3,350. 
C)  3,500. 
D)  3,650. 
E)  3,800.

Question 12

The Bank of Canada sets

Accepted Answer

A)  potential output. 
B)  the money supply. 
C)  the government purchases. 
D)  the exchange rate. 
E)  the key policy ratE. 
A)  potential output. 
B)  the money supply. 
C)  the government purchases. 
D)  the exchange rate. 
E)  the key policy ratE.

Question 13

Although the Bank of Canada Act lists several intended objectives of the Bank of Canada,the Bank of Canada's stated sole policy objective since the early 1990s has been

Accepted Answer

A)  economic growth. 
B)  exchange rate stability. 
C)  low unemployment. 
D)  low inflation. 
E)  government budget surpluses. 
A)  economic growth. 
B)  exchange rate stability. 
C)  low unemployment. 
D)  low inflation. 
E)  government budget surpluses.

Question 14

Which of the following is NOT consistent with the effects on the economy of a decrease in the overnight rate target by the Bank of Canada?

Accepted Answer

A)  Market interest rates decrease. 
B)  Real interest rates decrease. 
C)  The Canadian dollar depreciates. 
D)  The growth of spending on domestic goods increases. 
E)  Output decreases. 
A)  Market interest rates decrease. 
B)  Real interest rates decrease. 
C)  The Canadian dollar depreciates. 
D)  The growth of spending on domestic goods increases. 
E)  Output decreases.

Question 15

In Econland,the components of planned aggregate expenditure are given by:
C = 500 + 0.75(Y - T)- 500r
I = 300 - 500r
G = 400
NX = 30
If potential output equals 4,520,net taxes equal 40 and the central bank sets the interest rate at 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 16

When the Bank of Canada raises the overnight rate target,the ________ rate and the ________ rate usually go up by the exact same amount,but the ________ rate may or may not go up by the same amount.

Accepted Answer

A)  overnight;prime business;long-term government bond 
B)  overnight;long-term government bond;prime business 
C)  overnight;prime business;bank 
D)  bank;long-term government bond;overnight 
E)  bank;long-term government bond;prime business 
A)  overnight;prime business;long-term government bond 
B)  overnight;long-term government bond;prime business 
C)  overnight;prime business;bank 
D)  bank;long-term government bond;overnight 
E)  bank;long-term government bond;prime business

Question 17

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 potential output equals 775,net taxes equal 100 and the central bank sets the interest rate equal to 0.05 (5%),then at the short-run equilibrium,there is a(n)______ gap of _______.

Accepted Answer

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

Question 18

If inflation does not adjust rapidly,then when the Bank of Canada increases the nominal interest rate,the real interest rate in the short run will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not change. 
D)  equal the nominal interest rate. 
E)  be determined by saving and investment decisions. 
A)  increase. 
B)  decrease. 
C)  not change. 
D)  equal the nominal interest rate. 
E)  be determined by saving and investment decisions.

Question 19

The prime business 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 20

A higher real interest rate _________ private-sector investment spending and _________ consumption spending.

Accepted Answer

A)  increases;increases 
B)  increases;decreases 
C)  does not change;does not change 
D)  decreases;increases 
E)  decreases;decreases 
A)  increases;increases 
B)  increases;decreases 
C)  does not change;does not change 
D)  decreases;increases 
E)  decreases;decreases

The conduct of monetary policy in Canada is a real-world application of the modern central banking theory.Thus,the Bank of Canada's main monetary policy tool is

The lowest feasible level for a central bank's key policy rate is called the

A reduction in interest rates by the Bank of Canada with the intention of reducing a recessionary gap is called

If potential output equals 10,000 and short-run equilibrium output equals 8,500,there is a gap and the Bank of Canada must __ real interest rates in order to close the gap.

Assume that the economy faces high unemployment but stable prices.Which combination of government policies is most likely to reduce unemployment?

A significant reduction of the official interest rate by the Bank of Canada would be expected to

If inflation does not adjust rapidly,then when the Bank of Canada decreases the nominal interest rate,the real interest rate in the short run will

The Bank of Canada's inflation-control target is to keep annual inflation at __________ percent.

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

If planned aggregate expenditure in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r,and potential output equals 36,000,what real interest rate must the central bank set to bring the economy to full employment?

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 net taxes equal 100 and the central bank sets the interest rate to equal 0.04 (4%),what is short-run equilibrium output?

The Bank of Canada sets

Although the Bank of Canada Act lists several intended objectives of the Bank of Canada,the Bank of Canada's stated sole policy objective since the early 1990s has been

Which of the following is NOT consistent with the effects on the economy of a decrease in the overnight rate target by the Bank of Canada?

When the Bank of Canada raises the overnight rate target,the rate and the rate usually go up by the exact same amount,but the rate may or may not go up by the same amount.

If inflation does not adjust rapidly,then when the Bank of Canada increases the nominal interest rate,the real interest rate in the short run will

The prime business rate refers to

A higher real interest rate _ private-sector investment spending and _ consumption spending.

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

The conduct of monetary policy in Canada is a real-world application of the modern central banking theory.Thus,the Bank of Canada's main monetary policy tool is

The lowest feasible level for a central bank's key policy rate is called the

A reduction in interest rates by the Bank of Canada with the intention of reducing a recessionary gap is called

If potential output equals 10,000 and short-run equilibrium output equals 8,500,there is a ______ gap and the Bank of Canada must ________ real interest rates in order to close the gap.

Assume that the economy faces high unemployment but stable prices.Which combination of government policies is most likely to reduce unemployment?

A significant reduction of the official interest rate by the Bank of Canada would be expected to

If inflation does not adjust rapidly,then when the Bank of Canada decreases the nominal interest rate,the real interest rate in the short run will

The Bank of Canada's inflation-control target is to keep annual inflation at __________ percent.

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

If planned aggregate expenditure in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r,and potential output equals 36,000,what real interest rate must the central bank set to bring the economy to full employment?

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 net taxes equal 100 and the central bank sets the interest rate to equal 0.04 (4%),what is short-run equilibrium output?

The Bank of Canada sets

Although the Bank of Canada Act lists several intended objectives of the Bank of Canada,the Bank of Canada's stated sole policy objective since the early 1990s has been

Which of the following is NOT consistent with the effects on the economy of a decrease in the overnight rate target by the Bank of Canada?

When the Bank of Canada raises the overnight rate target,the ________ rate and the ________ rate usually go up by the exact same amount,but the ________ rate may or may not go up by the same amount.

If inflation does not adjust rapidly,then when the Bank of Canada increases the nominal interest rate,the real interest rate in the short run will

The prime business rate refers to

A higher real interest rate _________ private-sector investment spending and _________ consumption spending.

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 10,000 and short-run equilibrium output equals 8,500,there is a gap and the Bank of Canada must __ real interest rates in order to close the gap.

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

When the Bank of Canada raises the overnight rate target,the rate and the rate usually go up by the exact same amount,but the rate may or may not go up by the same amount.

A higher real interest rate _ private-sector investment spending and _ consumption spending.