Question 1

Which of the following statements is not correct?

Accepted Answer

A)  Given the supply of money, a decline in the demand for money will tend to reduce the equilibrium GDP.
B)  Given the supply of money, the equilibrium interest rate will vary directly with the level of money GDP.
C)  Given the demand for money, the equilibrium interest rate will vary inversely with the supply of money.
D)  Given the supply of money, the equilibrium interest rate will vary directly with the demand for money.E) A) and B)
F) A) and C)

Question 2

Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

Accepted Answer

A)  growth of the money supply.
B)  overnight loans rate.
C)  prime interest rate.
D)  Canadian dollar-foreign currency exchange rate.E) A) and C)
F) A) and B)

Question 3

The total quantity of money demanded is determined by:

Accepted Answer

A)  subtracting the asset demand for money from the transactions demand for money.
B)  adding the transactions demand for money to the asset demand for money.
C)  subtracting the transactions demand for money from nominal GDP.
D)  adding the asset demand for money to nominal GDP.E) B) and C)
F) All of the above

Question 4

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  changes in the bank rate
B)  open-market operations
C)  changes in tax rates
D)  switching government deposits into and out of the chartered banksE) B) and C)
F) A) and D)

Question 5

A headline reads: " Bank of Canada cut the overnight lending rate by half a point." This suggests that:

Accepted Answer

A)  the prime interest rate will rise.
B)  the velocity of money will fall.
C)  monetary policy has eased.
D)  the bank rate will rise.E) C) and D)
F) A) and C)

Question 6

In the autumn of 2010, the Bank of Canada began to:

Accepted Answer

A)  increase interest rates, yet rates stayed at historic lows throughout 2012.
B)  decrease interest rates even further to the point that they were at their lowest by 2012.
C)  increase interest rates, but then decreased them again in 2012.
D)  decrease interest rates, but then started increasing them again in 2012.E) All of the above
F) B) and C)

Question 7

Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1)  and (2)  indicate the transactions demand (Dt)  for money and columns (1)  and (3)  show the asset demand (Da)  for money:
t)  for money and columns (1)  and (3)  show the asset demand (Da)  for money:   A) 10 percent. B) 8 percent. C) 6 percent. D) 4 percent." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  10 percent.
B)  8 percent.
C)  6 percent.
D)  4 percent.E) A) and C)
F) None of the above

Question 8

The so-called Taylor Rule states that:

Accepted Answer

A)  monetary policy should only respond to the changes in real GDP and not in inflation.
B)  monetary policy should only respond to the changes in inflation and not in real GDP.
C)  monetary policy should respond to changes in both real GDP and inflation.
D)  Monetary policy should only respond to changes in unemployment rate.E) A) and B)
F) None of the above

Question 9

Monetary policy is thought to be:

Accepted Answer

A)  equally effective in moving the economy out of a recession as in controlling inflation.
B)  more effective in moving the economy out of a recession than in controlling inflation.
C)  only effective in moving the economy out of a recession.
D)  more effective in controlling inflation than in moving the economy out of a recession.E) B) and C)
F) None of the above

Question 10

What is one of the advantages of monetary policy over fiscal policy?

Accepted Answer

A)  its control over the size of Federal budget deficits
B)  the quickness with which it can be used
C)  the opportunity for broad political influence
D)  its domination of major sectors of the economyE) B) and C)
F) B) and D)

Question 11

Refer to the information below.The transactions demand for money in this market would graph as a:

Accepted Answer

A)  vertical line.
B)  horizontal line.
C)  line sloping downward and to the right.
D)  line sloping upward and to the right.E) B) and C)
F) A) and B)

Question 12

The purpose of a restrictive monetary policy is to:

Accepted Answer

A)  increase aggregate demand.
B)  decrease aggregate demand.
C)  increase investment demand.
D)  decrease investment demand.E) All of the above
F) B) and C)

Question 13

1. B) D2. C) D3. D) none of the above." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.The asset demand for money is shown by:

Accepted Answer

A)  D1.
B)  D2.
C)  D3.
D)  none of the above.E) A) and B)
F) B) and C)

Question 14

The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

Accepted Answer

A) True 
 B)False

Question 15

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 16

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

Accepted Answer

A) True 
 B)False

Question 17

Which one is considered a limitation of monetary policy?

Accepted Answer

A)  the cause-effect chain
B)  its cyclical asymmetry
C)  its isolation from political pressure
D)  the speed with which it can be implementedE) B) and C)
F) A) and B)

Question 18

The opportunity cost of holding money:

Accepted Answer

A)  is zero because money is not an economic resource.
B)  varies inversely with the interest rate.
C)  varies directly with the interest rate.
D)  varies inversely with the level of economic activity.E) All of the above
F) C) and D)

Question 19

If the government pursues a restrictive monetary policy, then it will:

Accepted Answer

A)  increase domestic interest rates, cause the dollar to appreciate, and decrease net exports.
B)  decrease domestic interest rates, cause the dollar to depreciate, and increase net exports.
C)  increase domestic interest rates, cause the dollar to depreciate, and increase net exports.
D)  increase domestic interest rates, cause the dollar to appreciate, and increase net exports.E) B) and C)
F) None of the above

Question 20

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

Accepted Answer

A)  S curve would shift leftward and the equilibrium interest rate would rise.
B)  S curve would shift rightward and the equilibrium interest rate would fall.
C)  D would shift leftward and the equilibrium interest rate would fall.
D)  S curve would shift rightward, but the effect on the equilibrium interest rate would be uncertain.E) A) and D)
F) All of the above

Exam 15: B: Interest Rates and Monetary Policy

The opportunity cost of holding money:

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Refer to the information below.The transactions demand for money in this market would graph as a:

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Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:

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A headline reads: " Bank of Canada cut the overnight lending rate by half a point." This suggests that:

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Which of the following is not a tool of monetary policy?

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Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

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In the autumn of 2010, the Bank of Canada began to:

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The so-called Taylor Rule states that:

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Refer to the above diagram.The asset demand for money is shown by:

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What is one of the advantages of monetary policy over fiscal policy?

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Which of the following statements is not correct?

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Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

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Which one is considered a limitation of monetary policy?

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The major advantages of monetary policy include its flexibility, speed, and political acceptability.

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The total quantity of money demanded is determined by:

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Monetary policy is thought to be:

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If the government pursues a restrictive monetary policy, then it will:

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The purpose of a restrictive monetary policy is to:

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The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

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Bond prices and interest rates are directly related.

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Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (D_t) for money and columns (1) and (3) show the asset demand (D_a) for money:

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