Question 1

Assume that the desired reserve ratio is 20 percent.Suppose that the Bank of Canada sells $500 of government securities to chartered banks and buys $500 of securities from individuals, who deposit the cash in chequing accounts.Refer to the above information.As a result of these transactions, the supply of money in the economy will:

Accepted Answer

A)  remain unchanged.
B)  rise by $500.
C)  fall by $100.
D)  fall by $500.E) B) and C)
F) None of the above

Question 2

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Accepted Answer

A)  $500
B)  $480
C)  $460
D)  $440E) All of the above
F) B) and D)

Question 3

If the Bank of Canada buys government securities from chartered banks and the public:

Accepted Answer

A)  chartered bank reserves will decline.
B)  chartered bank reserves will be unaffected.
C)  it will be easier to obtain loans at chartered banks.
D)  the money supply will contract.E) C) and D)
F) A) and B)

Question 4

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 5

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal, the use of appropriate monetary policy to reduce inflation would:

Accepted Answer

A)  cause the dollar to depreciate in value.
B)  have no impact on our trade deficit.
C)  decrease our trade deficit.
D)  increase our trade deficit.E) All of the above
F) B) and D)

Question 6

A restrictive monetary policy may not be effective if the investment-demand curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 7

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit.All else equal, the use of appropriate monetary policy to reduce unemployment would:

Accepted Answer

A)  cause the dollar to appreciate in value.
B)  have no impact upon our trade deficit.
C)  decrease our trade deficit.
D)  increase our trade deficit.E) B) and D)
F) A) and C)

Question 8

In the consolidated balance sheet of the Bank of Canada, chartered bank reserves held by the Bank of Canada are:

Accepted Answer

A)  a liability of the Bank of Canada and chartered banks.
B)  an asset of the Bank of Canada and chartered banks.
C)  a liability of the chartered banks and an asset for the Bank of Canada.
D)  an asset of the chartered banks and a liability for the Bank of Canada.E) All of the above
F) None of the above

Question 9

A monetary policy-caused reduction in the overnight lending rate will:

Accepted Answer

A)  increase the prime interest rate.
B)  decrease the size of the monetary multiplier.
C)  increase the Bank of Canada rate.
D)  decrease the prime interest rate.E) C) and D)
F) A) and B)

Question 10

Which is considered a strength of monetary policy compared to fiscal policy?

Accepted Answer

A)  the ability to increase the velocity of money
B)  the ability to decrease the velocity of money
C)  its cyclical asymmetry.
D)  its protection from political pressure.E) A) and D)
F) A) and C)

Question 11

Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public.As a result of this transaction the supply of money is:

Accepted Answer

A)  not directly affected, but the money-creating potential of the chartered banking system is increased by $12 million.
B)  directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $16 million.
C)  directly reduced by $4 million and the money-creating potential of the chartered banking system is decreased by $12 million.
D)  directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $12 million.E) All of the above
F) A) and B)

Question 12

The largest single liability of the Bank of Canada is its outstanding advances to chartered banks.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:

Accepted Answer

A)  sell bonds, which would cause bond prices to fall and the interest rate to rise.
B)  buy bonds, which would cause bond prices to fall and the interest rate to rise.
C)  sell bonds, which would cause bond prices to rise and the interest rate to rise.
D)  buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate.E) C) and D)
F) B) and D)

Question 14

A headline reads: "Bank of Canada raises the overnight rate by half a point." This indicates that:

Accepted Answer

A)  fiscal policy is being offset by monetary policy.
B)  monetary policy is being offset by fiscal policy.
C)  there has been a tightening of monetary policy.
D)  there has been an easing of monetary policy.E) A) and B)
F) All of the above

Question 15

The Bank of Canada:

Accepted Answer

A)  acts as a fiscal agent for the federal government.
B)  supplies the economy with paper currency.
C)  acts as the chartered banks' bank.
D)  does all of the above.E) A) and D)
F) A) and C)

Question 16

1 represents the: A) speculative demand for money. B) transactions demand for money. C) asset demand for money. D) stock of money." class="answers-bank-image d-inline" rel="preload" > Refer to the market for money diagram above.Curve D1 represents the:

Accepted Answer

A)  speculative demand for money.
B)  transactions demand for money.
C)  asset demand for money.
D)  stock of money.E) B) and C)
F) None of the above

Question 17

The monetary authorities can influence the money supply by:

Accepted Answer

A)  changing bank reserves through the sale of government securities.
B)  changing the amounts of excess reserves by persuading banks to alter their desired reserve ratio.
C)  changing the bank reserves through the purchase of government securities.
D)  doing all of the above.E) A) and B)
F) All of the above

Question 18

The fundamental objective of monetary policy is to assist the economy in achieving:

Accepted Answer

A)  a rapid pace of economic growth.
B)  a money supply which is based on the gold standard.
C)  a full-employment, noninflationary level of total output.
D)  a balanced-budget consistent with full-employment.E) A) and D)
F) A) and C)

Question 19

Assume that the desired reserve ratio is 20 percent.Suppose that the Bank of Canada sells $500 of government securities to chartered banks and buys $500 of securities from individuals, who deposit the cash in chequing accounts.Refer to the above information.As a result of these transactions, reserves in the banking system will:

Accepted Answer

A)  remain unchanged.
B)  rise by $100.
C)  fall by $100.
D)  fall by $1,000.E) A) and C)
F) B) and C)

Question 20

Refer to the graph given below. t is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be: A) $125. B) $175. C) $200. D) $225." class="answers-bank-image d-inline" rel="preload" > In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Accepted Answer

A)  $125.
B)  $175.
C)  $200.
D)  $225.E) B) and C)
F) C) and D)

Exam 15: B: Interest Rates and Monetary Policy

A monetary policy-caused reduction in the overnight lending rate will:

Correct Answer
verified

The Bank of Canada:

Correct Answer
verified

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct Answer
verified

Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public.As a result of this transaction the supply of money is:

Correct Answer
verified

The fundamental objective of monetary policy is to assist the economy in achieving:

Correct Answer
verified

Correct Answer
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Correct Answer
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In the consolidated balance sheet of the Bank of Canada, chartered bank reserves held by the Bank of Canada are:

Correct Answer
verified

The monetary authorities can influence the money supply by:

Correct Answer
verified

A headline reads: "Bank of Canada raises the overnight rate by half a point." This indicates that:

Correct Answer
verified

Refer to the market for money diagram above.Curve D₁ represents the:

Correct Answer
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Which is considered a strength of monetary policy compared to fiscal policy?

Correct Answer
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Refer to the graph given below. In the above graph, D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Correct Answer
verified

If the Bank of Canada buys government securities from chartered banks and the public:

Correct Answer
verified

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Correct Answer
verified

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit.All else equal, the use of appropriate monetary policy to reduce unemployment would:

Correct Answer
verified

The largest single liability of the Bank of Canada is its outstanding advances to chartered banks.

Correct Answer
verified

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal, the use of appropriate monetary policy to reduce inflation would:

Correct Answer
verified

A restrictive monetary policy may not be effective if the investment-demand curve shifts to the left.

Correct Answer
verified

Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:

Correct Answer
verified

Exam 15: B: Interest Rates and Monetary Policy

A monetary policy-caused reduction in the overnight lending rate will:

Correct AnswerverifiedShow Answer

The Bank of Canada:

Correct AnswerverifiedShow Answer

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public.As a result of this transaction the supply of money is:

Correct AnswerverifiedShow Answer

The fundamental objective of monetary policy is to assist the economy in achieving:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the consolidated balance sheet of the Bank of Canada, chartered bank reserves held by the Bank of Canada are:

Correct AnswerverifiedShow Answer

The monetary authorities can influence the money supply by:

Correct AnswerverifiedShow Answer

A headline reads: "Bank of Canada raises the overnight rate by half a point." This indicates that:

Correct AnswerverifiedShow Answer

Refer to the market for money diagram above.Curve D1 represents the:

Correct AnswerverifiedShow Answer

Which is considered a strength of monetary policy compared to fiscal policy?

Correct AnswerverifiedShow Answer

Refer to the graph given below. In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Correct AnswerverifiedShow Answer

If the Bank of Canada buys government securities from chartered banks and the public:

Correct AnswerverifiedShow Answer

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Correct AnswerverifiedShow Answer

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit.All else equal, the use of appropriate monetary policy to reduce unemployment would:

Correct AnswerverifiedShow Answer

The largest single liability of the Bank of Canada is its outstanding advances to chartered banks.

Correct AnswerverifiedShow Answer

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal, the use of appropriate monetary policy to reduce inflation would:

Correct AnswerverifiedShow Answer

A restrictive monetary policy may not be effective if the investment-demand curve shifts to the left.

Correct AnswerverifiedShow Answer

Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:

Correct AnswerverifiedShow Answer

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Refer to the market for money diagram above.Curve D₁ represents the:

Correct Answer
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Refer to the graph given below. In the above graph, D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Correct Answer
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