Question 1

If the quantity of money demanded exceeds the quantity supplied:

Accepted Answer

A)  the supply-of-money curve will shift to the left.
B)  the demand-for-money curve will shift to the right.
C)  the interest rate will fall.
D)  the interest rate will rise.E) A) and B)
F) None of the above

Question 2

Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

Accepted Answer

A)  The desired reserve ratio will increase.
B)  The money supply will increase.
C)  The deposits of chartered banks will increase.
D)  Chartered bank reserves will increase.E) None of the above
F) B) and D)

Question 3

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) None of the above
F) B) and C)

Question 4

Which of the following is an asset on the balance sheet of the Bank of Canada?

Accepted Answer

A)  reserves of chartered banks
B)  Government of Canada deposits
C)  Bank of Canada notes in circulation
D)  advances to chartered banksE) A) and D)
F) All of the above

Question 5

The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM  BALANCE SHEET: BANK OF CANADA
 Refer to the above information, suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction, the supply of money:

Accepted Answer

A)  will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B)  will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40.
C)  is not directly affected, but the money-creating potential of the chartered banking system will decrease by $40.
D)  will decrease by $2, but the money-creating potential of the chartered banking system will not be affected.E) B) and C)
F) All of the above

Question 6

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Accepted Answer

A) True 
 B)False

Question 8

Monetary policy is:

Accepted Answer

A)  faster than fiscal policy.
B)  slower than fiscal policy.
C)  weaker than fiscal policy.
D)  stronger than fiscal policy.E) A) and C)
F) A) and B)

Question 9

The purpose of an expansionary monetary policy is to shift the:

Accepted Answer

A)  aggregate expenditures curve downward.
B)  aggregate demand curve rightward.
C)  aggregate supply curve leftward.
D)  investment demand curve leftward.E) B) and C)
F) All of the above

Question 10

Assume that the Bank of Canada's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy, the Bank of Canada:

Accepted Answer

A)  will have to increase interest rates to keep the price level from falling.
B)  will have to reduce the money supply to keep the price level from rising.
C)  will have to increase the money supply to keep the price level from falling.
D)  can keep the price level stable without altering the money supply or interest rate.E) None of the above
F) A) and B)

Question 11

Other things equal, an expansionary monetary policy will:

Accepted Answer

A)  reduce net exports.
B)  increase interest rates.
C)  reduce GDP.
D)  reduce the international value of the dollar.E) None of the above
F) All of the above

Question 12

An expansionary monetary policy may be frustrated if the:

Accepted Answer

A)  demand-for-money curve shifts to the left.
B)  investment-demand curve shifts to the left.
C)  saving schedule shifts downward.
D)  investment-demand curve shifts to the right.E) C) and D)
F) All of the above

Question 13

To reduce the overnight lending rate, the Bank of Canada can:

Accepted Answer

A)  buy government bonds from the chartered banks.
B)  increase the bank rate.
C)  increase the prime interest rate.
D)  sell government bonds to chartered banks.E) None of the above
F) B) and C)

Question 14

A restrictive monetary policy invoked to reduce inflation is compatible with the goal of correcting a trade deficit.

Accepted Answer

A) True 
 B)False

Question 15

The interest rate at which the Bank of Canada lends to chartered banks is called:

Accepted Answer

A)  the prime rate.
B)  the short-term rate.
C)  the bank rate.
D)  the government bonds rate.E) None of the above
F) B) and C)

Question 16

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 B)
F) A) and C)

Question 17

An important routine function of the Bank of Canada is:

Accepted Answer

A)  to help new chartered banks sell capital stock.
B)  to supply the economy with paper currency.
C)  to advise chartered banks as to the most profitable ways of reinvesting profits.
D)  to help chartered banks develop correspondent relationships with foreign banks.E) A) and B)
F) C) and D)

Question 18

A fundamental policy dilemma facing the monetary authorities is that:

Accepted Answer

A)  banks are immune to monetary policy.
B)  desired reserves and the bank rate cannot be changed simultaneously.
C)  bank rate and open-market operations cannot be used simultaneously.
D)  interest rates and the money supply cannot be stabilized simultaneously.E) C) and D)
F) All of the above

Question 19

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 B)

Question 20

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) C) and D)
F) None of the above

Exam 15: Part B: Interest Rates and Monetary Policy

A fundamental policy dilemma facing the monetary authorities is that:

Correct Answer
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To reduce the overnight lending rate, the Bank of Canada can:

Correct Answer
verified

Other things equal, an expansionary monetary policy will:

Correct Answer
verified

Correct Answer
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Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

Correct Answer
verified

Which of the following is an asset on the balance sheet of the Bank of Canada?

Correct Answer
verified

An important routine function of the Bank of Canada is:

Correct Answer
verified

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

Correct Answer
verified

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct Answer
verified

The interest rate at which the Bank of Canada lends to chartered banks is called:

Correct Answer
verified

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

Correct Answer
verified

An expansionary monetary policy may be frustrated if the:

Correct Answer
verified

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

Correct Answer
verified

The Bank of Canada:

Correct Answer
verified

A restrictive monetary policy invoked to reduce inflation is compatible with the goal of correcting a trade deficit.

Correct Answer
verified

If the quantity of money demanded exceeds the quantity supplied:

Correct Answer
verified

Assume that the Bank of Canada's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy, the Bank of Canada:

Correct Answer
verified

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Correct Answer
verified

The purpose of an expansionary monetary policy is to shift the:

Correct Answer
verified

Monetary policy is:

Correct Answer
verified

Exam 15: Part B: Interest Rates and Monetary Policy

A fundamental policy dilemma facing the monetary authorities is that:

Correct AnswerverifiedShow Answer

To reduce the overnight lending rate, the Bank of Canada can:

Correct AnswerverifiedShow Answer

Other things equal, an expansionary monetary policy will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

Correct AnswerverifiedShow Answer

Which of the following is an asset on the balance sheet of the Bank of Canada?

Correct AnswerverifiedShow Answer

An important routine function of the Bank of Canada is:

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

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct AnswerverifiedShow Answer

The interest rate at which the Bank of Canada lends to chartered banks is called:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be frustrated if the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Bank of Canada:

Correct AnswerverifiedShow Answer

A restrictive monetary policy invoked to reduce inflation is compatible with the goal of correcting a trade deficit.

Correct AnswerverifiedShow Answer

If the quantity of money demanded exceeds the quantity supplied:

Correct AnswerverifiedShow Answer

Assume that the Bank of Canada's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy, the Bank of Canada:

Correct AnswerverifiedShow Answer

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to shift the:

Correct AnswerverifiedShow Answer

Monetary policy is:

Correct AnswerverifiedShow Answer

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