Question 1

Which line in the above graph would best reflect the slope of the asset demand for money curve?

Accepted Answer

A)   line 1
B)   line 2
C)   line 3
D)   line 4E) B) and D)
F) A) and B)

Question 2

The Sale and Repurchase Agreement (SRA) , is a transaction in which:

Accepted Answer

A)   the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next business day.
B)   the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next year.
C)   the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next business day.
D)   the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next month.E) None of the above
F) B) and C)

Question 3

Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had little or no effect on lending by the chartered banks.

Accepted Answer

A) True 
 B)False

Question 4

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 B)
F) A) and C)

Question 5

Monetary policy is subject to less political pressure than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

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) A) and D)
F) A) and C)

Question 7

-If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

Accepted Answer

A)   fall, causing households and businesses to hold less money.
B)   rise, causing households and businesses to hold less money.
C)   rise, causing households and businesses to hold more money.
D)   fall, causing households and businesses to hold more money.E) C) and D)
F) B) and D)

Question 8

1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point B on the investment demand curve. To achieve the goal of a non-inflationary full-employment output Qf in the economy, the monetary authorities should: A)  decrease the interest rate from 10 to 8 percent. B)  decrease the interest rate from 8 to 6 percent. C)  decrease the interest rate from 6 to 4 percent. D)  increase investment spending from $30 to $60 billion." class="answers-bank-image d-inline" rel="preload" > 
 1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point B on the investment demand curve. To achieve the goal of a non-inflationary full-employment output Qf in the economy, the monetary authorities should: A)  decrease the interest rate from 10 to 8 percent. B)  decrease the interest rate from 8 to 6 percent. C)  decrease the interest rate from 6 to 4 percent. D)  increase investment spending from $30 to $60 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graphs, in which the numbers in parentheses after the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point B on the investment demand curve. To achieve the goal of a non-inflationary full-employment output Qf in the economy, the monetary authorities should:

Accepted Answer

A)   decrease the interest rate from 10 to 8 percent.
B)   decrease the interest rate from 8 to 6 percent.
C)   decrease the interest rate from 6 to 4 percent.
D)   increase investment spending from $30 to $60 billion.E) None of the above
F) All of the above

Question 9

If the chartered banking system borrows from the Bank of Canada.

Accepted Answer

A)   The demand deposits of chartered banks are unchanged, but their reserves increase.
B)   The demand deposits and reserves of chartered banks both decrease.
C)   The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)   The demand deposits and reserves of chartered banks are both unchanged.E) B) and C)
F) A) and B)

Question 10

1. B)  i2. C)  i3. D)  not determinable without further information." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above market for money diagram. The equilibrium interest rate is:

Accepted Answer

A)   i1.
B)   i2.
C)   i3.
D)   not determinable without further information.E) A) and D)
F) All of the above

Question 11

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 12

-Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

Accepted Answer

A)   rise to 7 percent.
B)   rise to 6 percent.
C)   fall to 4 percent.
D)   fall to 5 percent.E) B) and D)
F) A) and D)

Question 13

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 D)
F) A) and B)

Question 14

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Accepted Answer

A)   open-market operations.
B)   the bank rate.
C)   the government expenditure.
D)   the prime interest rate.E) A) and B)
F) A) and C)

Question 15

International flows of financial capital in response to interest rate changes in Canada:

Accepted Answer

A)   weaken domestic monetary policy through an offsetting net export effect.
B)   strengthen domestic monetary policy through a supporting net export effect.
C)   strengthen domestic fiscal policy through an offsetting net export effect.
D)   weaken domestic monetary policy through an offsetting real wealth effect.E) B) and C)
F) A) and C)

Question 16

-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)   $440.E) B) and C)
F) B) and D)

Question 17

The overnight lending rate is:

Accepted Answer

A)   higher than the prime interest rate.
B)   lower than the prime interest rate.
C)   always equal to the Bank of Canada rate.
D)   equal to the prime interest rate minus the Bank of Canada bank rate.E) None of the above
F) A) and B)

Question 18

The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Accepted Answer

A)   achieve the desired interest rate.
B)   raise money for government spending.
C)   reduce the amount of government securities it holds.
D)   raise money for a future tax cut.E) All of the above
F) None of the above

Question 19

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

Question 20

A restrictive monetary policy in Canada is most likely to:

Accepted Answer

A)   depreciate the international value of the dollar and increase Canadian net exports.
B)   depreciate the international value of the dollar and decrease Canadian net exports.
C)   appreciate the international value of the dollar and increase Canadian net exports.
D)   appreciate the international value of the dollar and decrease Canadian net exports.E) B) and C)
F) A) and B)

Exam 13: Interest Rates and Monetary Policy

-Refer to the above market for money diagram. The equilibrium interest rate is:

Correct Answer
verified

Monetary policy is subject to less political pressure than fiscal policy.

Correct Answer
verified

A restrictive monetary policy in Canada is most likely to:

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

Bond prices and interest rates are directly related.

Correct Answer
verified

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Correct Answer
verified

The Bank of Canada:

Correct Answer
verified

-If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

Correct Answer
verified

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

Correct Answer
verified

The Sale and Repurchase Agreement (SRA) , is a transaction in which:

Correct Answer
verified

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

Correct Answer
verified

Which line in the above graph would best reflect the slope of the asset demand for money curve?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If the chartered banking system borrows from the Bank of Canada.

Correct Answer
verified

-Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

Correct Answer
verified

The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Correct Answer
verified

Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had little or no effect on lending by the chartered banks.

Correct Answer
verified

International flows of financial capital in response to interest rate changes in Canada:

Correct Answer
verified

The overnight lending rate is:

Correct Answer
verified

Exam 13: Interest Rates and Monetary Policy

-Refer to the above market for money diagram. The equilibrium interest rate is:

Correct AnswerverifiedShow Answer

Monetary policy is subject to less political pressure than fiscal policy.

Correct AnswerverifiedShow Answer

A restrictive monetary policy in Canada is most likely to:

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

Bond prices and interest rates are directly related.

Correct AnswerverifiedShow Answer

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Correct AnswerverifiedShow Answer

The Bank of Canada:

Correct AnswerverifiedShow Answer

-If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Sale and Repurchase Agreement (SRA) , is a transaction in which:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which line in the above graph would best reflect the slope of the asset demand for money curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the chartered banking system borrows from the Bank of Canada.

Correct AnswerverifiedShow Answer

-Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

Correct AnswerverifiedShow Answer

The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Correct AnswerverifiedShow Answer

Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had little or no effect on lending by the chartered banks.

Correct AnswerverifiedShow Answer

International flows of financial capital in response to interest rate changes in Canada:

Correct AnswerverifiedShow Answer

The overnight lending rate is:

Correct AnswerverifiedShow Answer

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