Question 1

-Refer to the above market for money diagram. If the interest rate was at 8 percent, people would:

Accepted Answer

A)   sell bonds, which would cause bond prices to fall and the interest rate to fall.
B)   buy bonds, which would cause bond prices to rise and the interest rate to fall.
C)   have insufficient liquidity, which would cause them to reduce their spending on consumer goods.
D)   buy bonds, which would cause bond prices to fall and the interest rate to rise.E) A) and B)
F) B) and D)

Question 2

Refer to the market for money diagram below. The downward slope of the money demand curve Dm can best be explained in terms of the: m can best be explained in terms of the:   A)  transactions demand for money. B)  direct or positive relationship between bond prices and interest rates. C)  asset demand for money. D)  wealth or real-balances effect." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   transactions demand for money.
B)   direct or positive relationship between bond prices and interest rates.
C)   asset demand for money.
D)   wealth or real-balances effect.E) C) and D)
F) None of the above

Question 3

-Refer to the above table. Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Accepted Answer

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

Question 4

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

Question 5

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Accepted Answer

A) True 
 B)False

Question 6

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

Accepted Answer

A)   advances to chartered banks, government securities and deposits.
B)   treasury bills of Canada, government deposits and securities.
C)   chartered bank deposits, government deposits and notes in circulation.
D)   chartered banks deposits, advances to chartered banks and notes in circulation.E) A) and B)
F) All of the above

Question 7

-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 B)
F) C) and D)

Question 8

The "net export effect":

Accepted Answer

A)   strengthens the stimulative effect of an expansionary fiscal policy.
B)   strengthens the stimulative effect of an expansionary monetary policy
C)   weakens the stimulative effect of an expansionary monetary policy.
D)   has no perceptible impact upon stabilization policies.E) C) and D)
F) None of the above

Question 9

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 10

A disequilibrium in the market for money is mainly corrected via a change in:

Accepted Answer

A)   bond prices.
B)   the price level.
C)   saving levels.
D)   the money supply.E) None of the above
F) C) and D)

Question 11

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Accepted Answer

A)   A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP.
B)   A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
C)   An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
D)   An increase in the money supply will lower the interest rate, increase investment spending, and increase GDP.E) B) and C)
F) B) and D)

Question 12

Assume the desired reserve ratio is 25 percent and the Winnipeg Bank borrows $10,000 from the Bank of Canada. As a result:

Accepted Answer

A)   chartered bank reserves are increased by $10,000.
B)   the supply of money automatically declines by $7,500.
C)   chartered bank reserves are increased by $7,500.
D)   the supply of money is automatically increased by $10,000.E) None of the above
F) A) and C)

Question 13

When the Bank of Canada wants to see an increase in the interest rates, it:

Accepted Answer

A)   sells government securities by entering into SRA (a sale and repurchase agreement) .
B)   buys government securities by entering into SRA (a sale and repurchase agreement) .
C)   sells government securities by entering into SPRA (special purchase and resale agreement) .
D)   buys government securities by entering into SPRA (special purchase and resale agreement) .E) None of the above
F) B) and D)

Question 14

An expansionary monetary policy will likely:

Accepted Answer

A)   increase the prime interest rate.
B)   reduce the overnight lending rate.
C)   increase the bank rate.
D)   increase the federal budget deficit.E) C) and D)
F) A) and C)

Question 15

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:    -Refer to the above information. These data suggest that the amount of money demanded for transactions purposes: A)  varies directly with the interest rate. B)  varies inversely with the interest rate. C)  varies inversely with the GDP. D)  is independent of the interest rate." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above information. These data suggest that the amount of money demanded for transactions purposes:

Accepted Answer

A)   varies directly with the interest rate.
B)   varies inversely with the interest rate.
C)   varies inversely with the GDP.
D)   is independent of the interest rate.E) A) and D)
F) A) and B)

Question 16

According to the Taylor Rule:

Accepted Answer

A)   for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should raise the real overnight lending rate by one percent point.
B)   for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should raise the real overnight lending rate by one-half a percent point.
C)   for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should lower the real overnight lending rate by one percent point.
D)   for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should lower the real overnight lending rate by one-half a percent point.E) A) and B)
F) C) and D)

Exam 13: Interest Rates and Monetary Policy

When the Bank of Canada wants to see an increase in the interest rates, it:

Correct Answer
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Refer to the market for money diagram below. The downward slope of the money demand curve D_m can best be explained in terms of the:

Correct Answer
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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:

Correct Answer
verified

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

Correct Answer
verified

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct Answer
verified

-Refer to the above market for money diagram. If the interest rate was at 8 percent, people would:

Correct Answer
verified

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

Correct Answer
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A disequilibrium in the market for money is mainly corrected via a change in:

Correct Answer
verified

An expansionary monetary policy will likely:

Correct Answer
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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: -Refer to the above information. These data suggest that the amount of money demanded for transactions purposes:

Correct Answer
verified

-Refer to the above table. Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Correct Answer
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The "net export effect":

Correct Answer
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According to the Taylor Rule:

Correct Answer
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Assume the desired reserve ratio is 25 percent and the Winnipeg Bank borrows $10,000 from the Bank of Canada. As a result:

Correct Answer
verified

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Correct Answer
verified

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Correct Answer
verified

Exam 13: Interest Rates and Monetary Policy

When the Bank of Canada wants to see an increase in the interest rates, it:

Correct AnswerverifiedShow Answer

Refer to the market for money diagram below. The downward slope of the money demand curve Dm can best be explained in terms of the:

Correct AnswerverifiedShow Answer

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

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

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct AnswerverifiedShow Answer

-Refer to the above market for money diagram. If the interest rate was at 8 percent, people would:

Correct AnswerverifiedShow Answer

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

Correct AnswerverifiedShow Answer

A disequilibrium in the market for money is mainly corrected via a change in:

Correct AnswerverifiedShow Answer

An expansionary monetary policy will likely:

Correct AnswerverifiedShow Answer

Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: -Refer to the above information. These data suggest that the amount of money demanded for transactions purposes:

Correct AnswerverifiedShow Answer

-Refer to the above table. Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Correct AnswerverifiedShow Answer

The "net export effect":

Correct AnswerverifiedShow Answer

According to the Taylor Rule:

Correct AnswerverifiedShow Answer

Assume the desired reserve ratio is 25 percent and the Winnipeg Bank borrows $10,000 from the Bank of Canada. As a result:

Correct AnswerverifiedShow Answer

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Correct AnswerverifiedShow Answer

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Refer to the market for money diagram below. The downward slope of the money demand curve D_m can best be explained in terms of the:

Correct Answer
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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: -Refer to the above information. These data suggest that the amount of money demanded for transactions purposes:

Correct Answer
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