Question 1

All else equal,when the Bank of Canada engages in an expansionary monetary policy,the interest rate received on government securities tends to:

Accepted Answer

A)   fall.
B)   rise.
C)   remain constant.
D)   move in the same direction as the bonds' price.E) B) and C)
F) A) and D)

Question 2

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500,then the effective interest rate yield on the bond is now:

Accepted Answer

A)   22 percent.
B)   18 percent.
C)   17 percent.
D)   16 percent.E) A) and C)
F) A) and B)

Question 3

The effect of quantitative easing is to:

Accepted Answer

A)   lowering bond prices and thus reduce interest rates.
B)   raising bond prices and thus increase interest rates.
C)   raising bond prices and thus reduce interest rates.
D)   lowering bond prices and thus increase interest rates.E) A) and B)
F) A) and C)

Question 4

If the dollars held for transactions purposes are,on the average,spent four times a year for final goods and services,then the quantity of money people will wish to hold for transactions is equal to:

Accepted Answer

A)   four percent of nominal GDP.
B)   25 percent of nominal GDP.
C)   nominal GDP multiplied times 4.
D)   nominal GDP divided by 25.E) C) and D)
F) B) and D)

Question 5

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 6

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers;that is,do return to the data given in the original balance sheets in answering each question.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.The maximum money-creating potential of the chartered banking system is:

Accepted Answer

A)   $5
B)   $19
C)   $20
D)   $0E) A) and D)
F) C) and D)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If the amount of money demanded exceeds the amount supplied,it can be expected that the:

Accepted Answer

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

Question 9

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) C) and D)
F) B) and C)

Question 10

1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The interest rate in the economy is 4 percent.What should monetary authorities do to achieve a non-inflationary full-employment level of real GDP? A)  increase the money supply from $75 to $150 billion B)  increase the money supply from $150 to $225 billion C)  decrease the money supply from $225 to $150 billion D)  make no change in the money supply" class="answers-bank-image d-inline" rel="preload" > 
 1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The interest rate in the economy is 4 percent.What should monetary authorities do to achieve a non-inflationary full-employment level of real GDP? A)  increase the money supply from $75 to $150 billion B)  increase the money supply from $150 to $225 billion C)  decrease the money supply from $225 to $150 billion D)  make no change in the money supply" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagrams,in which the numbers in parentheses after the AD1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The interest rate in the economy is 4 percent.What should monetary authorities do to achieve a non-inflationary full-employment level of real GDP?

Accepted Answer

A)   increase the money supply from $75 to $150 billion
B)   increase the money supply from $150 to $225 billion
C)   decrease the money supply from $225 to $150 billion
D)   make no change in the money supplyE) A) and D)
F) B) and C)

Question 11

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 12

An expansionary monetary policy is appropriate for the alleviation of domestic:

Accepted Answer

A)   unemployment and compatible with the goal of correcting a trade deficit.
B)   unemployment and compatible with the goal of correcting a trade surplus.
C)   inflation and compatible with the goal of correcting a trade deficit.
D)   inflation and compatible with the goal of correcting a trade surplus.E) All of the above
F) None of the above

Question 13

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Accepted Answer

A)   The interest rate increases and nominal GDP increases.
B)   The interest rate increases and nominal GDP decreases.
C)   The interest rate decreases and nominal GDP decreases.
D)   The interest rate decreases and nominal GDP increases.E) B) and D)
F) All of the above

Question 14

Under some conditions,proper domestic monetary policy may be at odds with the goal of correcting a trade imbalance because:

Accepted Answer

A)   changes in the domestic interest rate cause changes in domestic investment spending.
B)   changes in the domestic interest rate tend to cause changes in the international value of the dollar.
C)   the domestic interest rate varies inversely with the value of the dollar.
D)   changes in the interest rate cause changes in domestic saving.E) B) and D)
F) All of the above

Question 15

There is an asset demand for money because households and business firms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 16

An expansionary monetary policy will decrease net exports.

Accepted Answer

A) True 
 B)False

Question 17

In recent years,the Bank of Canada has:

Accepted Answer

A)   paid closer attention to M1 than M2 in setting monetary targets.
B)   relied more on changes in the prime rate than open-market operations in establishing monetary policy.
C)   has increased M2 at a fixed annual rate,regardless of the health of the economy.
D)   taken an activist,pragmatic approach to monetary policy,has a publicized target on the overnight lending rate and has adopted the inflation targeting strategy.E) A) and B)
F) A) and C)

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) B) and D)
F) B) and C)

Question 19

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

Question 20

The purchase of government securities from the public by the Bank of Canada will cause:

Accepted Answer

A)   chartered bank reserves to increase.
B)   the money supply to increase.
C)   demand deposits to increase.
D)   all of the above to occur.E) B) and C)
F) A) and C)

Exam 15: Interest Rates and Monetary Policy

The overnight lending rate is:

Correct Answer
verified

In recent years,the Bank of Canada has:

Correct Answer
verified

If the dollars held for transactions purposes are,on the average,spent four times a year for final goods and services,then the quantity of money people will wish to hold for transactions is equal to:

Correct Answer
verified

If the amount of money demanded exceeds the amount supplied,it can be expected that the:

Correct Answer
verified

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

Correct Answer
verified

The effect of quantitative easing is to:

Correct Answer
verified

The purchase of government securities from the public by the Bank of Canada will cause:

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

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Correct Answer
verified

An expansionary monetary policy will decrease net exports.

Correct Answer
verified

Correct Answer
verified

The total quantity of money demanded is determined by:

Correct Answer
verified

Correct Answer
verified

The opportunity cost of holding money:

Correct Answer
verified

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500,then the effective interest rate yield on the bond is now:

Correct Answer
verified

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

Correct Answer
verified

Under some conditions,proper domestic monetary policy may be at odds with the goal of correcting a trade imbalance because:

Correct Answer
verified

There is an asset demand for money because households and business firms use money as a store of value.

Correct Answer
verified

An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct Answer
verified

All else equal,when the Bank of Canada engages in an expansionary monetary policy,the interest rate received on government securities tends to:

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

The overnight lending rate is:

Correct AnswerverifiedShow Answer

In recent years,the Bank of Canada has:

Correct AnswerverifiedShow Answer

If the dollars held for transactions purposes are,on the average,spent four times a year for final goods and services,then the quantity of money people will wish to hold for transactions is equal to:

Correct AnswerverifiedShow Answer

If the amount of money demanded exceeds the amount supplied,it can be expected that the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The effect of quantitative easing is to:

Correct AnswerverifiedShow Answer

The purchase of government securities from the public by the Bank of Canada will cause:

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

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Correct AnswerverifiedShow Answer

An expansionary monetary policy will decrease net exports.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The total quantity of money demanded is determined by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The opportunity cost of holding money:

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500,then the effective interest rate yield on the bond is now:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under some conditions,proper domestic monetary policy may be at odds with the goal of correcting a trade imbalance because:

Correct AnswerverifiedShow Answer

There is an asset demand for money because households and business firms use money as a store of value.

Correct AnswerverifiedShow Answer

An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct AnswerverifiedShow Answer

All else equal,when the Bank of Canada engages in an expansionary monetary policy,the interest rate received on government securities tends to:

Correct AnswerverifiedShow Answer

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