Question 1

The purpose of an expansionary monetary policy is to:

Accepted Answer

A)   increase aggregate demand.
B)   decrease aggregate demand.
C)   increase investment demand.
D)   decrease investment demand.E) A) and B)
F) B) and D)

Question 2

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

Accepted Answer

A)   contracts and chartered bank reserves increase.
B)   expands and chartered bank reserves decrease.
C)   contracts and chartered bank reserves decrease.
D)   expands and chartered bank reserves increase.E) A) and B)
F) C) and D)

Question 3

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:

Accepted Answer

A)   decrease by 1 percentage point.
B)   decrease by 2 percentage points.
C)   increase by 1 percentage point.
D)   increase by 2 percentage points.E) A) and D)
F) All of the above

Question 4

The transactions demand for money is most closely related to money functioning as a:

Accepted Answer

A)   unit of account.
B)   medium of exchange.
C)   store of value.
D)   both store of value and unit of account.E) A) and B)
F) A) and C)

Question 5

Generally, the prime interest rate:

Accepted Answer

A)   moves in the opposite direction as the overnight lending rate.
B)   remains constant over long periods of time.
C)   is highly inflexible downward.
D)   moves in the same direction as the overnight lending rate.E) A) and B)
F) C) and D)

Question 6

Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

Accepted Answer

A)   $125.
B)   $175.
C)   $200.
D)   $225.E) All of the above
F) A) and B)

Question 7

Assume that the desired reserve ratio is 10 percent and there are no excess reserves in the banking system. Also, suppose that the full-employment, non-inflationary level of GDP in this closed, private economy is $1,200.
 
-Refer to the above information. The equilibrium interest rate in this economy is:

Accepted Answer

A)   3 percent.
B)   4 percent.
C)   5 percent.
D)   6 percent.E) All of the above
F) None of the above

Question 8

If the government pursues an expansionary monetary policy, then it will tend to:

Accepted Answer

A)   lower domestic interest rates, cause the dollar to appreciate, and decrease net exports.
B)   lower domestic interest rates, cause the dollar to depreciate, and increase net exports.
C)   lower domestic interest rates, cause the dollar to depreciate, and decrease net exports.
D)   raise domestic interest rates, cause the dollar to appreciate, and decrease net exports.E) C) and D)
F) B) and D)

Question 9

Refer to the above information. The chartered banks have excess reserves of:

Accepted Answer

A)   $1.
B)   $6.
C)   $20.
D)   $0.E) A) and D)
F) A) and C)

Question 10

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

Question 11

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

Question 12

Which of the following best describes the cause-effect chain of a restrictive 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, decrease investment spending, and increase GDP.E) C) and D)
F) A) and B)

Question 13

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 that society wishes to hold as an asset: 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 that society wishes to hold as an asset:

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) All of the above
F) A) and B)

Question 14

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Accepted Answer

A)   increase by $10 billion.
B)   remain unchanged.
C)   decrease by $2 billion.
D)   increase by $2 billion.E) C) and D)
F) B) and D)

Question 15

The reserves of the chartered banks are a(n) :

Accepted Answer

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

Question 16

In 2004, the Bank of Canada reduced the overnight rate to as low as:

Accepted Answer

A)   4 percent, in an effort to slow down the economy.
B)   2 percent, in an effort to slow down the growth of the economy.
C)   2 percent, in an effort to stimulate the economy.
D)   3 percent, in an effort to stimulate the economy.E) A) and B)
F) B) and C)

Question 17

1. B)  D2. C)  S. D)  D3." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram for the market for money. The total demand for money is shown by:

Accepted Answer

A)   D1.
B)   D2.
C)   S.
D)   D3.E) None of the above
F) All of the above

Question 18

-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) B) and C)
F) A) and D)

Question 19

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) B) and D)
F) A) and B)

Question 20

-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 C)
F) A) and B)

Exam 13: Interest Rates and Monetary Policy

-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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In 2004, the Bank of Canada reduced the overnight rate to as low as:

Correct Answer
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The reserves of the chartered banks are a(n) :

Correct Answer
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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:

Correct Answer
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If the government pursues an expansionary monetary policy, then it will tend to:

Correct Answer
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A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:

Correct Answer
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Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Correct Answer
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Refer to the above graph, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

Correct Answer
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The transactions demand for money is most closely related to money functioning as a:

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 that society wishes to hold as an asset:

Correct Answer
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Generally, the prime interest rate:

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

Correct Answer
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An important routine function of the Bank of Canada is:

Correct Answer
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Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct Answer
verified

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

Correct Answer
verified

The purpose of an expansionary monetary policy is to:

Correct Answer
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-Refer to the above diagram for the market for money. The total demand for money is shown by:

Correct Answer
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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
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Refer to the above information. The chartered banks have excess reserves of:

Correct Answer
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Exam 13: Interest Rates and Monetary Policy

-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

In 2004, the Bank of Canada reduced the overnight rate to as low as:

Correct AnswerverifiedShow Answer

The reserves of the chartered banks are a(n) :

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

If the government pursues an expansionary monetary policy, then it will tend to:

Correct AnswerverifiedShow Answer

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Correct AnswerverifiedShow Answer

Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

Correct AnswerverifiedShow Answer

The transactions demand for money is most closely related to money functioning as a:

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 that society wishes to hold as an asset:

Correct AnswerverifiedShow Answer

Generally, the prime interest rate:

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 important routine function of the Bank of Canada is:

Correct AnswerverifiedShow Answer

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct AnswerverifiedShow Answer

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to:

Correct AnswerverifiedShow Answer

-Refer to the above diagram for the market for money. The total demand for money is shown by:

Correct AnswerverifiedShow Answer

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

Refer to the above information. The chartered banks have excess reserves of:

Correct AnswerverifiedShow Answer

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Refer to the above graph, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

Correct Answer
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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 that society wishes to hold as an asset:

Correct Answer
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