Question 1

Which of the following is the most important function of the Bank of Canada?

Accepted Answer

A)   the collection or clearing of cheques among chartered banks
B)   regulating the supply of money
C)   acting as a fiscal agent for the federal government
D)   holding the reserves of chartered banksE) C) and D)
F) None of the above

Question 2

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 3

The purpose of a restrictive 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 C)
F) A) and B)

Question 4

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 C 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)  increase aggregate demand by increasing the interest rate. B)  decrease aggregate demand by increasing the interest rate. C)  increase aggregate demand by decreasing the interest rate. D)  make no change in the interest rate." 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 C 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)  increase aggregate demand by increasing the interest rate. B)  decrease aggregate demand by increasing the interest rate. C)  increase aggregate demand by decreasing the interest rate. D)  make no change in the interest rate." 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 C 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)   increase aggregate demand by increasing the interest rate.
B)   decrease aggregate demand by increasing the interest rate.
C)   increase aggregate demand by decreasing the interest rate.
D)   make no change in the interest rate.E) All of the above
F) A) and C)

Question 5

The bank rate is the rate of interest at which

Accepted Answer

A)   chartered banks lend to large corporations.
B)   the Bank of Canada lends to large corporations.
C)   savings and loan associations lend to home builders.
D)   the Bank of Canada lends to chartered banks.E) A) and C)
F) All of the above

Question 6

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

Question 7

In the Canadian economy, the money supply is controlled by:

Accepted Answer

A)   Parliament.
B)   the House of Commons Committee on Finance.
C)   the Department of Finance the Bank of Canada.
D)   the Bank of Canada.E) B) and C)
F) A) and D)

Question 8

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

Accepted Answer

A)   the money supply as the policy target.
B)   overnight lending rate as the policy target.
C)   net exports as the policy target.
D)   the prime interest rate as a policy target.E) All of the above
F) A) and B)

Question 9

If the government pursues a restrictive monetary policy, then it will:

Accepted Answer

A)   increase domestic interest rates, cause the dollar to appreciate, and decrease net exports.
B)   decrease domestic interest rates, cause the dollar to depreciate, and increase net exports.
C)   increase domestic interest rates, cause the dollar to depreciate, and increase net exports.
D)   increase domestic interest rates, cause the dollar to appreciate, and increase net exports.E) None of the above
F) C) and D)

Question 10

In implementing monetary policy with respect to the Taylor Rule:

Accepted Answer

A)   the central bank is willing to tolerate a 2 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate.
B)   the central bank is willing to tolerate a 5 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate.
C)   the central bank is willing to tolerate any inflation rate, and overnight lending rate.
D)   the central bank chooses an inflation target regardless of the economic situation.E) B) and D)
F) B) and C)

Question 11

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Accepted Answer

A) True 
 B)False

Question 12

A shortcoming of monetary policy is that:

Accepted Answer

A)   a severe recession may undermine business confidence to the degree that even a reduction in interest rate does not increase the investment.
B)   a severe recession will increase the investment demand which contributes to inflation.
C)   a severe recession will increase the interest rate and thus lowers the investment.
D)   a severe recession will reduce interest rate and increases investment demand.E) B) and C)
F) A) and B)

Question 13

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

Accepted Answer

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

Question 14

1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A)  increase aggregate demand from AD3 to AD2 B)  decrease the money supply from $225 to $150 billion C)  increase interest rates from 4 to 8 percent D)  make no change in monetary policy" 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 economy is at point Y on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A)  increase aggregate demand from AD3 to AD2 B)  decrease the money supply from $225 to $150 billion C)  increase interest rates from 4 to 8 percent D)  make no change in monetary policy" 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 economy is at point Y on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP?

Accepted Answer

A)   increase aggregate demand from AD3 to AD2
B)   decrease the money supply from $225 to $150 billion
C)   increase interest rates from 4 to 8 percent
D)   make no change in monetary policyE) B) and D)
F) B) and C)

Question 15

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 C)
F) A) and D)

Question 16

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

Question 17

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Accepted Answer

A) True 
 B)False

Question 18

t is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to:   A)  Sm3 and the interest rate will be 4 percent. B)  Sm3 and the interest rate will be 8 percent. C)  Sm1 and the interest rate will be 8 percent. D)  Sm1 and the interest rate will be 4 percent." class="answers-bank-image d-inline" rel="preload" >
-Refer to the graph below, 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 market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to: t is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to:   A)  Sm3 and the interest rate will be 4 percent. B)  Sm3 and the interest rate will be 8 percent. C)  Sm1 and the interest rate will be 8 percent. D)  Sm1 and the interest rate will be 4 percent." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   Sm3 and the interest rate will be 4 percent.
B)   Sm3 and the interest rate will be 8 percent.
C)   Sm1 and the interest rate will be 8 percent.
D)   Sm1 and the interest rate will be 4 percent.E) A) and B)
F) B) and C)

Question 19

The total demand for money will shift to the left as a result of:

Accepted Answer

A)   a decline in nominal GDP.
B)   an increase in the price level.
C)   a change in the interest rate.
D)   an increase in nominal GDP.E) B) and C)
F) C) and D)

Question 20

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

Exam 13: Interest Rates and Monetary Policy

The bank rate is the rate of interest at which

Correct Answer
verified

Correct Answer
verified

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Correct Answer
verified

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

Correct Answer
verified

The purpose of a restrictive monetary policy is to:

Correct Answer
verified

A shortcoming of monetary policy is that:

Correct Answer
verified

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Correct Answer
verified

The total demand for money will shift to the left as a result of:

Correct Answer
verified

Correct Answer
verified

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

Correct Answer
verified

If the government pursues a restrictive monetary policy, then it will:

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

In the Canadian economy, the money supply is controlled by:

Correct Answer
verified

-Refer to the graph below, 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 market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then S_m2 will shift to:

Correct Answer
verified

Which of the following is the most important function of 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

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

Correct Answer
verified

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct Answer
verified

In implementing monetary policy with respect to the Taylor Rule:

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

Exam 13: Interest Rates and Monetary Policy

The bank rate is the rate of interest at which

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The purpose of a restrictive monetary policy is to:

Correct AnswerverifiedShow Answer

A shortcoming of monetary policy is that:

Correct AnswerverifiedShow Answer

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Correct AnswerverifiedShow Answer

The total demand for money will shift to the left as a result of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

Correct AnswerverifiedShow Answer

If the government pursues a restrictive monetary policy, then it will:

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

In the Canadian economy, the money supply is controlled by:

Correct AnswerverifiedShow Answer

-Refer to the graph below, 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 market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to:

Correct AnswerverifiedShow Answer

Which of the following is the most important function of 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

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

Correct AnswerverifiedShow Answer

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct AnswerverifiedShow Answer

In implementing monetary policy with respect to the Taylor Rule:

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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-Refer to the graph below, 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 market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then S_m2 will shift to:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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