Question 1

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 B)
F) All of the above

Question 2

The transactions demand for money will shift to the:

Accepted Answer

A)  right when the interest rate increases.
B)  left when the interest rate decreases.
C)  right when aggregate income increases.
D)  right when aggregate income decreases.E) C) and D)
F) B) and C)

Question 3

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Accepted Answer

A)  rise to 7 percent.
B)  rise to 6 percent.
C)  fall to 4 percent.
D)  remain at 5 percent.E) A) and B)
F) None of the above

Question 4

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Accepted Answer

A)  aggregate demand curve rightward.
B)  aggregate demand curve leftward.
C)  aggregate supply curve rightward.
D)  aggregate supply curve leftward.E) A) and B)
F) All of the above

Question 5

Refer to the above information.The total demand for money curve in this market for money would graph as a:

Accepted Answer

A)  vertical line.
B)  horizontal line.
C)  line sloping upward to the right.
D)  line sloping downward to the right.E) None of the above
F) B) and C)

Question 6

Which of the following statements is correct? Other things being equal:

Accepted Answer

A)  a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right.
B)  a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged.
C)  deflation will shift both the transactions demand curve for money and the total money demand curve to the left.
D)  inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged.E) A) and D)
F) C) and D)

Question 7

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) None of the above

Question 8

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 D)
F) A) and B)

Question 9

If the supply of money is reduced, we would expect:

Accepted Answer

A)  the demand for money to increase.
B)  interest rates to fall
C)  bond prices to fall.
D)  none of the above to occur.E) B) and D)
F) B) and C)

Question 10

Quantitative easing refers to:

Accepted Answer

A)  the selling of bonds to the private sector by a country's central bank in order to ease the money supply.
B)  the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.
C)  the selling of bonds by a country's central bank to the private sector in order to provide liquidity.
D)  the purchasing of private sector assets by a country's central bank in order to tighten liquidity.E) A) and B)
F) A) and C)

Question 11

The asset demand for money curve is:

Accepted Answer

A)  vertical.
B)  horizontal.
C)  downward sloping.
D)  upward sloping.E) A) and B)
F) A) and C)

Question 12

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

Question 13

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

Accepted Answer

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

Question 14

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Accepted Answer

A)  the Bank of Canada is always willing to make loans to chartered banks that are short of reserves.
B)  fiscal policy always works at cross purposes with an expansionary monetary policy.
C)  the circularity or feedback problem complicates an expansionary monetary policy more than it does a restrictive monetary policy.
D)  chartered banks may not be willing to lend their excess reserves to the customers.E) All of the above
F) B) and C)

Question 15

Other things equal, an expansionary monetary policy will:

Accepted Answer

A)  reduce net exports.
B)  increase interest rates.
C)  reduce GDP.
D)  reduce the international value of the dollar.E) None of the above
F) A) and B)

Question 16

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Accepted Answer

A)  A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment.
B)  A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment.
C)  The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease.
D)  The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase.E) None of the above
F) All of the above

Question 17

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Accepted Answer

A)  not affected.
B)  decreased by a multiple of the amount of the purchase.
C)  decreased by the amount of the purchase.
D)  increased initially by the amount of the purchase.E) B) and C)
F) None of the above

Question 18

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 19

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Accepted Answer

A) True 
 B)False

Question 20

Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Accepted Answer

A)  a high rate of inflation.
B)  a high rate of unemployment.
C)  a recession.
D)  a negative GDP gap.E) C) and D)
F) A) and C)

Exam 15: B: Interest Rates and Monetary Policy

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

Correct Answer
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Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Correct Answer
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When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Correct Answer
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Which of the following statements is correct? Other things being equal:

Correct Answer
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Quantitative easing refers to:

Correct Answer
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If the supply of money is reduced, we would expect:

Correct Answer
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The total demand for money curve will shift to the right as a result of:

Correct Answer
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The asset demand for money curve is:

Correct Answer
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Correct Answer
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An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct Answer
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To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Correct Answer
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Refer to the above information.The total demand for money curve in this market for money would graph as a:

Correct Answer
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In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Correct Answer
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The transactions demand for money will shift to the:

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

Correct Answer
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A restrictive monetary policy in Canada is most likely to:

Correct Answer
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The overnight lending rate is:

Correct Answer
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Other things equal, an expansionary monetary policy will:

Correct Answer
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Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Correct Answer
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Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Correct Answer
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Exam 15: B: Interest Rates and Monetary Policy

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

Correct AnswerverifiedShow Answer

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Correct AnswerverifiedShow Answer

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Correct AnswerverifiedShow Answer

Which of the following statements is correct? Other things being equal:

Correct AnswerverifiedShow Answer

Quantitative easing refers to:

Correct AnswerverifiedShow Answer

If the supply of money is reduced, we would expect:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The asset demand for money curve is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct AnswerverifiedShow Answer

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Correct AnswerverifiedShow Answer

Refer to the above information.The total demand for money curve in this market for money would graph as a:

Correct AnswerverifiedShow Answer

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Correct AnswerverifiedShow Answer

The transactions demand for money will shift to the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A restrictive monetary policy in Canada is most likely to:

Correct AnswerverifiedShow Answer

The overnight lending rate is:

Correct AnswerverifiedShow Answer

Other things equal, an expansionary monetary policy will:

Correct AnswerverifiedShow Answer

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Correct AnswerverifiedShow Answer

Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Correct AnswerverifiedShow Answer

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