Question 1

Refer to the diagram below for the market for money.Other things equal,the money demand curve in the diagram would shift leftward if:

Accepted Answer

A)   the asset demand for money increased.
B)   the transactions demand for money increased.
C)   nominal GDP decreased.
D)   the overall price level rose.E) C) and D)
F) A) and C)

Question 2

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

Question 3

Notes in circulation are:

Accepted Answer

A)   an asset as viewed by the Bank of Canada.
B)   a liability as viewed by the Bank of Canada.
C)   neither an asset nor a liability as viewed by the Bank of Canada.
D)   part of M1,but not of M2 or M2+.E) C) and D)
F) A) and B)

Question 4

Open-market operations change:

Accepted Answer

A)   the size of the monetary multiplier,but not chartered bank reserves.
B)   chartered bank reserves,but not the size of the monetary multiplier.
C)   neither chartered bank reserves nor the size of the monetary multiplier.
D)   both chartered bank reserves and the size of the monetary multiplier.E) B) and C)
F) None of the above

Question 5

A monetary policy-caused reduction in the overnight lending rate will:

Accepted Answer

A)   increase the prime interest rate.
B)   decrease the size of the monetary multiplier.
C)   increase the Bank of Canada rate.
D)   decrease the prime interest rate.E) None of the above
F) C) and D)

Question 6

If the Bank of Canada buys government securities from chartered banks and the public:

Accepted Answer

A)   chartered bank reserves will decline.
B)   chartered bank reserves will be unaffected.
C)   it will be easier to obtain loans at chartered banks.
D)   the money supply will contract.E) None of the above
F) A) and B)

Question 7

The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800.A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:

Accepted Answer

A)   10 percent.
B)   12 percent.
C)   14 percent.
D)   16 percent.E) B) and D)
F) C) and D)

Question 8

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) C) and D)

Question 9

-Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average,we can infer that the:

Accepted Answer

A)   real GDP is $800.
B)   nominal GDP is $800.
C)   money supply must be $800.
D)   nominal GDP is $1,200.E) A) and B)
F) A) and C)

Question 10

Refer to the information below.The transactions demand for money in this market would graph as a:

Accepted Answer

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

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

Question 12

To reduce the overnight lending rate,the Bank of Canada can:

Accepted Answer

A)   buy government bonds from the chartered banks.
B)   increase the bank rate.
C)   increase the prime interest rate.
D)   sell government bonds to chartered banks.E) All of the above
F) A) and D)

Question 13

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

Question 14

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

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

Question 16

-Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Accepted Answer

A)   fall by 4 percentage points.
B)   fall by 2 percentage points.
C)   rise by 4 percentage points.
D)   rise by 2 percentage points.E) C) and D)
F) B) and D)

Question 17

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

Question 18

Assume the equation for the total demand for money is L =.4Y + 80 - 4i,where L is the amount of money demanded,Y is gross domestic product,and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent) ,what amount of money will society want to hold?

Accepted Answer

A)   $200
B)   $120
C)   $320
D)   $160E) B) and D)
F) A) and B)

Question 19

Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal,the use of appropriate monetary policy to reduce inflation would:

Accepted Answer

A)   cause the dollar to depreciate in value.
B)   have no impact on our trade deficit.
C)   decrease our trade deficit.
D)   increase our trade deficit.E) A) and C)
F) None of the above

Question 20

The largest single liability of the Bank of Canada is its outstanding advances to chartered banks.

Accepted Answer

A) True 
 B)False

Exam 15: Interest Rates and Monetary Policy

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

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Refer to the information below.The transactions demand for money in this market would graph as a:

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A monetary policy-caused reduction in the overnight lending rate will:

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The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800.A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:

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A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

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To reduce the overnight lending rate,the Bank of Canada can:

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

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

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Refer to the diagram below for the market for money.Other things equal,the money demand curve in the diagram would shift leftward if:

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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:

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Open-market operations change:

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

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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:

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-Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average,we can infer that the:

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The largest single liability of the Bank of Canada is its outstanding advances to chartered banks.

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Notes in circulation are:

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If the Bank of Canada buys government securities from chartered banks and the public:

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Assume the equation for the total demand for money is L =.4Y + 80 - 4i,where L is the amount of money demanded,Y is gross domestic product,and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent) ,what amount of money will society want to hold?

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-Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

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Assume Canada is experiencing an 8 percent annual rate of inflation and is also incurring a trade deficit.All else equal,the use of appropriate monetary policy to reduce inflation would:

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