Question 1

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 2

What is one of the advantages of monetary policy over fiscal policy?

Accepted Answer

A)  its control over the size of Federal budget deficits
B)  the quickness with which it can be used
C)  the opportunity for broad political influence
D)  its domination of major sectors of the economyE) C) and D)
F) A) and D)

Question 3

Monetary policy is thought to be:

Accepted Answer

A)  equally effective in moving the economy out of a recession as in controlling inflation.
B)  more effective in moving the economy out of a recession than in controlling inflation.
C)  only effective in moving the economy out of a recession.
D)  more effective in controlling inflation than in moving the economy out of a recession.E) B) and C)
F) A) and B)

Question 4

Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: 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:   A) 10 percent. B) 8 percent. C) 6 percent. D) 4 percent." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  10 percent.
B)  8 percent.
C)  6 percent.
D)  4 percent.E) A) and B)
F) C) and D)

Question 5

The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

Accepted Answer

A) True 
 B)False

Question 6

Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

Accepted Answer

A)  growth of the money supply.
B)  overnight loans rate.
C)  prime interest rate.
D)  Canadian dollar-foreign currency exchange rate.E) C) and D)
F) None of the above

Question 7

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) B) and C)

Question 8

1. B) D2. C) D3. D) none of the above." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.The asset demand for money is shown by:

Accepted Answer

A)  D1.
B)  D2.
C)  D3.
D)  none of the above.E) A) and D)
F) A) and C)

Question 9

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) B) and D)

Question 10

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

In the autumn of 2010, the Bank of Canada began to:

Accepted Answer

A)  increase interest rates, yet rates stayed at historic lows throughout 2012.
B)  decrease interest rates even further to the point that they were at their lowest by 2012.
C)  increase interest rates, but then decreased them again in 2012.
D)  decrease interest rates, but then started increasing them again in 2012.E) A) and B)
F) None of the above

Question 13

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  changes in the bank rate
B)  open-market operations
C)  changes in tax rates
D)  switching government deposits into and out of the chartered banksE) C) and D)
F) None of the above

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  Given the supply of money, a decline in the demand for money will tend to reduce the equilibrium GDP.
B)  Given the supply of money, the equilibrium interest rate will vary directly with the level of money GDP.
C)  Given the demand for money, the equilibrium interest rate will vary inversely with the supply of money.
D)  Given the supply of money, the equilibrium interest rate will vary directly with the demand for money.E) B) and C)
F) A) and D)

Question 15

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

Question 16

Which one is considered a limitation of monetary policy?

Accepted Answer

A)  the cause-effect chain
B)  its cyclical asymmetry
C)  its isolation from political pressure
D)  the speed with which it can be implementedE) B) and C)
F) C) and D)

Question 17

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) A) and D)

Question 18

The so-called Taylor Rule states that:

Accepted Answer

A)  monetary policy should only respond to the changes in real GDP and not in inflation.
B)  monetary policy should only respond to the changes in inflation and not in real GDP.
C)  monetary policy should respond to changes in both real GDP and inflation.
D)  Monetary policy should only respond to changes in unemployment rate.E) A) and B)
F) B) and D)

Question 19

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 15: B: Interest Rates and Monetary Policy

In the autumn of 2010, the Bank of Canada began to:

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Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

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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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The so-called Taylor Rule states that:

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

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Which of the following is not a tool of monetary policy?

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What is one of the advantages of monetary policy over fiscal policy?

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

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Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:

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Bond prices and interest rates are directly related.

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Which of the following statements is not correct?

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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 market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

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Which one is considered a limitation of monetary policy?

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Monetary policy is thought to be:

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The purpose of a restrictive monetary policy is to:

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The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

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The opportunity cost of holding money:

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Refer to the above diagram.The asset demand for money is shown by:

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The total quantity of money demanded is determined by:

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Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: 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:

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