Question 1

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) All of the above
F) None of the above

Question 2

International flows of financial capital in response to interest rate changes in Canada:

Accepted Answer

A)  weaken domestic monetary policy through an offsetting net export effect.
B)  strengthen domestic monetary policy through a supporting net export effect.
C)  strengthen domestic fiscal policy through an offsetting net export effect.
D)  weaken domestic monetary policy through an offsetting real wealth effect.E) A) and D)
F) A) and C)

Question 3

When the market for money is in equilibrium:

Accepted Answer

A)  the quantity of money demanded equals the quantity of money supplied.
B)  the interest rate is neither increasing nor decreasing.
C)  bond prices are stable.
D)  all of the above hold true.E) C) and D)
F) A) and C)

Question 4

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) None of the above
F) All of the above

Question 5

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

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 C)
F) A) and D)

Question 8

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 9

Lower bond prices reduce interest rates.

Accepted Answer

A) True 
 B)False

Question 10

Which is considered a strength of monetary policy compared to fiscal policy?

Accepted Answer

A)  the ability to increase the velocity of money
B)  the ability to decrease the velocity of money
C)  its cyclical asymmetry.
D)  its protection from political pressure.E) B) and D)
F) B) and C)

Question 11

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

Question 12

Which of the following statements is not correct?

Accepted Answer

A)  The supply of money decreases when the Bank of Canada buys government securities from households or businesses.
B)  Excess reserves are the amount by which actual reserves exceed desired reserves.
C)  Chartered banks increase the supply of money when they purchase government bonds from households or businesses.
D)  Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada.E) A) and B)
F) None of the above

Question 13

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

Question 14

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Accepted Answer

A)  decrease by $9 billion.
B)  increase by $9 billion.
C)  increase by $15 billion.
D)  increase by $12 billion.E) C) and D)
F) None of the above

Question 15

Refer to the graph given below. t is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be: A) $125. B) $175. C) $200. D) $225." class="answers-bank-image d-inline" rel="preload" > In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Accepted Answer

A)  $125.
B)  $175.
C)  $200.
D)  $225.E) A) and C)
F) A) and D)

Question 16

The transactions demand for money curve is assumed to be:

Accepted Answer

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

Question 17

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 18

An increase in the money supply will tend to:

Accepted Answer

A)  lower interest rates and lower the equilibrium GDP.
B)  lower interest rates and increase the equilibrium GDP.
C)  increase interest rates and increase the equilibrium GDP.
D)  increase interest rates and lower the equilibrium GDP.E) B) and D)
F) A) and D)

Question 19

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) A) and C)

Question 20

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:

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

Exam 15: Part B: Interest Rates and Monetary Policy

Refer to the graph given below. In the above graph, D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Correct Answer
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Correct Answer
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Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

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

Correct Answer
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Open-market operations change:

Correct Answer
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The transactions demand for money curve is assumed to be:

Correct Answer
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An increase in the money supply will tend to:

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

Correct Answer
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Which is considered a strength of monetary policy compared to fiscal policy?

Correct Answer
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Lower bond prices reduce interest rates.

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

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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Bond prices and interest rates are directly related.

Correct Answer
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International flows of financial capital in response to interest rate changes in Canada:

Correct Answer
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If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

Correct Answer
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The opportunity cost of holding money:

Correct Answer
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When the market for money is in equilibrium:

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

Correct Answer
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A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct Answer
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Which of the following statements is not correct?

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

Refer to the graph given below. In the above graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Open-market operations change:

Correct AnswerverifiedShow Answer

The transactions demand for money curve is assumed to be:

Correct AnswerverifiedShow Answer

An increase in the money supply will tend to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which is considered a strength of monetary policy compared to fiscal policy?

Correct AnswerverifiedShow Answer

Lower bond prices reduce interest rates.

Correct AnswerverifiedShow Answer

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

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

Bond prices and interest rates are directly related.

Correct AnswerverifiedShow Answer

International flows of financial capital in response to interest rate changes in Canada:

Correct AnswerverifiedShow Answer

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

Correct AnswerverifiedShow Answer

The opportunity cost of holding money:

Correct AnswerverifiedShow Answer

When the market for money is in equilibrium:

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

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Refer to the graph given below. In the above graph, D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.At an interest rate of 4 percent, the asset demand for money would be:

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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Correct Answer
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