Question 1

An increase in nominal GDP increases the demand for money because:

Accepted Answer

A)   interest rates will rise.
B)   more money is needed to finance a larger volume of transactions.
C)   bond prices will fall.
D)   the opportunity cost of holding money will decline.E) A) and B)
F) A) and C)

Question 2

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) None of the above
F) All of the above

Question 3

The price of government bonds and the interest rate received by a bond buyer are:

Accepted Answer

A)   negatively related.
B)   unrelated.
C)   positively related.
D)   independent of Bank of Canada open-market operations.E) All of the above
F) C) and D)

Question 4

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

Accepted Answer

A)   a line parallel to the horizontal axis.
B)   a vertical line.
C)   a downward sloping line or curve from left to right.
D)   an upward sloping line or curve from left to right.E) A) and B)
F) All of the above

Question 5

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) All of the above

Question 6

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

Question 7

All else equal, when the Bank of Canada engages in an expansionary monetary policy, the interest rate received on government securities tends to:

Accepted Answer

A)   fall.
B)   rise.
C)   remain constant.
D)   move in the same direction as the bonds' price.E) B) and C)
F) C) and D)

Question 8

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 D 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)  decrease aggregate demand by increasing the interest rate from 2 to 4 percent. B)  decrease aggregate demand by increasing the interest rate from 4 to 6 percent. C)  increase aggregate demand by decreasing the interest rate from 4 to 2 percent. D)  increase the level of investment spending from $120 billion to $150 billion." 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 D 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)  decrease aggregate demand by increasing the interest rate from 2 to 4 percent. B)  decrease aggregate demand by increasing the interest rate from 4 to 6 percent. C)  increase aggregate demand by decreasing the interest rate from 4 to 2 percent. D)  increase the level of investment spending from $120 billion to $150 billion." 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 D 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)   decrease aggregate demand by increasing the interest rate from 2 to 4 percent.
B)   decrease aggregate demand by increasing the interest rate from 4 to 6 percent.
C)   increase aggregate demand by decreasing the interest rate from 4 to 2 percent.
D)   increase the level of investment spending from $120 billion to $150 billion.E) None of the above
F) A) and D)

Question 9

Which of the following is an asset on the balance sheet of the Bank of Canada?

Accepted Answer

A)   reserves of chartered banks
B)   Government of Canada deposits
C)   Bank of Canada notes in circulation
D)   advances to chartered banksE) B) and D)
F) A) and B)

Question 10

An expansionary monetary policy is appropriate for the alleviation of domestic:

Accepted Answer

A)   unemployment and compatible with the goal of correcting a trade deficit.
B)   unemployment and compatible with the goal of correcting a trade surplus.
C)   inflation and compatible with the goal of correcting a trade deficit.
D)   inflation and compatible with the goal of correcting a trade surplus.E) A) and B)
F) A) and C)

Question 11

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the above information. Suppose the Bank of Canada buys $2 in securities from the public. As a result of this transaction, the supply of money will:

Accepted Answer

A)   directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B)   directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800.
C)   directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected.
D)   be unaffected but the money-creating potential of the chartered banking system will increase by $40.E) A) and B)
F) A) and C)

Question 13

An expansionary monetary policy that is used to stimulate economic growth in the domestic economy:

Accepted Answer

A)   increases the overnight rate.
B)   results in a selling of government securities.
C)   is compatible with the economic goal of correcting a trade deficit.
D)   conflicts with the economic goal of correcting a trade deficit.E) A) and B)
F) A) and D)

Question 14

In the Bank of Canada's consolidated balance sheet, the largest asset is:

Accepted Answer

A)   loans to chartered banks.
B)   notes in circulation.
C)   government deposits.
D)   government securities.E) B) and C)
F) All of the above

Question 15

The prime interest rate:

Accepted Answer

A)   affects investment spending while the overnight rate affects consumption spending.
B)   affects consumption spending while the overnight rate affects investment spending.
C)   has no effect on exchange rates and net exports.
D)   affects investment spending while the overnight rate affects overnight borrowing of bank reserves.E) B) and C)
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) A) and B)
F) C) and D)

Question 17

t is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The transactions demand for money in this market for money is: A)  $125. B)  $175. C)  $250. D)  $325." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The transactions demand for money in this market for money is:

Accepted Answer

A)   $125.
B)   $175.
C)   $250.
D)   $325.E) A) and B)
F) A) and D)

Question 18

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Accepted Answer

A)   increase by $10 billion.
B)   remain unchanged.
C)   decrease by $2 billion.
D)   increase by $2 billion.E) C) and D)
F) A) and D)

Question 19

An expansionary monetary policy will decrease net exports.

Accepted Answer

A) True 
 B)False

Question 20

The effect of quantitative easing is to:

Accepted Answer

A)   lowering bond prices and thus reduce interest rates.
B)   raising bond prices and thus increase interest rates.
C)   raising bond prices and thus reduce interest rates.
D)   lowering bond prices and thus increase interest rates.E) All of the above
F) C) and D)

Exam 13: Interest Rates and Monetary Policy

An increase in nominal GDP increases the demand for money because:

Correct Answer
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The total quantity of money demanded is determined by:

Correct Answer
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An expansionary monetary policy will decrease net exports.

Correct Answer
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On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

Correct Answer
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In the Bank of Canada's consolidated balance sheet, the largest asset is:

Correct Answer
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Which of the following is an asset on the balance sheet of the Bank of Canada?

Correct Answer
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Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

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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Open-market operations change:

Correct Answer
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-Refer to the above graph, 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. The transactions demand for money in this market for money is:

Correct Answer
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All else equal, when the Bank of Canada engages in an expansionary monetary policy, the interest rate received on government securities tends to:

Correct Answer
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The effect of quantitative easing is to:

Correct Answer
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Correct Answer
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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:

Correct Answer
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The prime interest rate:

Correct Answer
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An expansionary monetary policy that is used to stimulate economic growth in the domestic economy:

Correct Answer
verified

The price of government bonds and the interest rate received by a bond buyer are:

Correct Answer
verified

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Correct Answer
verified

An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct Answer
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Refer to the above information. Suppose the Bank of Canada buys $2 in securities from the public. As a result of this transaction, the supply of money will:

Correct Answer
verified

Exam 13: Interest Rates and Monetary Policy

An increase in nominal GDP increases the demand for money because:

Correct AnswerverifiedShow Answer

The total quantity of money demanded is determined by:

Correct AnswerverifiedShow Answer

An expansionary monetary policy will decrease net exports.

Correct AnswerverifiedShow Answer

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

Correct AnswerverifiedShow Answer

In the Bank of Canada's consolidated balance sheet, the largest asset is:

Correct AnswerverifiedShow Answer

Which of the following is an asset on the balance sheet of the Bank of Canada?

Correct AnswerverifiedShow Answer

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

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

Open-market operations change:

Correct AnswerverifiedShow Answer

-Refer to the above graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The transactions demand for money in this market for money is:

Correct AnswerverifiedShow Answer

All else equal, when the Bank of Canada engages in an expansionary monetary policy, the interest rate received on government securities tends to:

Correct AnswerverifiedShow Answer

The effect of quantitative easing is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The prime interest rate:

Correct AnswerverifiedShow Answer

An expansionary monetary policy that is used to stimulate economic growth in the domestic economy:

Correct AnswerverifiedShow Answer

The price of government bonds and the interest rate received by a bond buyer are:

Correct AnswerverifiedShow Answer

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques. As a result, chartered bank reserves will:

Correct AnswerverifiedShow Answer

An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct AnswerverifiedShow Answer

Refer to the above information. Suppose the Bank of Canada buys $2 in securities from the public. As a result of this transaction, the supply of money will:

Correct AnswerverifiedShow Answer

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-Refer to the above graph, 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. The transactions demand for money in this market for money is:

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