Question 1

In comparison with fiscal policy, monetary policy faces:

Accepted Answer

A)   recognition lag, administrative lag, but avoids operational lag.
B)   recognition lag, administrative lag, and operational lag.
C)   recognition lag, operational lag, but avoids administrative lag.
D)   administrative lag, operational lag, but avoids recognition lag.E) B) and D)
F) A) and D)

Question 2

1. B)  i2. C)  i3. D)  not determinable without further information." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above market for money diagram. The equilibrium interest rate is:

Accepted Answer

A)   i1.
B)   i2.
C)   i3.
D)   not determinable without further information.E) B) and C)
F) A) and B)

Question 3

When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

Accepted Answer

A) True 
 B)False

Question 4

Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public. As a result of this transaction the supply of money is:

Accepted Answer

A)   not directly affected, but the money-creating potential of the chartered banking system is increased by $12 million.
B)   directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $16 million.
C)   directly reduced by $4 million and the money-creating potential of the chartered banking system is decreased by $12 million.
D)   directly increased by $4 million and the money-creating potential of the chartered banking system is increased by $12 million.E) A) and B)
F) A) and C)

Question 5

Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

Accepted Answer

A)   The desired reserve ratio will increase.
B)   The money supply will increase.
C)   The deposits of chartered banks will increase.
D)   Chartered bank reserves will increase.E) C) and D)
F) None of the above

Question 6

Lower bond prices reduce interest rates.

Accepted Answer

A) True 
 B)False

Question 7

If the money GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes:

Accepted Answer

A)   will be $1800 billion.
B)   will be $600 billion.
C)   will be $200 billion.
D)   cannot be determined from the information given.E) C) and D)
F) B) and C)

Question 8

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) All of the above

Question 9

"Open-market operations" refers to:

Accepted Answer

A)   purchases of stocks in the Toronto Stock Exchange.
B)   the purchase or sale of government bonds by the Bank of Canada.
C)   central bank lending to chartered banks.
D)   the specifying of margin requirements on stock purchases.E) A) and D)
F) A) and C)

Question 10

The asset demand for money varies directly with the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

If the quantity of money demanded exceeds the quantity supplied:

Accepted Answer

A)   the supply-of-money curve will shift to the left.
B)   the demand-for-money curve will shift to the right.
C)   the interest rate will fall.
D)   the interest rate will rise.E) A) and D)
F) All of the above

Question 12

If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to:

Accepted Answer

A)   four percent of nominal GDP.
B)   25 percent of nominal GDP.
C)   nominal GDP multiplied times 4.
D)   nominal GDP divided by 25.E) A) and B)
F) A) and D)

Question 13

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

Question 14

If the chartered banking system borrows from the Bank of Canada.

Accepted Answer

A)   The demand deposits of chartered banks are unchanged, but their reserves increase.
B)   The demand deposits and reserves of chartered banks both decrease.
C)   The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)   The demand deposits and reserves of chartered banks are both unchanged.E) C) and D)
F) None of the above

Question 15

An expansionary monetary policy may be frustrated if the:

Accepted Answer

A)   demand-for-money curve shifts to the left.
B)   investment-demand curve shifts to the left.
C)   saving schedule shifts downward.
D)   investment-demand curve shifts to the right.E) A) and C)
F) B) and C)

Question 16

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

Accepted Answer

A)   The demand deposits of chartered banks are unchanged, but their reserves increase.
B)   The demand deposits and reserves of chartered banks both decrease.
C)   The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)   The demand deposits and reserves of chartered banks are both unchanged.E) A) and B)
F) B) and C)

Question 17

The two main tools of the monetary policy are:

Accepted Answer

A)   tax rate changes, and the bank rate.
B)   open-market operations, and the bank rate & overnight lending rate.
C)   tax rate changes, and the changes in government expenditures.
D)   changes in government expenditures, and the bank rate.E) A) and D)
F) B) and C)

Question 18

Which of the following statements best describes the Bank of Canada? It is:

Accepted Answer

A)   a publicly owned and publicly controlled central bank, whose basic goal is to provide income for the Government of Canada.
B)   a privately owned and publicly controlled central bank, whose basic goal is to earn profits for its owners.
C)   a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates and maintain price stability and it is an independent agency of government.
D)   a privately owned and publicly controlled central bank, whose basic function is to minimize the risks in chartered banking in order to make it a reasonably profitable industry.E) B) and C)
F) A) and D)

Question 19

1 represents the: A)  speculative demand for money. B)  transactions demand for money. C)  asset demand for money. D)  stock of money." class="answers-bank-image d-inline" rel="preload" >
-Refer to the market for money diagram above. Curve D1 represents the:

Accepted Answer

A)   speculative demand for money.
B)   transactions demand for money.
C)   asset demand for money.
D)   stock of money.E) A) and B)
F) A) and D)

Question 20

If the Bank of Canada buys government securities from the chartered banks, which of the following transactions take place?

Accepted Answer

A)   The demand deposits of chartered banks are unchanged, but their reserves increase.
B)   The demand deposits and reserves of chartered banks both decrease.
C)   The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)   The demand deposits and reserves of chartered banks are both unchanged.E) B) and C)
F) A) and D)

Exam 13: Interest Rates and Monetary Policy

If the chartered banking system borrows from the Bank of Canada.

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Lower bond prices reduce interest rates.

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-Refer to the above market for money diagram. The equilibrium interest rate is:

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If the Bank of Canada buys government securities from the chartered banks, which of the following transactions take place?

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If the Bank of Canada sells government securities to the public, which of the following transactions take place?

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An expansionary monetary policy may be frustrated if the:

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If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to:

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Assume the desired reserve ratio is 25 percent and the Bank of Canada buys $4 million of securities from the public. As a result of this transaction the supply of money is:

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If the quantity of money demanded exceeds the quantity supplied:

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The two main tools of the monetary policy are:

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In comparison with fiscal policy, monetary policy faces:

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-Refer to the market for money diagram above. Curve D1 represents the:

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If the money GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes:

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When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

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Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

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

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Which of the following statements best describes the Bank of Canada? It is:

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The asset demand for money varies directly with the interest rate.

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"Open-market operations" refers to:

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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:

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-Refer to the market for money diagram above. Curve D₁ represents the:

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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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