Question 1

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Accepted Answer

A) True 
 B)False

Question 2

The asset demand for money is most closely related to money functioning as a:

Accepted Answer

A)   unit of account.
B)   medium of exchange.
C)   store of value.
D)   measure of value.E) A) and B)
F) A) and C)

Question 3

Which of the following statements is correct? Other things being equal:

Accepted Answer

A)   a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right.
B)   a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged.
C)   deflation will shift both the transactions demand curve for money and the total money demand curve to the left.
D)   inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged.E) All of the above
F) B) and C)

Question 4

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Accepted Answer

A)   the Bank of Canada is always willing to make loans to chartered banks that are short of reserves.
B)   fiscal policy always works at cross purposes with an expansionary monetary policy.
C)   the circularity or feedback problem complicates an expansionary monetary policy more than it does a restrictive monetary policy.
D)   chartered banks may not be willing to lend their excess reserves to the customers.E) B) and C)
F) A) and D)

Question 5

The overnight lending rate is the rate at which:

Accepted Answer

A)   The Bank of Canada borrows from investment dealers.
B)   The Bank of Canada borrows from the chartered banks.
C)   the chartered banks, investment dealers, and other financial market participants borrow and lend funds for one day.
D)   The Bank of Canada lends to the Department of Finance.E) A) and D)
F) B) and D)

Question 6

In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?

Accepted Answer

A)   nominal GDP decreases and the interest rate decreases
B)   nominal GDP increases and the interest rate decreases
C)   nominal GDP decreases and the interest rate increases
D)   nominal GDP increases and the interest rate increasesE) A) and B)
F) A) and C)

Question 7

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit. All else equal, the use of appropriate monetary policy to reduce unemployment would:

Accepted Answer

A)   cause the dollar to appreciate in value.
B)   have no impact upon our trade deficit.
C)   decrease our trade deficit.
D)   increase our trade deficit.E) A) and B)
F) A) and C)

Question 8

Monetary policy in Japan during the 1990s and early 2000s was:

Accepted Answer

A)   tight and effective in reducing high inflation.
B)   tight, but ineffective in reducing high inflation.
C)   expansionary and, effective in bringing the economy out of recession.
D)   expansionary but, ineffective in bringing the economy out of recession.E) None of the above
F) A) and B)

Question 9

The transactions demand for money will shift to the:

Accepted Answer

A)   right when the interest rate increases.
B)   left when the interest rate decreases.
C)   right when aggregate income increases.
D)   right when aggregate income decreases.E) A) and C)
F) B) and D)

Question 10

A headline reads: " Bank of Canada raises the overnight rate by half a point." This indicates that:

Accepted Answer

A)   fiscal policy is being offset by monetary policy.
B)   monetary policy is being offset by fiscal policy.
C)   there has been a tightening of monetary policy.
D)   there has been an easing of monetary policy.E) All of the above
F) A) and D)

Question 11

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

Question 12

The transactions demand for money is most closely related to money functioning as a:

Accepted Answer

A)   unit of account.
B)   medium of exchange.
C)   store of value.
D)   both store of value and unit of account.E) B) and C)
F) A) and C)

Question 13

It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates.
 
-Refer to the information above. If the GDP is $300 and the supply of money is $230, the equilibrium interest rate will be:

Accepted Answer

A)   8 percent.
B)   6 percent.
C)   2 percent.
D)   4 percent.E) C) and D)
F) A) and D)

Question 14

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000. If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:

Accepted Answer

A)   22 percent.
B)   18 percent.
C)   17 percent.
D)   16 percent.E) B) and C)
F) None of the above

Question 15

-If the supply of money is reduced, we would expect:

Accepted Answer

A)   the demand for money to increase.
B)   interest rates to fall
C)   bond prices to fall.
D)   none of the above to occur.E) C) and D)
F) A) and B)

Question 16

The overnight lending rate is the rate at which:

Accepted Answer

A)   The Bank of Canada borrows from investment dealers.
B)   The Bank of Canada borrows from the chartered banks.
C)   the chartered banks, investment dealers, and other financial market participants borrow and lend funds for one day.
D)   The Bank of Canada lends to the Department of Finance.E) None of the above
F) A) and B)

Question 17

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

Question 18

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

Question 19

By early 2008 it became evident that the Canadian economy was slowing along with the U.S., where housing bubble had created a financial crisis worldwide. The Bank of Canada's response to this crisis was:

Accepted Answer

A)   to increase the overnight rate to 1.5 percent by the end of 2008.
B)   to drop the overnight rate to 1.5 percent by the end of 2008, and to lower it even further to a historic low of .25 percent in 2009.
C)   to leave the overnight rate at 2 percent.
D)   to hike the overnight lending rate in order to avoid inflationary pressures.E) None of the above
F) A) and B)

Question 20

-Refer to the above information. All else equal, the transaction demand for money in this table would increase if:

Accepted Answer

A)   nominal GDP increased.
B)   the interest rate fell.
C)   the supply of money increased.
D)   the supply of money decreased.E) None of the above
F) A) and D)

Exam 13: Interest Rates and Monetary Policy

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct Answer
verified

Monetary policy in Japan during the 1990s and early 2000s was:

Correct Answer
verified

A headline reads: " Bank of Canada raises the overnight rate by half a point." This indicates that:

Correct Answer
verified

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?

Correct Answer
verified

-Refer to the above information. All else equal, the transaction demand for money in this table would increase if:

Correct Answer
verified

-If the supply of money is reduced, we would expect:

Correct Answer
verified

The overnight lending rate is the rate at which:

Correct Answer
verified

The transactions demand for money will shift to the:

Correct Answer
verified

The transactions demand for money is most closely related to money functioning as a:

Correct Answer
verified

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Correct Answer
verified

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

Correct Answer
verified

In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?

Correct Answer
verified

Correct Answer
verified

The asset demand for money is most closely related to money functioning as a:

Correct Answer
verified

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

Correct Answer
verified

By early 2008 it became evident that the Canadian economy was slowing along with the U.S., where housing bubble had created a financial crisis worldwide. The Bank of Canada's response to this crisis was:

Correct Answer
verified

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit. All else equal, the use of appropriate monetary policy to reduce unemployment would:

Correct Answer
verified

Which of the following statements is correct? Other things being equal:

Correct Answer
verified

The overnight lending rate is the rate at which:

Correct Answer
verified

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000. If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:

Correct Answer
verified

Exam 13: Interest Rates and Monetary Policy

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct AnswerverifiedShow Answer

Monetary policy in Japan during the 1990s and early 2000s was:

Correct AnswerverifiedShow Answer

A headline reads: " Bank of Canada raises the overnight rate by half a point." This indicates that:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

-Refer to the above information. All else equal, the transaction demand for money in this table would increase if:

Correct AnswerverifiedShow Answer

-If the supply of money is reduced, we would expect:

Correct AnswerverifiedShow Answer

The overnight lending rate is the rate at which:

Correct AnswerverifiedShow Answer

The transactions demand for money will shift to the:

Correct AnswerverifiedShow Answer

The transactions demand for money is most closely related to money functioning as a:

Correct AnswerverifiedShow Answer

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The asset demand for money is most closely related to money functioning as a:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

By early 2008 it became evident that the Canadian economy was slowing along with the U.S., where housing bubble had created a financial crisis worldwide. The Bank of Canada's response to this crisis was:

Correct AnswerverifiedShow Answer

Suppose Canada is experiencing a 12 percent rate of unemployment with stable prices and a trade deficit. All else equal, the use of appropriate monetary policy to reduce unemployment would:

Correct AnswerverifiedShow Answer

Which of the following statements is correct? Other things being equal:

Correct AnswerverifiedShow Answer

The overnight lending rate is the rate at which:

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000. If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:

Correct AnswerverifiedShow Answer

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