Question 1

m and Sm,an interest rate of i3 is not sustainable because: A)  the supply of bonds in the bond market will decline and the interest rate will rise. B)  the supply of bonds in the bond market will increase and the interest rate will decline. C)  the demand for bonds in the bond market will decline and the interest rate will rise. D)  the demand for bonds in the bond market will rise and the interest rate will fall." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above market for money diagram.Given Dm and Sm,an interest rate of i3 is not sustainable because:

Accepted Answer

A)   the supply of bonds in the bond market will decline and the interest rate will rise.
B)   the supply of bonds in the bond market will increase and the interest rate will decline.
C)   the demand for bonds in the bond market will decline and the interest rate will rise.
D)   the demand for bonds in the bond market will rise and the interest rate will fall.E) B) and C)
F) C) and D)

Question 2

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Accepted Answer

A)   open-market operations.
B)   the bank rate.
C)   the government expenditure.
D)   the prime interest rate.E) C) and D)
F) B) and C)

Question 3

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

Question 4

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

Question 5

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

Question 6

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000.If the price of this bond increases by $2500,the interest rate in effect will:

Accepted Answer

A)   decrease by 1 percentage point.
B)   decrease by 2 percentage points.
C)   increase by 1 percentage point.
D)   increase by 2 percentage points.E) B) and C)
F) A) and B)

Question 7

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 B)
F) All of the above

Question 8

The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada.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
 
-The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Accepted Answer

A)   achieve the desired interest rate.
B)   raise money for government spending.
C)   reduce the amount of government securities it holds.
D)   raise money for a future tax cut.E) B) and C)
F) A) and C)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

-Refer to the above information.The total demand for money curve in this market for money would graph as a:

Accepted Answer

A)   vertical line.
B)   horizontal line.
C)   line sloping upward to the right.
D)   line sloping downward to the right.E) A) and D)
F) A) and C)

Question 12

-Refer to the above market for money diagram.If the interest rate was at 8 percent,people would:

Accepted Answer

A)   sell bonds,which would cause bond prices to fall and the interest rate to fall.
B)   buy bonds,which would cause bond prices to rise and the interest rate to fall.
C)   have insufficient liquidity,which would cause them to reduce their spending on consumer goods.
D)   buy bonds,which would cause bond prices to fall and the interest rate to rise.E) B) and D)
F) A) and D)

Question 13

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Accepted Answer

A)   A decrease in the money supply will lower the interest rate,increase investment spending,and increase GDP.
B)   A decrease in the money supply will raise the interest rate,decrease investment spending,and decrease GDP.
C)   An increase in the money supply will raise the interest rate,decrease investment spending,and decrease GDP.
D)   An increase in the money supply will lower the interest rate,increase investment spending,and increase GDP.E) All of the above
F) A) and B)

Question 14

The bank rate is the rate of interest at which

Accepted Answer

A)   chartered banks lend to large corporations.
B)   the Bank of Canada lends to large corporations.
C)   savings and loan associations lend to home builders.
D)   the Bank of Canada lends to chartered banks.E) A) and B)
F) C) and D)

Question 15

The asset demand for money is downward sloping because:

Accepted Answer

A)   the opportunity cost of holding money increases as the interest rate rises.
B)   it is more attractive to hold money at high interest rates than at low interest rates.
C)   bond prices rise as interest rates rise.
D)   the opportunity cost of holding money declines as the interest rate rises.E) All of the above
F) A) and D)

Question 16

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold,we would expect the interest rate to:

Accepted Answer

A)   fall,causing households and businesses to hold less money.
B)   rise,causing households and businesses to hold less money.
C)   rise,causing households and businesses to hold more money.
D)   fall,causing households and businesses to hold more money.E) None of the above
F) A) and C)

Question 17

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

Question 18

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 19

-Which line in the above graph would best reflect the slope of the total demand for money curve?

Accepted Answer

A)   line 4
B)   line 3
C)   line 2
D)   line 1E) A) and B)
F) A) and C)

Question 20

The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada.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
 
-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 B)
F) A) and C)

Exam 15: Interest Rates and Monetary Policy

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Correct Answer
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Correct Answer
verified

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

Correct Answer
verified

-Which line in the above graph would best reflect the slope of the total demand for money curve?

Correct Answer
verified

Correct Answer
verified

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
verified

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Correct Answer
verified

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

Correct Answer
verified

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000.If the price of this bond increases by $2500,the interest rate in effect will:

Correct Answer
verified

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

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 asset demand for money varies directly with the interest rate.

Correct Answer
verified

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold,we would expect the interest rate to:

Correct Answer
verified

The bank rate is the rate of interest at which

Correct Answer
verified

-Refer to the above market for money diagram.If the interest rate was at 8 percent,people would:

Correct Answer
verified

The asset demand for money is downward sloping because:

Correct Answer
verified

-Refer to the above information.The total demand for money curve in this market for money would graph as a:

Correct Answer
verified

An expansionary monetary policy may be frustrated if the:

Correct Answer
verified

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

Correct Answer
verified

-Refer to the above market for money diagram.Given D_m and S_m,an interest rate of i₃ is not sustainable because:

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

-Which line in the above graph would best reflect the slope of the total demand for money curve?

Correct AnswerverifiedShow Answer

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

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000.If the price of this bond increases by $2500,the interest rate in effect will:

Correct AnswerverifiedShow Answer

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

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 asset demand for money varies directly with the interest rate.

Correct AnswerverifiedShow Answer

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold,we would expect the interest rate to:

Correct AnswerverifiedShow Answer

The bank rate is the rate of interest at which

Correct AnswerverifiedShow Answer

-Refer to the above market for money diagram.If the interest rate was at 8 percent,people would:

Correct AnswerverifiedShow Answer

The asset demand for money is downward sloping because:

Correct AnswerverifiedShow Answer

-Refer to the above information.The total demand for money curve in this market for money would graph as a:

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be frustrated if the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

-Refer to the above market for money diagram.Given Dm and Sm,an interest rate of i3 is not sustainable because:

Correct AnswerverifiedShow Answer

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-Refer to the above market for money diagram.Given D_m and S_m,an interest rate of i₃ is not sustainable because:

Correct Answer
verified