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1 | |
What is the main objective of monetary policy? |
| | A) | To maintain output and employment at high levels. |
| | B) | To raise the value of the Canadian dollar |
| | C) | To achieve a full-employment, non-inflationary level of output. |
| | D) | None of the above |
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2 | |
Which of the following is not a function of the Bank of Canada? |
| | A) | It acts as banker for the chartered banks |
| | B) | It is responsible for regulating the money supply in Canada |
| | C) | It acts as Fiscal Agent for the Federal Government |
| | D) | It is responsible for putting together Canada's fiscal budget. |
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3 | |
Which of the following is an argument given by those who support an independent Bank of Canada? |
| | A) | The Bank of Canada members should be elected, and responsible to the people of Canada. This is only possible with an independent central bank. |
| | B) | The Bank of Canada has, in the past, used monetary policy to counter the effects of government fiscal policy. |
| | C) | The Bank of Canada must be free of political pressure so that it can act in the best interests of the Canadian economy, and "effectively control the money supply and maintain price stability." |
| | D) | None of the above |
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4 | |
Which of the following represents a liability on the Bank of Canada's balance sheet? |
| | A) | Canadian treasury bills |
| | B) | Bank of Canada notes |
| | C) | Foreign currency deposits |
| | D) | IOUs from chartered banks |
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5 | |
If the Bank of Canada buys a $10,000 bond from a chartered bank, and the banking system has a desired reserve ratio of 15%, then... |
| | A) | There will be $1,500 in excess reserves |
| | B) | The total increase in the Canadian money supply will be about $67,000 |
| | C) | The total decrease in the Canadian money supply will be about $67,000 |
| | D) | None of the above |
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6 | |
If the Bank of Canada sells Government of Canada bonds to the chartered banks... |
| | A) | This will increase excess reserves, expand lending, increase demand deposits, and thus increase the money supply. |
| | B) | This will reduce excess reserves, expand lending, increase demand deposits, and thus increase the money supply |
| | C) | This will reduce excess reserves, reduce lending, reduce demand deposits, and decrease the money supply. |
| | D) | This will increase excess reserves, reduce lending, demand deposits, and the money supply. |
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7 | |
Which of the following monetary policies will cause the money supply in Canada to increase? |
| | A) | The Bank of Canada switches government deposits from itself to chartered banks. |
| | B) | The Bank of Canada sells government bonds to the chartered banks |
| | C) | The Bank of Canada switches government deposits from chartered banks back to itself. |
| | D) | All of the above |
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8 | |
The rate of interest the Bank of Canada charges on loans supplied to the chartered banks is called... |
| | A) | The Prime Rate |
| | B) | The Bond Rate |
| | C) | The Depositor's Rate |
| | D) | The Bank Rate |
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9 | |
According to the transactions demand for money, the demand for money will increase if... |
| | A) | Interest rates increase |
| | B) | Nominal GDP increases |
| | C) | Interest rates decrease |
| | D) | Nominal GDP decreases |
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10 | |
As the interest rate rises, |
| | A) | The opportunity cost of holding money will decrease, and the asset demand for money will increase. |
| | B) | The opportunity cost of holding money will increase, and the transactions demand for money will increase |
| | C) | The opportunity cost of holding money will increase, and the asset demand for money will decrease. |
| | D) | The opportunity cost of holding money will decrease, and the transactions demand for money will decrease. |
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11 | |
Transactions demand for money is represented graphically as a vertical line because... |
| | A) | Transactions demand for money is based on nominal GDP, rather than the interest rate |
| | B) | Transactions demand for money increases as interest rates increase |
| | C) | Transactions demand is constant, regardless of the level of Nominal GDP |
| | D) | None of the above |
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12 | |
If the Bank of Canada purchases bonds from the chartered banks, then... |
| | A) | The money supply would increase, causing the equilibrium interest rate to decrease |
| | B) | The money supply would decrease, causing the equilibrium interest rate to increase |
| | C) | The money supply would increase, causing the equilibrium interest rate to increase. |
| | D) | None of the above |
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13 | |
If the Canadian dollar falls in value, all else equal, then... |
| | A) | Net exports will decrease, causing a decrease in nominal GDP and an increase in transactions demand for money |
| | B) | Net exports will increase, causing an increase in nominal GDP and an increase in transactions demand for money. |
| | C) | Net exports will increase, causing an increase in nominal GDP and an increase in asset demand for money |
| | D) | None of the above |
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14 | |
Refer to the last question. As a result of the fall in the Canadian dollar, |
| | A) | The total demand for money curve will shift leftward, and interest rates will fall, causing asset demand for money to rise. |
| | B) | The total demand for money curve will shift leftward, and interest rates will rise, causing asset demand for money to fall. |
| | C) | The total demand for money curve will shift rightward, and interest rates will fall, causing asset demand for money to rise. |
| | D) | The total demand for money curve will shift rightward, and interest rates will rise, causing asset demand for money to fall. |
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15 | |
Why do economists use a vertical line to represent money supply in money market diagrams? |
| | A) | Because the Bank of Canada is assumed to control the money supply. |
| | B) | Because the money supply changes as interest rates change |
| | C) | Because asset demand decreases as interest rates increase. |
| | D) | None of the above. |
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16 | |
Suppose an increase in the money supply creates a temporary surplus of money in the money market. Which of the following adjustments will take place next? |
| | A) | People will attempt to sell bonds to get more money. As a result, the supply of bonds increases, leading to a fall in the price of bonds and a fall in the interest rate. |
| | B) | People will attempt to buy bonds with excess money. As a result, the demand for bonds increases, leading to a rise in the price of bonds and a fall in the interest rate. |
| | C) | People will attempt to sell bonds with excess money. As a result, the demand for bonds increases, leading to a rise in the price of bonds and a rise in the interest rate. |
| | D) | None of the above |
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17 | |
Which of the following monetary policies will increase aggregate demand (AD)? |
| | A) | The Bank of Canada purchases bonds from chartered banks. |
| | B) | The Bank of Canada shifts Government of Canada deposits from itself to the chartered banks. |
| | C) | The Bank of Canada reduces interest rates. |
| | D) | All of the above |
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18 | |
Suppose that the Canadian economy was believed to be at full employment. Increasing the bank rate by one-quarter percent might... |
| | A) | Maintain the economy at its potential GDP |
| | B) | Cause the economy to go into a recessionary gap. |
| | C) | Cause the economy to go into an inflationary gap. |
| | D) | Cause the unemployment rate to fall below the natural unemployment rate. |
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19 | |
Which of the following policies would be best for restoring the economy to full employment when it is in an inflationary gap? |
| | A) | A reduction in the Bank Rate |
| | B) | The Bank of Canada purchases Government of Canada bonds from the chartered banks |
| | C) | The Bank of Canada shifts Government of Canada deposits from the chartered banks to itself |
| | D) | All of the above |
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20 | |
Which of the following monetary policies would not raise interest rates? |
| | A) | The Bank of Canada purchases bonds from the chartered banks |
| | B) | The Bank of Canada raises the Bank Rate |
| | C) | The Bank of Canada moves deposits from the chartered banks to itself |
| | D) | None of the above |
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21 | |
If the economy is very close to its potential GDP, then reducing the bank rate will... |
| | A) | Cause a large increase in Real GDP, but little change in price level. |
| | B) | Cause a large increase in Real GDP and a large increase in price level |
| | C) | Cause a small increase in Real GDP, but a large change in the price level |
| | D) | Cause a small increase in both Real GDP and the price level |
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22 | |
Which of the following is an advantage of monetary policy? |
| | A) | The Bank of Canada's policies are determined by political pressures |
| | B) | Monetary policy can be quickly altered, whereas fiscal policy cannot. |
| | C) | Expansionary monetary policy can be especially relied upon to get the economy out of a recession. |
| | D) | None of the above |
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23 | |
If the Canadian economy is in a recessionary gap, then use of a suitable monetary policy will... |
| | A) | Increase the value of the Canadian dollar, and increase net exports. |
| | B) | Decrease the value of the Canadian dollar, and decrease net exports. |
| | C) | Increase the value of the Canadian dollar, and increase net exports. |
| | D) | Increase the value of the Canadian dollar, and decrease net exports. |
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24 | |
A particular policy is put into place, and it causes the value of the Canadian dollar to rise over time. Which of the following policies was likely used to accomplish this? |
| | A) | Expansionary fiscal policy |
| | B) | Expansionary monetary policy |
| | C) | Contractionary fiscal policy |
| | D) | Expansionary monetary policy and contractionary fiscal policy used at the same time |
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2002 McGraw-Hill Higher Education