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1 | |
Which of the following is not one of the functions of the Bank of Canada? |
| | A) | working with the federal Department of Finance in developing fiscal policy. |
| | B) | ensuring the stable operation of financial markets. |
| | C) | managing the money supply. |
| | D) | acting as the federal government's fiscal agent. |
| | E) | holding the deposits of members of the Canadian Payments Association. |
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2 | |
Treasury bills: |
| | A) | have an interest rate that is used in setting the bank rate. |
| | B) | are an important type of long-term government bond. |
| | C) | provide interest payments every three months. |
| | D) | are sold at a marked down price. |
| | E) | have an interest rate that is identical with the prime rate. |
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3 | |
The primary purpose of an expansionary monetary policy is to: |
| | A) | cut interest rates, thereby decreasing aggregate demand, and reducing inflationary pressures. |
| | B) | cut interest rates, thereby increasing aggregate demand, and raising real output and employment. |
| | C) | raise interest rates, thereby increasing aggregate demand, and raising real output and employment. |
| | D) | raise interest rates, thereby decreasing aggregate demand, and reducing inflationary pressures. |
| | E) | keep interest rates the same, so that both unemployment and inflation stay constant. |
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4 | |
The primary purpose of a contractionary monetary policy is to: |
| | A) | cut interest rates, thereby decreasing aggregate demand, and reducing inflationary pressures. |
| | B) | cut interest rates, thereby increasing aggregate demand, and raising real output and employment. |
| | C) | raise interest rates, thereby increasing aggregate demand, and raising real output and employment. |
| | D) | raise interest rates, thereby decreasing aggregate demand, and reducing inflationary pressures. |
| | E) | keep interest rates the same, so that both unemployment and inflation stay constant. |
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5 | |
Suppose the reserve ratio is 10%, and the Bank of Canada sells a $1 million government bond to a member of the public. This causes: |
| | A) | an immediate $1 million increase in the money supply. |
| | B) | an immediate $1 million decrease in the money supply. |
| | C) | an immediate $900,000 increase in the money supply. |
| | D) | an immediate $900,000 decrease in the money supply. |
| | E) | no immediate effect on the money supply. |
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6 | |
Suppose the reserve ratio is 5 percent and the Bank of Canada buys a $1 million bond from a member of the public. This causes: |
| | A) | the money supply to increase by a maximum amount of $20 million. |
| | B) | the money supply to decrease by a maximum amount of $20 million. |
| | C) | the money supply to increase by a maximum amount of $19 million. |
| | D) | the money supply to decrease by a maximum amount of $19 million. |
| | E) | no effect on the money supply. |
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7 | |
Suppose the Bank of Canada moves $1 million in government deposits from CPA members back to the Bank of Canada. This causes: |
| | A) | an immediate $1 million increase in the money supply. |
| | B) | an immediate $1 million decrease in the money supply. |
| | C) | an immediate $900,000 increase in the money supply. |
| | D) | an immediate $900,000 decrease in the money supply. |
| | E) | no immediate effect on the money supply. |
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8 | |
Suppose the reserve ratio is 5 percent and the Bank of Canada moves $1 million in government deposits to CPA members. This causes: |
| | A) | the money supply to increase by a maximum amount of $20 million. |
| | B) | the money supply to decrease by a maximum amount of $20 million. |
| | C) | the money supply to increase by a maximum amount of $19 million. |
| | D) | the money supply to decrease by a maximum amount of $19 million. |
| | E) | no effect on the money supply. |
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9 | |
The bank rate is: |
| | A) | based on the Bank of Canada's target range for the overnight rate. |
| | B) | the rate that chartered banks charge their best corporate customers. |
| | C) | based on the Bank of Canada's target range for the interest rate on treasury bills. |
| | D) | based on the Bank of Canada's target range for the prime rate. |
| | E) | the rate that chartered banks charge investment dealers for loans. |
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10 | |
Which of the following is a drawback of monetary policy? |
| | A) | it has a long decision lag. |
| | B) | it cannot be focused on particular regions. |
| | C) | it is weaker as a tool to contract the economy than it is as a tool to expand the economy. |
| | D) | it is detached from day-to-day politics. |
| | E) | it has a short decision lag. |
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11 | |
According to the Phillips curve: |
| | A) | there is an inverse relationship between the inflation rate and the level of employment. |
| | B) | there is a direct relationship between the price level and real output. |
| | C) | there is an inverse relationship between the inflation rate and the unemployment rate. |
| | D) | there is a direct relationship between the price level and real expenditures. |
| | E) | there is no relationship between the inflation rate and the unemployment rate. |
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12 | |
The Phillips curve's usefulness as a predictive tool broke down after: |
| | A) | 1960. |
| | B) | 1972. |
| | C) | 1982. |
| | D) | 1991. |
| | E) | 1998 |
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13 | |
The long-run aggregate supply curve is: |
| | A) | vertical. |
| | B) | horizontal. |
| | C) | the same shape as the short-run aggregate supply curve. |
| | D) | subject to frequent random shifts. |
| | E) | a flattened straight line. |
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14 | |
According to the quantity theory of money, as accepted by Milton Friedman and other monetarists: |
| | A) | the velocity of money is highly volatile. |
| | B) | real output can vary a great deal from its potential level |
| | C) | inflation is usually caused by shifts in aggregate supply. |
| | D) | both the velocity of money and real output are fairly stable. |
| | E) | the money supply is usually constant |
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15 | |
The Bank of Canada's zero inflation policy: |
| | A) | led to a fall in budget deficits for Canadian governments in the early 1990s. |
| | B) | has been supported by virtually all Canadian economists. |
| | C) | is based on the Bank's guarantee to keep annual increases in the CPI to between zero and 2%. |
| | D) | created additional unemployment when it was introduced in the early 1990s. |
| | E) | none of the above |
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2002 McGraw-Hill Higher Education