Question 1

Which of the following best describes what occurs when monetary authorities sell government securities?

Accepted Answer

A)  There is a decrease in the size of chartered banks' excess reserves, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.
B)  There is a decrease in the size of chartered banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.
C)  There is a decrease in the size of chartered banks' excess reserves, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.
D)  There is an increase in the size of chartered bank reserves, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.

Question 2

The interest rate at which the Bank of Canada lends to chartered banks is called:

Accepted Answer

A)  the prime rate.
B)  the short-term rate.
C)  the bank rate.
D)  the government bonds rate.

Question 3

An important routine function of the Bank of Canada is:

Accepted Answer

A)  to help new chartered banks sell capital stock.
B)  to supply the economy with paper currency.
C)  to advise chartered banks as to the most profitable ways of reinvesting profits.
D)  to help chartered banks develop correspondent relationships with foreign banks.

Question 4

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

Accepted Answer

A)  horizontally adding the transactions and the asset demand for money.
B)  vertically subtracting the transactions demand from the asset demand for money.
C)  horizontally subtracting the asset demand from the transactions demand for money.
D)  vertically adding the transactions and the asset demand for money.

Question 5

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.

Question 6

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Accepted Answer

A) True 
 B)False

Question 7

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
 Refer to the above information, suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction, the supply of money:

Accepted Answer

A)  will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B)  will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40.
C)  is not directly affected, but the money-creating potential of the chartered banking system will decrease by $40.
D)  will decrease by $2, but the money-creating potential of the chartered banking system will not be affected.

Question 8

The bank rate is the rate of interest at which:

Accepted Answer

A)  the Bank of Canada lends to chartered banks.
B)  financial institutions lend to some builders.
C)  the Bank of Canada lends to large corporations.
D)  chartered banks lend to large corporations.

Question 9

Monetary policy is:

Accepted Answer

A)  faster than fiscal policy.
B)  slower than fiscal policy.
C)  weaker than fiscal policy.
D)  stronger than fiscal policy.

Question 10

Quantitative easing refers to the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.

Accepted Answer

A) True 
 B)False

Question 11

An increase in nominal GDP increases the demand for money because:

Accepted Answer

A)  interest rates will rise.
B)  more money is needed to finance a larger volume of transactions.
C)  bond prices will fall.
D)  the opportunity cost of holding money will decline.

Question 12

A liquidity trap refers to a situation in which:

Accepted Answer

A)  taking away liquidity from the banks has a major positive effect on lending.
B)  adding liquidity to banks has major positive effects on lending.
C)  adding liquidity to banks has little or no positive effects on lending.
D)  taking away liquidity to banks has a major negative effect on lending.

Question 13

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.

Question 14

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.

Question 15

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.

Question 16

The price of a bond with no expiration date is originally $5,000 and it pays an annual interest payment of $500.If the price of the bond falls to $3,000, then the effective interest rate yield to a new buyer of the bond is:

Accepted Answer

A)  14.4 percent.
B)  16.6 percent.
C)  11.0 percent.
D)  9.0 percent.

Question 17

Which of the following is correct?

Accepted Answer

A)  The asset demand for money is downward sloping because the opportunity cost of holding money declines as the interest rate rises.
B)  The asset demand for money is downward sloping because the opportunity cost of holding money increases as the interest rate rises.
C)  The transactions demand for money is downward sloping because the opportunity cost of holding money varies inversely with the interest rate.
D)  The asset demand for money is downward sloping because bond prices and the interest rate are directly related.

Question 18

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.

Question 19

An expansionary monetary policy is designed to correct a problem of high unemployment and sluggish economic growth.

Accepted Answer

A) True 
 B)False

Exam 15: B: Interest Rates and Monetary Policy

An expansionary monetary policy is designed to correct a problem of high unemployment and sluggish economic growth.

Correct Answer
verified

Which of the following best describes what occurs when monetary authorities sell government securities?

Correct Answer
verified

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:

Correct Answer
verified

The interest rate at which the Bank of Canada lends to chartered banks is called:

Correct Answer
verified

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

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

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

Correct Answer
verified

The price of a bond with no expiration date is originally $5,000 and it pays an annual interest payment of $500.If the price of the bond falls to $3,000, then the effective interest rate yield to a new buyer of the bond is:

Correct Answer
verified

Monetary policy is:

Correct Answer
verified

Correct Answer
verified

An increase in nominal GDP increases the demand for money because:

Correct Answer
verified

Quantitative easing refers to the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.

Correct Answer
verified

The bank rate is the rate of interest at which:

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct Answer
verified

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

Correct Answer
verified

An important routine function of the Bank of Canada is:

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

A liquidity trap refers to a situation in which:

Correct Answer
verified

Exam 15: B: Interest Rates and Monetary Policy

An expansionary monetary policy is designed to correct a problem of high unemployment and sluggish economic growth.

Correct AnswerverifiedShow Answer

Which of the following best describes what occurs when monetary authorities sell government securities?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

The interest rate at which the Bank of Canada lends to chartered banks is called:

Correct AnswerverifiedShow Answer

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

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

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is originally $5,000 and it pays an annual interest payment of $500.If the price of the bond falls to $3,000, then the effective interest rate yield to a new buyer of the bond is:

Correct AnswerverifiedShow Answer

Monetary policy is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in nominal GDP increases the demand for money because:

Correct AnswerverifiedShow Answer

Quantitative easing refers to the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.

Correct AnswerverifiedShow Answer

The bank rate is the rate of interest at which:

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An important routine function of the Bank of Canada is:

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

A liquidity trap refers to a situation in which:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified