Question 1

A liquidity trap occurs when

Accepted Answer

A)   too many arbitrage opportunities exist.
B)   the central bank does not print enough currency.
C)   consumers are too relient on credit cards for purchases.
D)   the real interest rate is very high.
E)   the real interest rate is zero.

Question 2

The evidence on the quantitative easing undertaken by the U.S.Federal Reserve suggests

Accepted Answer

A)   little support one way or the other for its effectiveness.
B)   strong support for its effectiveness.
C)   it is clearly not Pareto improving.
D)   our monetary intertemporal model fails to satisfy the Lucas critique.
E)   the Bank of Canada should undertake a similar program.

Question 3

Equilibrium in the credit card market

Accepted Answer

A)   determines the demand for money.
B)   raises the real interest rate.
C)   is equal to nominal income earned during the day.
D)   occurs if the marginal benefit exceeds the marginal cost of credit card balances.
E)   results in a larger volume of real transactions. A

Question 4

Monetary aggregates are

Accepted Answer

A)   the various roles of money.
B)   the money at the Bank of Canada.
C)   high-powered money.
D)   different definitions of money.
E)   currency in the hands of the public and demand deposits.

Question 5

To increase the nominal money supply,the Bank of Canada can engage in

Accepted Answer

A)   reducing inflation.
B)   increasing taxes.
C)   open market purchases.
D)   open market sales.
E)   seigniorage.

Question 6

The equilibrium allocation of resources in the money-surprise model is Pareto optimal if

Accepted Answer

A)   workers can distinguish between changes in the money supply and total factor productivity.
B)   workers have sufficient bargaining power.
C)   the central bank can consistently fool workers.
D)   inflation remains low enough.
E)   inflation remains high enough.

Question 7

The monetary intertemporal model contains the fact that

Accepted Answer

A)   the Bank of Canada supplies money.
B)   interest rates are determined by the federal government.
C)   interest rates are determined by the chartered banks.
D)   the foreign sector does not matter.
E)   transactions require money and transactions services supplied by banks.

Question 8

The nominal interest rate cannot fall below zero because

Accepted Answer

A)   central banks are engaged in interest rate targeting.
B)   inflation is generally too high.
C)   inflation is generally too low.
D)   financial markets cannot allow for arbitrage opportunities.
E)   financial markets do allow for arbitrage opportunities.

Question 9

Interest rate targeting may be problematic when

Accepted Answer

A)   the central bank cannot distinguish shocks to money supply from shocks to money demand.
B)   there is a large fraction of borrowers in the economy.
C)   the central bank cannot distinguish shocks to money demand from shocks to total factor productivity.
D)   there is a large fraction of lenders in the economy.
E)   the central bank engages in open market operations. C

Question 10

According to the Taylor rule the central bank's target interest rate should

Accepted Answer

A)   increase if inflation is below its target.
B)   decrease if real economic activity is above its target.
C)   increase if inflation is above its target.
D)   remain constant.
E)   decrease if inflation is above its target.

Question 11

If R > q,then

Accepted Answer

A)   the marginal benefit of using the credit card exceeds the marginal cost.
B)   the marginal benefit of using cash exceeds the marginal cost.
C)   the real interest rate does not reach its equilibrium value.
D)   the nominal interest rate is not in equilibrium.
E)   the marginal cost of using the credit card exceeds the marginal benefit.

Question 12

The most distinguishing economic feature of money is its

Accepted Answer

A)   medium of exchange role.
B)   store of value role.
C)   its unit of account role.
D)   its store of wealth role.
E)   its standard of deferred payment role.

Question 13

Neutrality of money refers to

Accepted Answer

A)   a certain percentage change in the money supply has the same percentage change in economic activity.
B)   a one-time change in the money supply has a one-time change in economic activity.
C)   a one-time change in the money supply affects consumption and investment decisions only.
D)   a one-time change in the money supply has no real consequence for the economy.
E)   money being a medium of exchange for everyone. D

Question 14

An open-market operation refers to

Accepted Answer

A)   changing the money supply by changing taxes.
B)   changing the money supply by changing government spending.
C)   an exchange of money for interest-bearing debt by the monetary authority.
D)   an exchange of domestic money for foreign money by the monetary authority.
E)   seigniorage.

Question 15

In formulating its monetary policy,the Bank of Canada focuses primarily on?

Accepted Answer

A)   M2
B)   M1++ and M2++
C)   M1
D)   M1 and M2
E)   high-powered money

Question 16

The monetary base includes

Accepted Answer

A)   currency outside banks only.
B)   M0 and M1.
C)   inside money.
D)   money drawn from credit cards.
E)   all money available outside of the financial system.

Question 17

Money growth rate targeting can be beneficial when

Accepted Answer

A)   there are concerns about high inflation.
B)   there are shocks to money demand.
C)   there is a cash-in-advance constraint.
D)   the price of credit is too high.
E)   there are shocks to money supply.

Question 18

In the money surprise model,an increase in the money supply causes

Accepted Answer

A)   the real interest rate and the real wage rate to increase, output and employment to fall.
B)   no effects on the real aggregate variables, but an increase in the price level.
C)   a persistent increase in inflation.
D)   the real interest rate and employment to fall, the real wage and output increase.
E)   the real interest rate and real wage to fall, output and employment increase.

Question 19

Double coincidence of wants means

Accepted Answer

A)   two economic agents want to exchange the goods they have.
B)   households prefer to double the quantity of their goods.
C)   households want more of leisure and consumption.
D)   households prefer a diverse set of goods.
E)   two economic agents want different sets of goods.

Question 20

Buying an item with cash would be an example of money's role as a

Accepted Answer

A)   medium of exchange.
B)   store of value.
C)   unit of account.
D)   store of wealth.
E)   standard of deferred payment.

Exam 12: Money, Banking, Prices, and Monetary Policy

A liquidity trap occurs when

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The evidence on the quantitative easing undertaken by the U.S.Federal Reserve suggests

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Equilibrium in the credit card market

Correct AnswerverifiedA

Monetary aggregates are

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To increase the nominal money supply,the Bank of Canada can engage in

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The equilibrium allocation of resources in the money-surprise model is Pareto optimal if

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The monetary intertemporal model contains the fact that

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The nominal interest rate cannot fall below zero because

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Interest rate targeting may be problematic when

Correct AnswerverifiedC

According to the Taylor rule the central bank's target interest rate should

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If R > q,then

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The most distinguishing economic feature of money is its

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Neutrality of money refers to

Correct AnswerverifiedD

An open-market operation refers to

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In formulating its monetary policy,the Bank of Canada focuses primarily on?

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The monetary base includes

Correct AnswerverifiedShow Answer

Money growth rate targeting can be beneficial when

Correct AnswerverifiedShow Answer

In the money surprise model,an increase in the money supply causes

Correct AnswerverifiedShow Answer

Double coincidence of wants means

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Buying an item with cash would be an example of money's role as a

Correct AnswerverifiedShow Answer

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A

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C

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D

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