Question 1

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 2

The Bank of Canada can use three instruments--Open-market operations,tax collection,and bank rate-to influence the chartered banks' reserves.

Accepted Answer

A) True 
 B)False

Question 3

Which statement is true?

Accepted Answer

A)   Bond prices and the interest rate are inversely related.
B)   A lower interest rate raises the opportunity cost of holding money.
C)   The supply of money is directly related to the interest rate.
D)   The total demand for money is directly related to the interest rate.

Question 4

Assume that the desired reserve ratio is 10 percent and there are no excess reserves in the banking system.Also,suppose that the full-employment,non-inflationary level of GDP in this closed,private economy is $1,200.
 
-Refer to the above information.An interest rate of 2 percent is not sustainable because:

Accepted Answer

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

Question 5

To increase the overnight lending rate,the Bank of Canada can:

Accepted Answer

A)   buy government bonds from the public.
B)   decrease the bank rate.
C)   decrease the prime interest rate.
D)   sell government bonds to chartered banks.

Question 6

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is an expansionary monetary policy?

Accepted Answer

A)   Increase the money supply to shift the aggregate demand curve rightward.
B)   Increase the money supply to shift the aggregate demand curve leftward.
C)   Increase the money supply to shift the aggregate supply curve leftward.
D)   Decrease the money supply to shift the aggregate demand curve leftward.

Question 8

If the monetary authorities want to reduce chartered bank lending they should:

Accepted Answer

A)   take actions to reduce chartered bank reserves.
B)   take actions to increase chartered bank reserves.
C)   ask the chartered banks to lower the desired reserve ratio.
D)   do none of the above.

Question 9

A consumer holds money to meet spending needs.This would be an example of the:

Accepted Answer

A)   use of money as a measure of value.
B)   use of money as legal tender.
C)   transactions demand for money.
D)   asset demand for money.

Question 10

Which of the following is correct?

Accepted Answer

A)   A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to increase.
B)   A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to decrease.
C)   A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to increase.
D)   A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to decrease.

Question 11

Refer to the market for money diagram below.The downward slope of the money demand curve Dm can best be explained in terms of the: m can best be explained in terms of the:   A)  transactions demand for money. B)  direct or positive relationship between bond prices and interest rates. C)  asset demand for money. D)  wealth or real-balances effect." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   transactions demand for money.
B)   direct or positive relationship between bond prices and interest rates.
C)   asset demand for money.
D)   wealth or real-balances effect.

Question 12

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 13

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
 
-Assume the desired reserve ratio is 25 percent and the Winnipeg Bank borrows $10,000 from the Bank of Canada.As a result:

Accepted Answer

A)   chartered bank reserves are increased by $10,000.
B)   the supply of money automatically declines by $7,500.
C)   chartered bank reserves are increased by $7,500.
D)   the supply of money is automatically increased by $10,000.

Question 14

If during a certain period the Bank of Canada's policy target was to stabilize the money supply,we would expect:

Accepted Answer

A)   less inflation than if the Bank of Canada's policy was to stabilize interest rates.
B)   tax revenues to fall.
C)   interest rates to be quite volatile.
D)   interest rates to be unusually stable.

Question 15

The purpose of an expansionary monetary policy is to:

Accepted Answer

A)   increase aggregate demand.
B)   decrease aggregate demand.
C)   increase investment demand.
D)   decrease investment demand.

Question 16

The Special Purchase and Resale Agreement (SPRA) ,is a transaction in which:

Accepted Answer

A)   the Bank of Canada,offers to sell government securities with an agreement to buy them back at a predetermined price the next business day.
B)   the Bank of Canada,offers to buy government securities with an agreement to sell them back at a predetermined price the next business day.
C)   the Bank of Canada,offers to buy government securities with an agreement to sell them back at a predetermined price the next month.
D)   the Bank of Canada,offers to sell government securities with an agreement to buy them back at a predetermined price the next month.

Question 17

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 18

In recent years,the Bank of Canada has adopted a monetary policy that focuses on:

Accepted Answer

A)   the money supply as the policy target.
B)   overnight lending rate as the policy target.
C)   net exports as the policy target.
D)   the prime interest rate as a policy target.

Question 19

An expansionary monetary policy may be more effective than a restrictive monetary policy because chartered banks may decide to hold a large quantity of excess reserves.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 15: Interest Rates and Monetary Policy

If the monetary authorities want to reduce chartered bank lending they should:

Correct Answer
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A consumer holds money to meet spending needs.This would be an example of the:

Correct Answer
verified

Bond prices and interest rates are directly related.

Correct Answer
verified

Correct Answer
verified

In recent years,the Bank of Canada has adopted a monetary policy that focuses on:

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

The bank rate is the rate of interest at which:

Correct Answer
verified

To increase the overnight lending rate,the Bank of Canada can:

Correct Answer
verified

The purpose of an expansionary monetary policy is to:

Correct Answer
verified

The Bank of Canada can use three instruments--Open-market operations,tax collection,and bank rate-to influence the chartered banks' 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

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct Answer
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Which of the following is correct?

Correct Answer
verified

If during a certain period the Bank of Canada's policy target was to stabilize the money supply,we would expect:

Correct Answer
verified

Which of the following is an expansionary monetary policy?

Correct Answer
verified

Refer to the market for money diagram below.The downward slope of the money demand curve D_m can best be explained in terms of the:

Correct Answer
verified

The Special Purchase and Resale Agreement (SPRA) ,is a transaction in which:

Correct Answer
verified

An expansionary monetary policy may be more effective than a restrictive monetary policy because chartered banks may decide to hold a large quantity of excess reserves.

Correct Answer
verified

Which statement is true?

Correct Answer
verified

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

If the monetary authorities want to reduce chartered bank lending they should:

Correct AnswerverifiedShow Answer

A consumer holds money to meet spending needs.This would be an example of the:

Correct AnswerverifiedShow Answer

Bond prices and interest rates are directly related.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In recent years,the Bank of Canada has adopted a monetary policy that focuses on:

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

The bank rate is the rate of interest at which:

Correct AnswerverifiedShow Answer

To increase the overnight lending rate,the Bank of Canada can:

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to:

Correct AnswerverifiedShow Answer

The Bank of Canada can use three instruments--Open-market operations,tax collection,and bank rate-to influence the chartered banks' 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

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If during a certain period the Bank of Canada's policy target was to stabilize the money supply,we would expect:

Correct AnswerverifiedShow Answer

Which of the following is an expansionary monetary policy?

Correct AnswerverifiedShow Answer

Refer to the market for money diagram below.The downward slope of the money demand curve Dm can best be explained in terms of the:

Correct AnswerverifiedShow Answer

The Special Purchase and Resale Agreement (SPRA) ,is a transaction in which:

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be more effective than a restrictive monetary policy because chartered banks may decide to hold a large quantity of excess reserves.

Correct AnswerverifiedShow Answer

Which statement is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Refer to the market for money diagram below.The downward slope of the money demand curve D_m can best be explained in terms of the:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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