Question 1

Refer to the above table.Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table.If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Accepted Answer

A)  4 percent.
B)  5 percent.
C)  6 percent.
D)  7 percent. Refer to the above table.Suppose the transa.E) A) and B)
F) A) and C)

Question 2

The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800.A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:

Accepted Answer

A)  10 percent.
B)  12 percent.
C)  14 percent.
D)  16 percent.E) B) and C)
F) None of the above

Question 3

All else equal, when the Bank of Canada engages in a restrictive monetary policy, the price of government securities tends to:

Accepted Answer

A)  fall.
B)  rise.
C)  remain constant.
D)  move in the same direction as the bonds' interest rate yield.E) C) and D)
F) A) and D)

Question 4

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.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.The chartered banks have excess reserves of:

Accepted Answer

A)  $1
B)  $6
C)  $20
D)  $0E) All of the above
F) B) and D)

Question 5

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Accepted Answer

A) True 
 B)False  True

Question 6

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond falls by $200, the interest rate in effect will:

Accepted Answer

A)  rise by 2.5 percentage points.
B)  rise by 5 percentage points.
C)  fall by 2.5 percentage points.
D)  fall by 5 percentage points.E) None of the above
F) A) and D)

Question 7

Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Accepted Answer

A)  fall by 4 percentage points.
B)  fall by 2 percentage points.
C)  rise by 4 percentage points.
D)  rise by 2 percentage points.E) B) and C)
F) C) and D)

Question 8

Which of the following best describes the cause-effect chain of a restrictive 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, decrease investment spending, and increase GDP.E) A) and D)
F) B) and C)

Question 9

When a chartered bank borrows from the Bank of Canada:

Accepted Answer

A)  the supply of money automatically increases.
B)  it indicates that the chartered bank is unsound financially.
C)  the chartered bank's lending ability is increased.
D)  the chartered bank's reserves are reduced.E) B) and C)
F) A) and D) C

Question 10

Notes in circulation are:

Accepted Answer

A)  an asset as viewed by the Bank of Canada.
B)  a liability as viewed by the Bank of Canada.
C)  neither an asset nor a liability as viewed by the Bank of Canada.
D)  part of M1, but not of M2 or M2+.E) A) and B)
F) None of the above

Question 11

In the consolidated balance sheet of the Bank of Canada, loans to chartered banks are:

Accepted Answer

A)  a liability of the Bank of Canada and chartered banks.
B)  an asset of the Bank of Canada and chartered banks.
C)  a liability of the Bank of Canada and an asset for chartered banks.
D)  an asset of the Bank of Canada and a liability for chartered banks.E) B) and D)
F) B) and C)

Question 12

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Accepted Answer

A)  $500
B)  $480
C)  $460
D)  $440E) C) and D)
F) All of the above

Question 13

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Accepted Answer

A) True 
 B)False  True

Question 14

The asset demand for money varies directly with the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

Refer to the graphs below.The first graph shows the money market of an economy, and the second graph shows the market for goods and services in the economy. 1, AD2, and AD3 labels indicate the levels of investment spending associated with each AD curve.All figures are in billions.Qf is the full-employment level of real output.Suppose the economy is in equilibrium at point C on the aggregate demand curve.Which of the following should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A) They should increase the money supply from $75 billion to $150 billion. B) They should increase the money supply from $150 billion to $225 billion. C) They should decrease the money supply from $225 billion to $50 billion. D) They should decrease interest rates from 12 percent to 4 percent." class="answers-bank-image d-inline" rel="preload" > 1, AD2, and AD3 labels indicate the levels of investment spending associated with each AD curve.All figures are in billions.Qf is the full-employment level of real output.Suppose the economy is in equilibrium at point C on the aggregate demand curve.Which of the following should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A) They should increase the money supply from $75 billion to $150 billion. B) They should increase the money supply from $150 billion to $225 billion. C) They should decrease the money supply from $225 billion to $50 billion. D) They should decrease interest rates from 12 percent to 4 percent." class="answers-bank-image d-inline" rel="preload" > In the above diagrams, the numbers in the parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each AD curve.All figures are in billions.Qf is the full-employment level of real output.Suppose the economy is in equilibrium at point C on the aggregate demand curve.Which of the following should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP?

Accepted Answer

A)  They should increase the money supply from $75 billion to $150 billion.
B)  They should increase the money supply from $150 billion to $225 billion.
C)  They should decrease the money supply from $225 billion to $50 billion.
D)  They should decrease interest rates from 12 percent to 4 percent.E) All of the above
F) B) and D)

Question 17

Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:

Accepted Answer

A)  the asset demand for money increased.
B)  the transactions demand for money increased.
C)  nominal GDP decreased.
D)  the overall price level rose.E) None of the above
F) B) and C)

Question 18

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.E) None of the above
F) B) and C)

Question 19

Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:

Accepted Answer

A)  rise to 7 percent.
B)  rise to 6 percent.
C)  fall to 4 percent.
D)  fall to 5 percent.E) All of the above
F) None of the above

Question 20

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.E) B) and C)
F) None of the above

Exam 15: Part B: Interest Rates and Monetary Policy

Refer to the above table.Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table.If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Correct Answer
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The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800.A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:

Correct Answer
verified

All else equal, when the Bank of Canada engages in a restrictive monetary policy, the price of government securities tends to:

Correct Answer
verified

Correct Answer
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The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Correct Answer
verified
True

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond falls by $200, the interest rate in effect will:

Correct Answer
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Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Correct Answer
verified

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct Answer
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When a chartered bank borrows from the Bank of Canada:

Correct Answer
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C

Notes in circulation are:

Correct Answer
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In the consolidated balance sheet of the Bank of Canada, loans to chartered banks are:

Correct Answer
verified

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Correct Answer
verified

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Correct Answer
verified
True

The asset demand for money varies directly with the interest rate.

Correct Answer
verified

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct Answer
verified

Correct Answer
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Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:

Correct Answer
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Which of the following is correct?

Correct Answer
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Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:

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

Exam 15: Part B: Interest Rates and Monetary Policy

Refer to the above table.Suppose the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table.If the nominal GDP is $2000 billion, the equilibrium interest rate is:

Correct AnswerverifiedShow Answer

The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800.A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:

Correct AnswerverifiedShow Answer

All else equal, when the Bank of Canada engages in a restrictive monetary policy, the price of government securities tends to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Correct AnswerverifiedTrue

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond falls by $200, the interest rate in effect will:

Correct AnswerverifiedShow Answer

Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Correct AnswerverifiedShow Answer

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct AnswerverifiedShow Answer

When a chartered bank borrows from the Bank of Canada:

Correct AnswerverifiedC

Notes in circulation are:

Correct AnswerverifiedShow Answer

In the consolidated balance sheet of the Bank of Canada, loans to chartered banks are:

Correct AnswerverifiedShow Answer

Refer to the above information.At equilibrium in the market for money, the total amount of money demanded is:

Correct AnswerverifiedShow Answer

Other things being equal, monetary policy will be more effective the flatter the investment-demand curve.

Correct AnswerverifiedTrue

The asset demand for money varies directly with the interest rate.

Correct AnswerverifiedShow Answer

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:

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

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True

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C

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True

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