Question 1

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

Accepted Answer

A)  advances to chartered banks, government securities and deposits.
B)  treasury bills of Canada, government deposits and securities.
C)  chartered bank deposits, government deposits and notes in circulation.
D)  chartered banks deposits, advances to chartered banks and notes in circulation.E) B) and D)
F) B) and C)

Question 2

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.E) A) and B)
F) A) and C)

Question 3

An expansionary monetary policy is appropriate for the alleviation of domestic:

Accepted Answer

A)  unemployment and compatible with the goal of correcting a trade deficit.
B)  unemployment and compatible with the goal of correcting a trade surplus.
C)  inflation and compatible with the goal of correcting a trade deficit.
D)  inflation and compatible with the goal of correcting a trade surplus.E) A) and B)
F) A) and C)

Question 4

The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for:

Accepted Answer

A)  exchange rate.
B)  overnight lending rate.
C)  prime interest rate.
D)  the velocity of money.E) B) and D)
F) B) and C)

Question 5

If the government pursues a restrictive monetary policy, then it will:

Accepted Answer

A)  increase domestic interest rates, cause the dollar to appreciate, and decrease net exports.
B)  decrease domestic interest rates, cause the dollar to depreciate, and increase net exports.
C)  increase domestic interest rates, cause the dollar to depreciate, and increase net exports.
D)  increase domestic interest rates, cause the dollar to appreciate, and increase net exports.E) None of the above
F) C) and D)

Question 6

In the Bank of Canada's consolidated balance sheet, the largest asset is:

Accepted Answer

A)  loans to chartered banks.
B)  notes in circulation.
C)  government deposits.
D)  government securities.E) C) and D)
F) B) and C)

Question 7

Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average, we can infer that the:

Accepted Answer

A)  real GDP is $800.
B)  nominal GDP is $800.
C)  money supply must be $800.
D)  nominal GDP is $1,200.E) None of the above
F) B) and C)

Question 8

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

Accepted Answer

A)  increase aggregate supply.
B)  decrease aggregate supply.
C)  increase aggregate demand.
D)  decrease aggregate demand.E) A) and C)
F) A) and B)

Question 9

A restrictive monetary policy may not be effective if the investment-demand curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 10

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.E) A) and B)
F) B) and D)

Question 11

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.E) A) and B)
F) B) and D)

Question 12

Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Accepted Answer

A)  a high rate of inflation.
B)  a high rate of unemployment.
C)  a recession.
D)  a negative GDP gap.E) A) and D)
F) None of the above

Question 13

Which of the following is correct?

Accepted Answer

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

Question 14

The so-called Taylor Rule states that:

Accepted Answer

A)  monetary policy should only respond to the changes in real GDP and not in inflation.
B)  monetary policy should only respond to the changes in inflation and not in real GDP.
C)  monetary policy should respond to changes in both real GDP and inflation.
D)  Monetary policy should only respond to changes in unemployment rate.E) B) and C)
F) A) and D)

Question 15

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.E) A) and B)
F) B) and C)

Question 16

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.E) None of the above
F) A) and D)

Question 17

A newspaper headline reads: "Bank of Canada Raises the overnight rate for third time this year." This headline indicates that the Bank of Canada is most likely trying to:

Accepted Answer

A)  stimulate the economy.
B)  increase the money supply.
C)  reduce the cost of credit.
D)  reduce inflationary pressures in the economy.E) A) and B)
F) A) and D)

Question 18

1. B) D2. C) S. D) D3." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram for the market for money.The total demand for money is shown by:

Accepted Answer

A)  D1.
B)  D2.
C)  S.
D)  D3.E) B) and C)
F) A) and D)

Question 19

The easy money of Japan during the 1990s and early 2000s:

Accepted Answer

A)  was effective in reducing high inflation.
B)  was effective in stimulating the economy.
C)  suffered from cyclical asymmetry.
D)  resulted in an increase in aggregate supply.E) A) and D)
F) B) and D)

Question 20

Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:

Accepted Answer

A)  sell bonds, which would cause bond prices to fall and the interest rate to rise.
B)  buy bonds, which would cause bond prices to fall and the interest rate to rise.
C)  sell bonds, which would cause bond prices to rise and the interest rate to rise.
D)  buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate.E) B) and C)
F) A) and D)

Exam 15: Part B: Interest Rates and Monetary Policy

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

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The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for:

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The so-called Taylor Rule states that:

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A restrictive monetary policy may not be effective if the investment-demand curve shifts to the left.

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The easy money of Japan during the 1990s and early 2000s:

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Which of the following is correct?

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Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:

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Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average, we can infer that the:

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

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In the Bank of Canada's consolidated balance sheet, the largest asset is:

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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:

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In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

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A newspaper headline reads: "Bank of Canada Raises the overnight rate for third time this year." This headline indicates that the Bank of Canada is most likely trying to:

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The purpose of an expansionary monetary policy is to:

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Refer to the above diagram for the market for money.The total demand for money is shown by:

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An expansionary monetary policy is appropriate for the alleviation of domestic:

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Which statement is true?

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Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

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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:

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If the government pursues a restrictive monetary policy, then it will:

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