Question 1

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.The equilibrium interest rate in this economy is:

Accepted Answer

A)  3 percent.
B)  4 percent.
C)  5 percent.
D)  6 percent.E) None of the above
F) All of the above

Question 2

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

Accepted Answer

A)  speed.
B)  flexibility.
C)  impact on taxation.
D)  isolation from political pressure.E) A) and C)
F) All of the above

Question 3

Refer to the graph given below. t represents the transactions demand for money, Dm represents the total demand for money, and Sm represents the supply of money.The transactions demand for money in this market is: A) $125. B) $175. C) $250. D) $325." class="answers-bank-image d-inline" rel="preload" > In the above graph, Dt represents the transactions demand for money, Dm represents the total demand for money, and Sm represents the supply of money.The transactions demand for money in this market is:

Accepted Answer

A)  $125.
B)  $175.
C)  $250.
D)  $325.E) A) and B)
F) A) and C)

Question 4

A decrease in the rate of interest would:

Accepted Answer

A)  decrease the opportunity cost of holding money.
B)  increase the transactions demand for money.
C)  increase the asset demand for money.
D)  decrease the price of bonds.E) None of the above
F) A) and C)

Question 5

Which of the following statements is correct? Other things being equal:

Accepted Answer

A)  a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right.
B)  a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged.
C)  deflation will shift both the transactions demand curve for money and the total money demand curve to the left.
D)  inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged.E) A) and B)
F) A) and C)

Question 6

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.E) B) and D)
F) B) and C)

Question 7

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.E) All of the above
F) A) and C)

Question 8

If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

Accepted Answer

A) True 
 B)False

Question 9

Monetary policy is subject to less political pressure than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 10

The impact of monetary policy upon investment spending may be weakened:

Accepted Answer

A)  because of the Department of Finance's desire for high interest rates.
B)  if investment changes in the same direction as the money supply.
C)  if the investment-demand curve shifts to the left during recession.
D)  if the investment-demand curve is very flat.E) B) and C)
F) A) and D)

Question 11

An expansionary monetary policy will decrease net exports.

Accepted Answer

A) True 
 B)False

Question 12

If in the market for money the quantity of money demanded exceeds the money supply, we would expect the interest rate to:

Accepted Answer

A)  fall, causing households and businesses to hold less money.
B)  rise, causing households and businesses to hold less money.
C)  rise, causing households and businesses to hold more money.
D)  fall, causing households and businesses to hold more money.E) C) and D)
F) A) and B)

Question 13

In recent years, the Bank of Canada has:

Accepted Answer

A)  paid closer attention to M1 than M2 in setting monetary targets.
B)  relied more on changes in the prime rate than open-market operations in establishing monetary policy.
C)  has increased M2 at a fixed annual rate, regardless of the health of the economy.
D)  taken an activist, pragmatic approach to monetary policy, has a publicized target on the overnight lending rate and has adopted the inflation targeting strategy.E) None of the above
F) C) and D)

Question 14

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 increases to $1,250, the interest rate in effect will:

Accepted Answer

A)  fall to 9 percent.
B)  fall to 8 percent.
C)  rise to 11 percent.
D)  rise to 12 percent.E) All of the above
F) B) and C)

Question 15

Refer to the above information.The total demand for money curve in this market for money would graph as a:

Accepted Answer

A)  vertical line.
B)  horizontal line.
C)  line sloping upward to the right.
D)  line sloping downward to the right.E) B) and C)
F) All of the above

Question 16

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 17

Which of the following statements best describes the Bank of Canada? It is:

Accepted Answer

A)  a publicly owned and publicly controlled central bank, whose basic goal is to provide income for the Government of Canada.
B)  a privately owned and publicly controlled central bank, whose basic goal is to earn profits for its owners.
C)  a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates and maintain price stability and it is an independent agency of government.
D)  a privately owned and publicly controlled central bank, whose basic function is to minimize the risks in chartered banking in order to make it a reasonably profitable industry.E) All of the above
F) A) and B)

Question 18

If there is an increase in nominal GDP, we would expect:

Accepted Answer

A)  the demand for money to increase.
B)  the interest rate to rise.
C)  bond prices to fall.
D)  all of the above to occur.E) A) and C)
F) A) and D)

Question 19

A decline in the equilibrium level of GDP is most likely to be caused by:

Accepted Answer

A)  a downshift in the investment schedule.
B)  an upshift in the investment schedule.
C)  a downshift in the consumption schedule.
D)  an upshift in the saving schedule.E) A) and D)
F) All of the above

Question 20

Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Accepted Answer

A)  nominal GDP increased.
B)  the interest rate fell.
C)  the supply of money increased.
D)  the supply of money decreased.E) C) and D)
F) A) and B)

Exam 15: Part B: Interest Rates and Monetary Policy

A decline in the equilibrium level of GDP is most likely to be caused by:

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The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

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

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Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

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If there is an increase in nominal GDP, we would expect:

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The impact of monetary policy upon investment spending may be weakened:

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If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

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Which of the following statements is correct? Other things being equal:

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

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An expansionary monetary policy will decrease net exports.

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Which of the following statements best describes the Bank of Canada? It is:

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Refer to the above information.The total demand for money curve in this market for money would graph as a:

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In recent years, the Bank of Canada has:

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A decrease in the rate of interest would:

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If in the market for money the quantity of money demanded exceeds the money supply, we would expect the interest rate to:

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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 increases to $1,250, the interest rate in effect will:

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

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Monetary policy is subject to less political pressure than fiscal policy.

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Refer to the graph given below. In the above graph, Dt represents the transactions demand for money, Dm represents the total demand for money, and Sm represents the supply of money.The transactions demand for money in this market is:

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Refer to the graph given below. In the above graph, D_t represents the transactions demand for money, D_m represents the total demand for money, and S_m represents the supply of money.The transactions demand for money in this market is:

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