Question 1

The overnight lending rate is the rate at which:

Accepted Answer

A)  The Bank of Canada borrows from investment dealers.
B)  The Bank of Canada borrows from the chartered banks.
C)  the chartered banks, investment dealers, and other financial market participants borrow and lend funds for one day.
D)  The Bank of Canada lends to the Department of Finance.E) C) and D)
F) None of the above

Question 2

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) A) and B)
F) A) and C)

Question 3

If the demand for money and the supply of money both decrease, we can conclude that at the equilibrium:

Accepted Answer

A)  interest rate will decline, but we cannot predict the change in the equilibrium quantity of money.
B)  quantity of money and the equilibrium interest rate will both increase.
C)  quantity of money will increase, but we cannot predict the change in the equilibrium interest rate.
D)  quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.E) C) and D)
F) B) and C)

Question 4

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

Question 5

The equilibrium rate of interest in the market for money is determined by:

Accepted Answer

A)  the intersection of the supply of money and the asset demand for money.
B)  the intersection of the supply of money and the transactions demand for money.
C)  the intersection of the supply of money and the total demand for money.
D)  none of the above.E) A) and B)
F) C) and D)

Question 6

Which of the following is the "nickname" of the central bank of the United States?, According to Image 15.1 Global Perspective

Accepted Answer

A)  Fed
B)  RBA
C)  ECB
D)  BOJE) A) and D)
F) A) and C)

Question 7

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.E) All of the above
F) B) and D)

Question 8

When the Bank of Canada wants to see an increase in the interest rates, it:

Accepted Answer

A)  sells government securities by entering into SRA (a sale and repurchase agreement) .
B)  buys government securities by entering into SRA (a sale and repurchase agreement) .
C)  sells government securities by entering into SPRA (special purchase and resale agreement) .
D)  buys government securities by entering into SPRA (special purchase and resale agreement) .E) B) and C)
F) A) and C)

Question 9

The asset demand for money is most closely related to money functioning as a:

Accepted Answer

A)  unit of account.
B)  medium of exchange.
C)  store of value.
D)  measure of value.E) C) and D)
F) B) and D)

Question 10

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) All of the above

Question 11

Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques.As a result, chartered bank reserves will:

Accepted Answer

A)  increase by $10 billion.
B)  remain unchanged.
C)  decrease by $2 billion.
D)  increase by $2 billion.E) A) and B)
F) None of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

All else equal, an expansionary monetary policy in Canada:

Accepted Answer

A)  increases Canadian imports.
B)  increases the international value of the dollar.
C)  reduces the foreign demand for Canadian dollars.
D)  aggravates an existing Canadian trade deficit.E) B) and C)
F) B) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Which line in the above graph would best reflect the slope of the asset demand for money curve?

Accepted Answer

A)  line 1
B)  line 2
C)  line 3
D)  line 4E) None of the above
F) A) and B)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

There is an asset demand for money because households and business firms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 18

An expansionary monetary policy may be frustrated if the:

Accepted Answer

A)  demand-for-money curve shifts to the left.
B)  investment-demand curve shifts to the left.
C)  saving schedule shifts downward.
D)  investment-demand curve shifts to the right.E) A) and D)
F) None of the above

Question 19

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

Question 20

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

Exam 15: B: Interest Rates and Monetary Policy

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:

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

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

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

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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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There is an asset demand for money because households and business firms use money as a store of value.

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Which of the following is the "nickname" of the central bank of the United States?, According to Image 15.1 Global Perspective

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If the demand for money and the supply of money both decrease, we can conclude that at the equilibrium:

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

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

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The overnight lending rate is the rate at which:

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All else equal, an expansionary monetary policy in Canada:

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The equilibrium rate of interest in the market for money is determined by:

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When the Bank of Canada wants to see an increase in the interest rates, it:

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

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The asset demand for money is most closely related to money functioning as a:

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Suppose the Bank of Canada sells $2 billion of government bonds to the public, which pays for them by drawing cheques.As a result, chartered bank reserves will:

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Which line in the above graph would best reflect the slope of the asset demand for money curve?

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An expansionary monetary policy may be frustrated if the:

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In recent years, the Bank of Canada has:

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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:

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