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According to the Taylor Rule:


A) for each 1 percent increase in the inflation rate above its target of 2 percent,the central bank should raise the real overnight lending rate by one percent point.
B) for each 1 percent increase in the inflation rate above its target of 2 percent,the central bank should raise the real overnight lending rate by one-half a percent point.
C) for each 1 percent increase in the inflation rate above its target of 2 percent,the central bank should lower the real overnight lending rate by one percent point.
D) for each 1 percent increase in the inflation rate above its target of 2 percent,the central bank should lower the real overnight lending rate by one-half a percent point.

E) C) and D)
F) A) and D)

Correct Answer

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Assume that there is a 25 percent desired reserve ratio and that Bank of Canada buys $200 million worth of government securities.If the securities are purchased from the public,then this action has the potential to increase bank lending by a maximum of:


A) $600 million,and also by $600 million if the securities are purchased directly from chartered banks.
B) $800 million,and also by $800 million if the securities are purchased directly from chartered banks.
C) $600 million,but by $800 million if the securities are purchased directly from chartered banks.
D) $800 million,but only by $600 million if the securities are purchased directly from chartered banks.

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

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The prime interest rate:


A) affects investment spending while the overnight rate affects consumption spending.
B) affects consumption spending while the overnight rate affects investment spending.
C) has no effect on exchange rates and net exports.
D) affects investment spending while the overnight rate affects overnight borrowing of bank reserves.

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

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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 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 -Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market? A) The desired reserve ratio will increase. B) The money supply will increase. C) The deposits of chartered banks will increase. D) Chartered bank reserves will increase. BALANCE SHEET: BANK OF CANADA 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 -Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market? A) The desired reserve ratio will increase. B) The money supply will increase. C) The deposits of chartered banks will increase. D) Chartered bank reserves will increase. -Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?


A) The desired reserve ratio will increase.
B) The money supply will increase.
C) The deposits of chartered banks will increase.
D) Chartered bank reserves will increase.

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

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-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: A) 4 percent. B) 5 percent. C) 6 percent. D) 7 percent. -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:


A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.

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

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


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) B) and D)
F) C) and D)

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-Refer to the above information.At equilibrium in the market for money,the total amount of money demanded is: A) $500 B) $480 C) $460 D) $440 -Refer to the above information.At equilibrium in the market for money,the total amount of money demanded is:


A) $500
B) $480
C) $460
D) $440

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

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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 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.Suppose the Bank of Canada buys $2 in securities from the public.As a result of this transaction,the supply of money will: A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800. C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected. D) be unaffected but the money-creating potential of the chartered banking system will increase by $40. BALANCE SHEET: BANK OF CANADA 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.Suppose the Bank of Canada buys $2 in securities from the public.As a result of this transaction,the supply of money will: A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800. C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected. D) be unaffected but the money-creating potential of the chartered banking system will increase by $40. -Refer to the above information.Suppose the Bank of Canada buys $2 in securities from the public.As a result of this transaction,the supply of money will:


A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800.
C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected.
D) be unaffected but the money-creating potential of the chartered banking system will increase by $40.

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

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The fundamental objective of monetary policy is to assist the economy in achieving:


A) a rapid pace of economic growth.
B) a money supply which is based on the gold standard.
C) a full-employment,noninflationary level of total output.
D) a balanced-budget consistent with full-employment.

E) All of the above
F) A) and D)

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Assume that the desired reserve ratio is 20 percent.Suppose that the Bank of Canada sells $500 of government securities to chartered banks and buys $500 of securities from individuals,who deposit the cash in chequing accounts. -Refer to the above information.As a result of these transactions,the supply of money in the economy will:


A) remain unchanged.
B) rise by $500.
C) fall by $100.
D) fall by $500.

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

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-Refer to the above graphs,in which the numbers in parentheses after the AD<sub>1</sub>,AD<sub>2</sub>,and AD<sub>3</sub> labels indicate the level of investment spending associated with each curve,respectively.All numbers are in billions of dollars.The interest rate and the level of investment spending in the economy are at point B on the investment demand curve.To achieve the goal of a non-inflationary full-employment output Q<sub>f</sub> in the economy,the monetary authorities should: A) decrease the interest rate from 10 to 8 percent. B) decrease the interest rate from 8 to 6 percent. C) decrease the interest rate from 6 to 4 percent. D) increase investment spending from $30 to $60 billion. -Refer to the above graphs,in which the numbers in parentheses after the AD<sub>1</sub>,AD<sub>2</sub>,and AD<sub>3</sub> labels indicate the level of investment spending associated with each curve,respectively.All numbers are in billions of dollars.The interest rate and the level of investment spending in the economy are at point B on the investment demand curve.To achieve the goal of a non-inflationary full-employment output Q<sub>f</sub> in the economy,the monetary authorities should: A) decrease the interest rate from 10 to 8 percent. B) decrease the interest rate from 8 to 6 percent. C) decrease the interest rate from 6 to 4 percent. D) increase investment spending from $30 to $60 billion. -Refer to the above graphs,in which the numbers in parentheses after the AD1,AD2,and AD3 labels indicate the level of investment spending associated with each curve,respectively.All numbers are in billions of dollars.The interest rate and the level of investment spending in the economy are at point B on the investment demand curve.To achieve the goal of a non-inflationary full-employment output Qf in the economy,the monetary authorities should:


A) decrease the interest rate from 10 to 8 percent.
B) decrease the interest rate from 8 to 6 percent.
C) decrease the interest rate from 6 to 4 percent.
D) increase investment spending from $30 to $60 billion.

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

Correct Answer

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If the supply of money is reduced,we would expect:


A) the demand for money to increase.
B) interest rates to fall
C) bond prices to fall.
D) none of the above to occur.

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

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

A) True
B) False

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


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) A) and D)
F) A) and B)

Correct Answer

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


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

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

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-Which line in the above graph would best reflect the slope of the asset demand for money curve? A) line 1 B) line 2 C) line 3 D) line 4 -Which line in the above graph would best reflect the slope of the asset demand for money curve?


A) line 1
B) line 2
C) line 3
D) line 4

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

Correct Answer

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-Refer to the above graph,in which D<sub>t</sub> is the transactions demand for money,D<sub>m</sub> is the total demand for money,and S<sub>m</sub> is the supply of money.The transactions demand for money in this market for money is: A) $125 B) $175 C) $250 D) $325 -Refer to the above graph,in which Dt is the transactions demand for money,Dm is the total demand for money,and Sm is the supply of money.The transactions demand for money in this market for money is:


A) $125
B) $175
C) $250
D) $325

E) C) and D)
F) None of the above

Correct Answer

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


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) B) and C)
F) B) and D)

Correct Answer

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Suppose the demand for money and the supply of money increase simultaneously.We can:


A) expect the interest rate to rise and bond prices to fall.
B) expect the interest rate to fall and bond prices to rise.
C) the nominal GDP to expand.
D) not predict what will happen to interest rates or bond prices.

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

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: A) rise to 7 percent. B) rise to 6 percent. C) fall to 4 percent. D) fall to 5 percent. -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:


A) rise to 7 percent.
B) rise to 6 percent.
C) fall to 4 percent.
D) fall to 5 percent.

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

Correct Answer

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