Question 1

The purpose of a restrictive 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 D)
F) B) and C)

Question 2

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

Accepted Answer

A)   line 1
B)   line 2
C)   line 3
D)   line 4E) B) and C)
F) B) and D)

Question 3

Which one is considered a limitation of monetary policy?

Accepted Answer

A)   the cause-effect chain
B)   its cyclical asymmetry
C)   its isolation from political pressure
D)   the speed with which it can be implementedE) All of the above
F) B) and C)

Question 4

Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

Accepted Answer

A)   growth of the money supply.
B)   overnight loans rate.
C)   prime interest rate.
D)   Canadian dollar-foreign currency exchange rate.E) C) and D)
F) A) and B)

Question 5

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) All of the above
F) B) and C)

Question 6

The purchase of government securities from the public by the Bank of Canada will cause:

Accepted Answer

A)   chartered bank reserves to increase.
B)   the money supply to increase.
C)   demand deposits to increase.
D)   all of the above to occur.E) C) and D)
F) B) and D)

Question 7

According to the Taylor Rule:

Accepted Answer

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

Question 8

Which of the following best describes the cause-effect chain of an expansionary 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, increase investment spending, and increase GDP.E) A) and C)
F) B) and C)

Question 9

If the amount of money demanded exceeds the amount supplied, it can be expected that the:

Accepted Answer

A)   demand-for-money curve will shift to the left.
B)   money supply curve will shift to the right.
C)   interest rate will rise.
D)   interest rate will fall.E) B) and C)
F) A) and D)

Question 10

An expansionary monetary policy reduces the supply of money.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Refer to the information above. If the GDP is $300 and the supply of money is $230, the equilibrium interest rate will be:

Accepted Answer

A)   8 percent.
B)   6 percent.
C)   2 percent.
D)   4 percent.E) A) and B)
F) A) and C)

Question 13

If the quantity of money demanded exceeds the quantity supplied:

Accepted Answer

A)   the supply-of-money curve will shift to the left.
B)   the demand-for-money curve will shift to the right.
C)   the interest rate will fall.
D)   the interest rate will rise.E) None of the above
F) A) and B)

Question 14

The Sale and Repurchase Agreement (SRA) , 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 sell government securities with an agreement to buy them back at a predetermined price the next year.
C)   the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next business day.
D)   the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next month.E) B) and C)
F) B) and D)

Question 15

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

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) All of the above
F) C) and D)

Question 18

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 D)
F) A) and B)

Question 19

Which is considered a strength of monetary policy compared to fiscal policy?

Accepted Answer

A)   the ability to increase the velocity of money
B)   the ability to decrease the velocity of money
C)   its cyclical asymmetry.
D)   its protection from political pressure.E) None of the above
F) A) and C)

Question 20

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

Exam 13: Interest Rates and Monetary Policy

Refer to the information above. If the GDP is $300 and the supply of money is $230, the equilibrium interest rate will be:

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In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

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The Sale and Repurchase Agreement (SRA) , is a transaction in which:

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The so-called Taylor Rule states that:

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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 falls by $200, the interest rate in effect will:

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

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Which of the following best describes the cause-effect chain of an expansionary monetary policy?

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According to the Taylor Rule:

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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:

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

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An expansionary monetary policy reduces the supply of money.

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If the amount of money demanded exceeds the amount supplied, it can be expected that the:

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Which of the following is correct?

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The purchase of government securities from the public by the Bank of Canada will cause:

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Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

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All else equal, an expansionary monetary policy in Canada:

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If the quantity of money demanded exceeds the quantity supplied:

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Which one is considered a limitation of monetary policy?

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The purpose of a restrictive monetary policy is to:

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Which is considered a strength of monetary policy compared to fiscal policy?

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