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Which of the following statements is not correct?


A) Given the supply of money, a decline in the demand for money will tend to reduce the equilibrium GDP.
B) Given the supply of money, the equilibrium interest rate will vary directly with the level of money GDP.
C) Given the demand for money, the equilibrium interest rate will vary inversely with the supply of money.
D) Given the supply of money, the equilibrium interest rate will vary directly with the demand for money.

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

Correct Answer

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-Refer to the above information. If the price of this bond increases to $1,250, the interest rate in effect will: A) fall to 9 percent. B) fall to 8 percent. C) rise to 11 percent. D) rise to 12 percent. -Refer to the above information. If the price of this bond increases to $1,250, the interest rate in effect will:


A) fall to 9 percent.
B) fall to 8 percent.
C) rise to 11 percent.
D) rise to 12 percent.

E) None of the above
F) All of the above

Correct Answer

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The purpose of an expansionary monetary policy is to:


A) increase aggregate demand.
B) decrease aggregate demand.
C) increase investment demand.
D) decrease investment demand.

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

Correct Answer

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The Bank of Canada:


A) acts as a fiscal agent for the federal government.
B) supplies the economy with paper currency.
C) acts as the chartered banks' bank.
D) does all of the above.

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

Correct Answer

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The monetary authorities can influence the money supply by:


A) changing bank reserves through the sale of government securities.
B) changing the amounts of excess reserves by persuading banks to alter their desired reserve ratio.
C) changing the bank reserves through the purchase of government securities.
D) doing all of the above.

E) None of the above
F) All of the above

Correct Answer

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The price of a bond having no expiration date is originally $8000 and has a fixed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of:


A) 10 percent.
B) 12 percent.
C) 14 percent.
D) 16 percent.

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

Correct Answer

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It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates. It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates. -Refer to the information below. If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (D<sub>t</sub>) for money and columns (1) and (3) show the asset demand (D<sub>a</sub>) for money: A) 10 percent. B) 8 percent. C) 6 percent. D) 4 percent. -Refer to the information below. If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates. -Refer to the information below. If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (D<sub>t</sub>) for money and columns (1) and (3) show the asset demand (D<sub>a</sub>) for money: A) 10 percent. B) 8 percent. C) 6 percent. D) 4 percent.


A) 10 percent.
B) 8 percent.
C) 6 percent.
D) 4 percent.

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

Correct Answer

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It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates. It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP. The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates. Refer to the information above. If the GDP is $200 and the interest rate is 6, what total amount of money will households and businesses want to hold? A) $120 B) $140 C) $160 D) $180 Refer to the information above. If the GDP is $200 and the interest rate is 6, what total amount of money will households and businesses want to hold?


A) $120
B) $140
C) $160
D) $180

E) All of the above
F) None of the above

Correct Answer

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-Refer to the table below. If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to: A) rise to 7 percent. B) rise to 6 percent. C) fall to 4 percent. D) remain at 5 percent. -Refer to the table below. If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to: -Refer to the table below. If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to: A) rise to 7 percent. B) rise to 6 percent. C) fall to 4 percent. D) remain at 5 percent.


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

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

Correct Answer

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


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

Correct Answer

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


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

Correct Answer

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"Open-market operations" refers to:


A) purchases of stocks in the Toronto Stock Exchange.
B) the purchase or sale of government bonds by the Bank of Canada.
C) central bank lending to chartered banks.
D) the specifying of margin requirements on stock purchases.

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

Correct Answer

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-Which statement is true? 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. -Which statement is true?


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

Correct Answer

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-A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will: A) decrease by 1 percentage point. B) decrease by 2 percentage points. C) increase by 1 percentage point. D) increase by 2 percentage points. -A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:


A) decrease by 1 percentage point.
B) decrease by 2 percentage points.
C) increase by 1 percentage point.
D) increase by 2 percentage points.

E) All of the above
F) None of the above

Correct Answer

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In which case would the quantity of money demanded by the public tend to increase by the greatest amount?


A) The interest rate increases and nominal GDP increases.
B) The interest rate increases and nominal GDP decreases.
C) The interest rate decreases and nominal GDP decreases.
D) The interest rate decreases and nominal GDP increases.

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

Correct Answer

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


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 C)
F) None of the above

Correct Answer

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A decrease in the rate of interest would:


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

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 D)
F) A) and D)

Correct Answer

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If the Bank of Canada sells government securities to the public, which of the following transactions take place?


A) The demand deposits of chartered banks are unchanged, but their reserves increase.
B) The demand deposits and reserves of chartered banks both decrease.
C) The demand deposits of chartered banks are unchanged, but their reserves decrease.
D) The demand deposits and reserves of chartered banks are both unchanged.

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

Correct Answer

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If the money GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes:


A) will be $1800 billion.
B) will be $600 billion.
C) will be $200 billion.
D) cannot be determined from the information given.

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

Correct Answer

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