Question 1

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800,the interest rate to a new buyer of the bond is now 8.5 percent.

Accepted Answer

A) True 
 B)False

Question 2

In the Bank of Canada's consolidated balance sheet,the largest asset is:

Accepted Answer

A)   loans to chartered banks.
B)   notes in circulation.
C)   government deposits.
D)   government securities.E) None of the above
F) A) and B)

Question 3

In terms of the aggregate demand and aggregate supply model,the sale of government bonds by the Bank of Canada to chartered banks will:

Accepted Answer

A)   increase aggregate supply.
B)   decrease aggregate supply.
C)   increase aggregate demand.
D)   decrease aggregate demand.E) A) and D)
F) A) and C)

Question 4

1. B)  D2. C)  S. D)  D3." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram for the market for money.The total demand for money is shown by:

Accepted Answer

A)   D1.
B)   D2.
C)   S.
D)   D3.E) C) and D)
F) B) and C)

Question 5

An increase in nominal GDP increases the demand for money because:

Accepted Answer

A)   interest rates will rise.
B)   more money is needed to finance a larger volume of transactions.
C)   bond prices will fall.
D)   the opportunity cost of holding money will decline.E) A) and B)
F) All of the above

Question 6

If the demand for money increases and the monetary authorities want interest rates to remain unchanged,which of the following would be appropriate policy?

Accepted Answer

A)   recall currency from circulation
B)   raise the desired reserves
C)   buy bonds in the open market
D)   raise the bank rateE) A) and B)
F) B) and C)

Question 7

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 statements is not correct?

Accepted Answer

A)   The supply of money decreases when the Bank of Canada buys government securities from households or businesses.
B)   Excess reserves are the amount by which actual reserves exceed desired reserves.
C)   Chartered banks increase the supply of money when they purchase government bonds from households or businesses.
D)   Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada.E) B) and C)
F) A) and B)

Question 8

Monetary policy is thought to be:

Accepted Answer

A)   equally effective in moving the economy out of a recession as in controlling inflation.
B)   more effective in moving the economy out of a recession than in controlling inflation.
C)   only effective in moving the economy out of a recession.
D)   more effective in controlling inflation than in moving the economy out of a recession.E) A) and C)
F) A) and B)

Question 9

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

Accepted Answer

A)   a restrictive monetary policy
B)   an expansionary monetary policy
C)   a contractionary fiscal policy
D)   an expansionary fiscal policyE) A) and D)
F) B) and C)

Question 10

1 represents the: A)  speculative demand for money. B)  transactions demand for money. C)  asset demand for money. D)  stock of money." class="answers-bank-image d-inline" rel="preload" >
-Refer to the market for money diagram above.Curve D1 represents the:

Accepted Answer

A)   speculative demand for money.
B)   transactions demand for money.
C)   asset demand for money.
D)   stock of money.E) A) and B)
F) A) and C)

Question 11

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

Question 12

The transactions demand for money will shift to the:

Accepted Answer

A)   right when the interest rate increases.
B)   left when the interest rate decreases.
C)   right when aggregate income increases.
D)   right when aggregate income decreases.E) B) and C)
F) A) and C)

Question 13

The interest rate will fall when the:

Accepted Answer

A)   quantity of money demanded exceeds the quantity of money supplied.
B)   quantity of money supplied exceeds the quantity of money demanded.
C)   demand for money increases.
D)   supply of money decreases.E) C) and D)
F) A) and D)

Question 14

The price of government bonds and the interest rate received by a bond buyer are:

Accepted Answer

A)   negatively related.
B)   unrelated.
C)   positively related.
D)   independent of Bank of Canada open-market operations.E) None of the above
F) A) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Accepted Answer

A) True 
 B)False

Question 17

An expansionary monetary policy will likely:

Accepted Answer

A)   increase the prime interest rate.
B)   reduce the overnight lending rate.
C)   increase the bank rate.
D)   increase the federal budget deficit.E) None of the above
F) A) and B)

Question 18

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

Accepted Answer

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

Question 19

The total demand for money will shift to the left as a result of:

Accepted Answer

A)   a decline in nominal GDP.
B)   an increase in the price level.
C)   a change in the interest rate.
D)   an increase in nominal GDP.E) B) and C)
F) None of the above

Question 20

1. B)  D2. C)  D3. D)  none of the above." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.The asset demand for money is shown by:

Accepted Answer

A)   D1.
B)   D2.
C)   D3.
D)   none of the above.E) A) and D)
F) All of the above

Exam 15: Interest Rates and Monetary Policy

Monetary policy is thought to be:

Correct Answer
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The price of government bonds and the interest rate received by a bond buyer are:

Correct Answer
verified

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800,the interest rate to a new buyer of the bond is now 8.5 percent.

Correct Answer
verified

-Refer to the market for money diagram above.Curve D₁ represents the:

Correct Answer
verified

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

Correct Answer
verified

The transactions demand for money will shift to the:

Correct Answer
verified

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

Correct Answer
verified

-Refer to the above diagram for the market for money.The total demand for money is shown by:

Correct Answer
verified

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:

Correct Answer
verified

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

Correct Answer
verified

In terms of the aggregate demand and aggregate supply model,the sale of government bonds by the Bank of Canada to chartered banks will:

Correct Answer
verified

-Refer to the above diagram.The asset demand for money is shown by:

Correct Answer
verified

An expansionary monetary policy will likely:

Correct Answer
verified

In the Bank of Canada's consolidated balance sheet,the largest asset is:

Correct Answer
verified

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct Answer
verified

An increase in nominal GDP increases the demand for money because:

Correct Answer
verified

The interest rate will fall when the:

Correct Answer
verified

Correct Answer
verified

The total demand for money will shift to the left as a result of:

Correct Answer
verified

If the demand for money increases and the monetary authorities want interest rates to remain unchanged,which of the following would be appropriate policy?

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

Monetary policy is thought to be:

Correct AnswerverifiedShow Answer

The price of government bonds and the interest rate received by a bond buyer are:

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800,the interest rate to a new buyer of the bond is now 8.5 percent.

Correct AnswerverifiedShow Answer

-Refer to the market for money diagram above.Curve D1 represents the:

Correct AnswerverifiedShow Answer

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

Correct AnswerverifiedShow Answer

The transactions demand for money will shift to the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

-Refer to the above diagram for the market for money.The total demand for money is shown by:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In terms of the aggregate demand and aggregate supply model,the sale of government bonds by the Bank of Canada to chartered banks will:

Correct AnswerverifiedShow Answer

-Refer to the above diagram.The asset demand for money is shown by:

Correct AnswerverifiedShow Answer

An expansionary monetary policy will likely:

Correct AnswerverifiedShow Answer

In the Bank of Canada's consolidated balance sheet,the largest asset is:

Correct AnswerverifiedShow Answer

Most economists feel that changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct AnswerverifiedShow Answer

An increase in nominal GDP increases the demand for money because:

Correct AnswerverifiedShow Answer

The interest rate will fall when the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The total demand for money will shift to the left as a result of:

Correct AnswerverifiedShow Answer

If the demand for money increases and the monetary authorities want interest rates to remain unchanged,which of the following would be appropriate policy?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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-Refer to the market for money diagram above.Curve D₁ represents the:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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