Question 1

In implementing monetary policy with respect to the Taylor Rule:

Accepted Answer

A)   the central bank is willing to tolerate a 2 percent target rate of inflation,and that the central bank should follow three rules when setting its target for the overnight lending rate.
B)   the central bank is willing to tolerate a 5 percent target rate of inflation,and that the central bank should follow three rules when setting its target for the overnight lending rate.
C)   the central bank is willing to tolerate any inflation rate,and overnight lending rate.
D)   the central bank chooses an inflation target regardless of the economic situation.E) A) and D)
F) B) and C)

Question 2

The two main tools of the monetary policy are:

Accepted Answer

A)   tax rate changes,and the bank rate.
B)   open-market operations,and the bank rate & overnight lending rate.
C)   tax rate changes,and the changes in government expenditures.
D)   changes in government expenditures,and the bank rate.E) C) and D)
F) None of the above

Question 3

In the Canadian economy,the money supply is controlled by:

Accepted Answer

A)   Parliament.
B)   the House of Commons Committee on Finance.
C)   the Department of Finance the Bank of Canada.
D)   the Bank of Canada.E) B) and C)
F) None of the above

Question 4

Monetary policy in Japan during the 1990s and early 2000s was:

Accepted Answer

A)   tight and effective in reducing high inflation.
B)   tight,but ineffective in reducing high inflation.
C)   expansionary and,effective in bringing the economy out of recession.
D)   expansionary but,ineffective in bringing the economy out of recession.E) C) and D)
F) B) and D)

Question 5

An expansionary monetary policy reduces the supply of money.

Accepted Answer

A) True 
 B)False

Question 6

If the chartered banking system borrows from the Bank of Canada.

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) A) and B)

Question 7

Quantitative easing refers to the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

Which of the following best describes the cause-effect chain of a restrictive 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,decrease investment spending,and increase GDP.E) None of the above
F) A) and D)

Question 10

The transactions 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)   both store of value and unit of account.E) A) and D)
F) All of the above

Question 11

When the market for money is in equilibrium:

Accepted Answer

A)   the quantity of money demanded equals the quantity of money supplied.
B)   the interest rate is neither increasing nor decreasing.
C)   bond prices are stable.
D)   all of the above hold true.E) B) and D)
F) B) and C)

Question 12

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 decreases by $2000,the interest rate in effect will:

Accepted Answer

A)   decrease by 1.5 percentage points.
B)   decrease by 2.5 percentage points.
C)   increase by 1.5 percentage points.
D)   increase by 2.5 percentage points.E) None of the above
F) A) and B)

Question 13

When chartered banks borrow from the Bank of Canada,they decrease their excess reserves and their money-creating potential.

Accepted Answer

A) True 
 B)False

Question 14

If the government pursues a restrictive monetary policy,then it will:

Accepted Answer

A)   increase domestic interest rates,cause the dollar to appreciate,and decrease net exports.
B)   decrease domestic interest rates,cause the dollar to depreciate,and increase net exports.
C)   increase domestic interest rates,cause the dollar to depreciate,and increase net exports.
D)   increase domestic interest rates,cause the dollar to appreciate,and increase net exports.E) B) and C)
F) A) and D)

Question 15

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 16

By early 2008 it became evident that the Canadian economy was slowing along with the U.S. ,where housing bubble had created a financial crisis worldwide.The Bank of Canada's response to this crisis was:

Accepted Answer

A)   to increase the overnight rate to 1.5 percent by the end of 2008.
B)   to drop the overnight rate to 1.5 percent by the end of 2008,and to lower it even further to a historic low of .25 percent in 2009.
C)   to leave the overnight rate at 2 percent.
D)   to hike the overnight lending rate in order to avoid inflationary pressures.E) A) and B)
F) A) 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) A) and D)
F) A) and C)

Question 18

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

Question 19

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: t) for money and columns (1) and (3) show the asset demand (Da) for money:   A)  10 percent. B)  8 percent. C)  6 percent. D)  4 percent." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   10 percent.
B)   8 percent.
C)   6 percent.
D)   4 percent.E) A) and B)
F) B) and C)

Question 20

Open-market operations refers to:

Accepted Answer

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

Exam 15: Interest Rates and Monetary Policy

Open-market operations refers to:

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In the Canadian economy,the money supply is controlled by:

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Quantitative easing refers to the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.

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Which of the following best describes the cause-effect chain of a restrictive monetary policy?

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Monetary policy in Japan during the 1990s and early 2000s was:

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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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When the market for money is in equilibrium:

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If the chartered banking system borrows from the Bank of Canada.

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

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An expansionary monetary policy reduces the supply of money.

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If the government pursues a restrictive monetary policy,then it will:

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In implementing monetary policy with respect to the Taylor Rule:

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

Correct AnswerverifiedShow Answer

The two main tools of the monetary policy are:

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

Correct AnswerverifiedShow Answer

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 decreases by $2000,the interest rate in effect will:

Correct AnswerverifiedShow Answer

When chartered banks borrow from the Bank of Canada,they decrease their excess reserves and their money-creating potential.

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The purpose of a restrictive monetary policy is to:

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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:

Correct AnswerverifiedShow Answer

By early 2008 it became evident that the Canadian economy was slowing along with the U.S. ,where housing bubble had created a financial crisis worldwide.The Bank of Canada's response to this crisis was:

Correct AnswerverifiedShow Answer

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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_t) for money and columns (1) and (3) show the asset demand (D_a) for money:

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