Question 1

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

Question 2

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:

Accepted Answer

A)  4 percent.
B)  5 percent.
C)  6 percent.
D)  7 percent. Refer to the above table.Suppose the transa.E) B) and C)
F) A) and D)

Question 3

1. B) i2. C) i3. D) not determinable without further information." class="answers-bank-image d-inline" rel="preload" > Refer to the above market for money diagram.The equilibrium interest rate is:

Accepted Answer

A)  i1.
B)  i2.
C)  i3.
D)  not determinable without further information.E) A) and C)
F) B) and D)

Question 4

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 5

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 6

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

Question 7

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the transactions demand for money can be represented by:

Accepted Answer

A)  a line parallel to the horizontal axis.
B)  a vertical line.
C)  a downward sloping line or curve from left to right.
D)  an upward sloping line or curve from left to right.E) B) and D)
F) A) and D)

Question 8

Open-market operations change:

Accepted Answer

A)  the size of the monetary multiplier, but not chartered bank reserves.
B)  chartered bank reserves, but not the size of the monetary multiplier.
C)  neither chartered bank reserves nor the size of the monetary multiplier.
D)  both chartered bank reserves and the size of the monetary multiplier.E) A) and B)
F) B) and C)

Question 9

To increase the overnight lending rate, the Bank of Canada can:

Accepted Answer

A)  buy government bonds from the public.
B)  decrease the bank rate.
C)  decrease the prime interest rate.
D)  sell government bonds to chartered banks.E) C) and D)
F) B) and D)

Question 10

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

Accepted Answer

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

Question 11

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

Accepted Answer

A)  a line parallel to the horizontal axis.
B)  a vertical line.
C)  a downward sloping line or curve from left to right.
D)  an upward sloping line or curve from left to right.E) A) and B)
F) C) and D)

Question 12

If there is an increase in nominal GDP, we would expect:

Accepted Answer

A)  the demand for money to increase.
B)  the interest rate to rise.
C)  bond prices to fall.
D)  all of the above to occur.E) All of the above
F) None of the above

Question 13

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

Accepted Answer

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

Question 14

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) B) and C)

Question 15

A decrease in the rate of interest would:

Accepted Answer

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

Question 16

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

Question 17

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

Question 18

The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:

Accepted Answer

A)  22 percent.
B)  18 percent.
C)  17 percent.
D)  16 percent.E) None of the above
F) A) and C)

Question 19

The reserves of the chartered banks are a(n) :

Accepted Answer

A)  asset to the chartered banks and an asset to the Bank of Canada.
B)  asset to the chartered banks and a security to the Bank of Canada.
C)  asset to the chartered banks and a liability to the Bank of Canada.
D)  liability to the chartered banks and an asset to the Bank of Canada.E) B) and D)
F) A) and D)

Question 20

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:

Accepted Answer

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

Exam 15: B: Interest Rates and Monetary Policy

An expansionary monetary policy will likely:

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Refer to the above market for money diagram.The equilibrium interest rate is:

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

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

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The reserves of the chartered banks are a(n) :

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On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the transactions demand for money can be represented by:

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Open-market operations refers to:

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On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by:

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The price of a bond with no expiration date is $10,000 and it has a fixed annual interest payment of $2,000.If the bond is sold to a new owner for a price of $12,500, then the effective interest rate yield on the bond is now:

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Open-market operations change:

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If there is an increase in nominal GDP, we would expect:

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To increase the overnight lending rate, the Bank of Canada can:

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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:

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

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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.

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A decrease in the rate of interest would:

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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:

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

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

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

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