Lecture 15 Flashcards
If the economy is currently in monetary equilibrium, an increase in the money supply will
Question 2 options:
A)
cause a reduction in the demand for money, leading to a higher rate of interest.
B)
not change the equilibrium conditions.
C)
lead to a movement down the money demand curve to a lower rate of interest.
D)
cause an excess demand for money and a decrease in the rate of interest.
E)
cause an increase in the demand for money, leading to a lower rate of interest.
C
The Bank of Canada chooses to influence interest rates directly rather than influencing the money supply directly because
Question 3 options:
A)
it is easier to communicate policy actions to the public by setting the interest rate.
B)
the former method does not require knowledge of the slope of the money demand curve.
C)
the former method does not require knowledge of the position of the money demand curve.
D)
the deposit creation mechanism in the banking system is outside the full control of the Bank of Canada.
E)
all of the above.
E
When the Bank of Canada enters the open market and buys or sells government securities, we refer to this as
Question 4 options:
A)
setting the target ratio.
B)
open-market operations.
C)
commercial lending.
D)
changing the target reserve ratio.
E)
monetary policy.
B
Suppose the Bank of Canada announces its target for the overnight interest rate at 2.5%. In that case, the Bank of Canada is willing to lend to commercial banks at ________% and is willing to pay ________% on deposits it receives from commercial banks.
Question 6 options:
A)
3.5; 1.5
B)
2.5; 2.5
C)
2.75; 2.25
D)
2.5; 2.0
E)
2.25; 2.5
C
Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the long-run effect of this change?
Question 7 options:
A)
higher real GDP
B)
lower real GDP
C)
a higher price level and higher real GDP
D)
no change in price level or real GDP
E)
a higher price level
E
If there are just two assets, bonds and money, then an equilibrium between the quantity demanded of money and the quantity supplied of money implies
Question 8 options:
A)
an indeterminant equilibrium in the bond market.
B)
an excess supply of bonds.
C)
an excess demand for bonds.
D)
nothing about conditions of demand for the other financial asset.
E)
equilibrium in the bond market.
E
Monetary equilibrium occurs when the
Question 9 options:
A)
growth in the money supply is zero.
B)
nominal rate of interest equals the real rate of interest.
C)
the money supply is growing at a constant rate.
D)
existing supply of money is willingly held by households and firms in the economy at the current rate of interest.
E)
supply and demand for all goods in the economy are equal at the current rate of interest.
D
Refer to Figure 27-6. The famous debate from the the 1950s and 1960s between Keynesians and Monetarists centred around the slopes of the money demand and investment demand curves. The Keynesians believed
Question 10 options:
A)
the diagrams in part (i) were more realistic than those in part (ii), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
B)
the diagrams in part (ii) were more realistic than those in part (i), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
C)
the diagrams in part (i) were more realistic than those in part (ii), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
D)
the diagrams in part (ii) were more realistic than those in part (i), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
A
Suppose the Canadian economy had a recessionary gap. To increase the level of desired aggregate expenditure, the Bank of Canada could
Question 11 options:
A)
increase its spending.
B)
sell securities in the open market.
C)
increase the reserve requirements of the commercial banks.
D)
reduce its target for the overnight interest rate.
E)
raise the bank rate.
D
How does the Bank of Canada communicate its target for the overnight interest rate to the public?
Question 12 options:
A)
monthly announcements at fixed announcement dates (FADs)
B)
announcements made 8 times per year at pre-specified fixed announcement dates (FADs)
C)
the target is communicated to the minister of finance for approval and then released to the public on a quarterly basis
D)
in its quarterly publication, “Monetary Policy Report”
E)
the target is communicated to the Prime Minister for approval and then released to the public at 8 pre-specified fixed announcement dates (FADs)
B
What is the “bank rate”?
Question 1 options:
A)
The interest rate at which the Bank of Canada will lend funds to the Canadian government.
B)
It is the same as a margin requirement.
C)
The interest rate that the Bank of Canada pays on deposits from the commercial banks.
D)
The interest rate at which the Bank of Canada will lend funds to commercial banks.
E)
The interest rate that commercial banks charge their best customers.
D
Which of the following correctly describes the way in which a change in the money supply affects aggregate demand?
Question 2 options:
A)
a shift of the ID curve and a movement along the aggregate demand curve
B)
a movement along the ID curve and a shift of the aggregate demand curve
C)
a movement along the aggregate demand curve
D)
a shift of both the ID curve and the aggregate demand curve
E)
movements along the ID curve and the aggregate demand curve
B
Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. The initial effect is
Question 3 options:
A)
a simultaneous shift of AD to AD1 and AS to AS1, resulting in a new equilibrium at E2.
B)
a shift of the AS curve to AS1 and a decrease in real GDP to Y2.
C)
a shift of the AD curve to AD1, and then a shift back to AD0 to restore equilibrium at E0.
D)
a shift of the AD curve to AD1 and an increase in real GDP to Y1.
E)
no change in the short-run equilibrium or level of real GDP.
D
When the Bank of Canada increases the interest rate we call this a contractionary monetary policy. Why?
Question 4 options:
A)
The higher interest rate leads to a leftward shift of the aggregate demand curve.
B)
The higher interest rate causes a contraction of money demand.
C)
The higher interest rate leads to an increase in the level of national saving.
D)
The higher interest rate causes the money supply curve to shift to the right.
E)
The higher interest rate causes the money demand curve to shift to the left.
A
Any central bank, including the Bank of Canada, can implement its monetary policy by directly influencing either ________ or ________, but not both.
Question 6 options:
A)
aggregate supply; aggregate demand
B)
the money supply; the interest rate
C)
the price level; the interest rate
D)
money supply; money demand
E)
aggregate demand; the interest rate
B
