OT 2

Question 1

Which of the following parts of real GDP fluctuates most over the course of the business cycle?

a. government expenditures
b. net exports
c. investment
d. consumption

Answer 1

c. investment

Question 2

Which of the following best defines liquidity?

a. It is a measurement of the intrinsic value of commodity money.
b. It is the ease with which an asset is converted to the medium of exchange.
c. It refers to how many times a dollar changes hands in a given year.
d. It is the suitability of an asset to serve as a store of value.

Answer 2

b. It is the ease with which an asset is converted to the medium of exchange.

Question 3

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

a. The money supply decreases, and aggregate demand shifts left.
b. The money supply increases, and aggregate demand shifts left.
c. The money supply decreases, and aggregate demand shifts right.
d. The money supply increases, and aggregate demand shifts right.

Answer 3

a. The money supply decreases, and aggregate demand shifts left.

Question 4

When the interest rate decreases, what happens to the opportunity cost of holding money and the quantity of money demanded?

a. The opportunity cost of holding money increases, so the quantity of money demanded decreases.
b. The opportunity cost of holding money increases, so the quantity of money demanded increases.
c. The opportunity cost of holding money decreases, so the quantity of money demanded decreases.
d. The opportunity cost of holding money decreases, so the quantity of money demanded increases.

Answer 4

d. The opportunity cost of holding money decreases, so the quantity of money demanded increases.

Question 5

Which of the following is NOT included in aggregate demand?

a. purchases of capital goods such as equipment in a factory
b. purchases by foreigners of consumer goods produced in Canada
c. purchases of stock and bonds
d. purchases of services such as visits to the doctor

Answer 5

c. purchases of stock and bonds

Question 6

In which of the following situations do people want to hold more money?

a. when the price level increases and the interest rate decreases
b. when the price level decreases and the interest rate increases
c. when the price level and the interest rate decreases
d. when the price level and the interest rate increases

Answer 6

a. when the price level increases and the interest rate decreases

Question 7

When a central bank sets a target for the interest rate, it commits itself to which of the following?

a. having to make open-market sales
b. adjusting the money supply in order to meet the interest-rate target
c. adjusting the demand for money in order to make the equilibrium in the money market hit that target
d. revealing its target to the public

Answer 7

b. adjusting the money supply in order to meet the interest-rate target

Question 8

In which of the following situations would the long-run aggregate-supply curve shift right?

a. if the money supply increases
b. if the price level decreases
c. if the price of oil increases
d. if technology improves

Answer 8

d. if technology improves

Question 9

What is the role of the Bank of Canada?

a. to make monetary policy
b. to oversee government spending
c. to raise taxes
d. to lend money to large companies

Answer 9

a. to make monetary policy

Question 10

Which of the following shifts money demand to the right?

a. a decrease in the interest rate
b. a decrease in the price level
c. an increase in the price level
d. an increase in the interest rate

Answer 10

c. an increase in the price level

Question 11

Who owns the Bank of Canada?

a. the commercial banks
b. private individuals
c. the federal government of Canada
d. the Queen

Answer 11

c. the federal government of Canada

Question 12

In addition to the price level, which of the following does the aggregate demand and aggregate supply model focus on?

a. stock prices
b. the neutrality of money
c. real GDP
d. nominal GDP

Answer 12

c. real GDP

Question 13

Which of the following is current Canadian currency?

a. fiat money with intrinsic value
b. commodity money with no intrinsic value
c. fiat money with no intrinsic value
d. commodity money with intrinsic value

Answer 13

c. fiat money with no intrinsic value

Question 14

Which of the following does NOT determine the long-run level of real GDP?

a. available technology
b. available natural resources
c. the supply of labour
d. the price level

Answer 14

d. the price level

Question 15

Which of the following agencies is responsible for regulating the money supply in Canada?

a. the TD Bank
b. the Canadian Payments Association
c. the Comptroller of the Currency
d. the Bank of Canada

Answer 15

d. the Bank of Canada

Question 16

Why is the long-run aggregate-supply curve vertical?

a. because population grows slowly
b. because prices are stable
c. because money is neutral
d. because the government controls inflation

Answer 16

c. because money is neutral

Question 17

Why do people primarily own or hold money?

a. because it functions as a unit of account
b. because it has a guaranteed real return
c. because it can be used directly to buy goods and services
d. because it has a guaranteed nominal return

Answer 17

c. because it can be used directly to buy goods and services

Question 18

What does the legal tender requirement imply?

a. It is illegal to hold foreign currencies.
b. The government must hold enough gold to redeem all currency.
c. People are more likely to accept the dollar as a medium of exchange.
d. People may not make trades with anything else.

Answer 18

c. People are more likely to accept the dollar as a medium of exchange.

Question 19

Most economists use the aggregate demand and aggregate supply model primarily to analyze which of the following?

a. short-run fluctuations in the economy
b. productivity and economic growth
c. the effects of macroeconomic policy on the prices of individual goods
d. the long-run effects of international trade policies

Answer 19

a. short-run fluctuations in the economy

Question 20

All else equal, which of the following happens as the price level falls?

a. Interest rates rise.
b. The money supply falls.
c. Dollars become more valuable.
d. Dollars become less valuable.

Answer 20

c. Dollars become more valuable.

Question 21

What does fiscal policy primarily affect in the short run?

a. aggregate demand
b. investment
c. saving
d. aggregate supply

Answer 21

a. aggregate demand

Question 22

What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?

a. employment and the inflation rate
b. inflation rate and the price level
c. real output and employment
d. the price level and real output

Answer 22

d. the price level and real output

Question 23

When Arnold uses dollars to record his income and expenses, how is he using money?

a. as a means of payment
b. as a medium of exchange
c. as a store of value
d. as a unit of account

Answer 23

d. as a unit of account

Question 24

Which of the following is the most liquid asset?

a. stocks and bonds with a high risk
b. funds in a chequing account
c. stocks and bonds with a low risk
d. capital goods

Answer 24

b. funds in a chequing account

Question 25

What does a fall in the economy’s overall level of prices tend to do?

a. It tends to raise the quantity demanded of goods and services, but lower the quantity supplied.
b. It tends to lower both the quantity demanded and the quantity supplied of goods and services.
c. It tends to lower the quantity demanded of goods and services, but raise the quantity supplied.
d. It tends to raise both the quantity demanded and supplied of goods and services.

Answer 25

a. It tends to raise the quantity demanded of goods and services, but lower the quantity supplied.

Question 26

In the short run, a decrease in the money supply causes interest rates and aggregate demand to do what?

a. It causes interest rates to increase and aggregate demand to shift right.
b. It causes interest rates to decrease and aggregate demand to shift right.
c. It causes interest rates to increase and aggregate demand to shift left.
d. It causes interest rates to decrease and aggregate demand to shift left.

Answer 26

c. It causes interest rates to increase and aggregate demand to shift left.

Question 27

Which of the following happens in a 100-percent-reserve banking system?

a. Banks can create money by lending out reserves.
b. Banks hold as many reserves as they hold deposits.
c. Banks can lend money to their customers.
d. Banks can create money by issuing currency

Answer 27

b. Banks hold as many reserves as they hold deposits.

Question 28

Which of the following is the function of debit cards?

a. They are equivalent to credit cards.
b. They are included in M2.
c. They defer payments.
d. They are used as a method of payment.

Answer 28

d. They are used as a method of payment.

Question 29

Which of the following best defines barter?

a. It is an exchange of money for foreign currency.
b. It is an exchange of goods for money.
c. It is a generally accepted legal tender.
d. It is a transaction that requires a double coincidence of wants.

Answer 29

d. It is a transaction that requires a double coincidence of wants.