1. Which statement best describes the effect of printing money to finance government expenditures on the economy?

a. Printing money increases the real interest rate.

b. Printing money lowers the velocity of money.

c. Printing money causes the value of money to rise.

d. Printing money imposes a tax on everyone who holds money.

2. Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

a. if the price level in either Canada or Kazakhstan fell

b. if the price level in Canada rose or the price level in Kazakhstan fell

c. if the price level in Canada fell or the price level in Kazakhstan rose

d. if the price level in either Canada or Kazakhstan rose

3. How does M1+ compare with M2?

a. M1+ is smaller but more liquid than M2.

b. M1+ is larger than and less liquid than M2.

c. M1+ is larger than but more liquid than M2.

d. M1+ is smaller and less liquid than M2.

4. if the reserve ratio is 12.5 percent, how much new money can $1000 of excess reserves create?

a. $8000

b. $100,000

c. $800

d. $80,000

5. If the reserve ratio is 5 percent and a bank receives a new deposit of $1,000, by how much can the bank increase its new loans?

a. by $20,000

b. by $950

c. by $5,000

d. by $1,000

6. What does the Bank of Canada NOT do?

a. make loans to individuals

b. control the value of money

c. control the supply of money

d. regulate the banking system

7. Which list contains only actions that increase the money supply?

a. raising the bank rate; making open-market sales

b. lowering the bank rate; making open-market sales

c. raising the bank rate; making open-market purchases

d. lowering the bank rate; making open-market purchases

8. Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

a. When the money supply in Canada rises more rapidly than in Ireland, the nominal exchange rate, defined as euros (the currency used in Ireland) per dollar, increases.

b. When the price level in Canada falls more rapidly than that in Ireland, the real exchange rate, defined as Irish goods per unit of Canadian goods, stays the same.

c. When prices in both countries stay the same and the nominal exchange rate increases, the real exchange rate decreases.

d. When prices for the same goods are the same in Canadian dollars in Canada and Ireland, the nominal exchange rate does not change.