1.)You decide to take $800 out of your piggy bank at home and place it in the bank. If the reserve requirement is 4 percent, by how much can your $800 increase the amount of money in the economy?

Instructions: Round your answer to the nearest dollar.

$

2.)Assume that $1 million is deposited in a bank with a reserve requirement of 15 percent.

a. What is the money supply as a result?

Instructions: Round your answer to two decimal places.

$ million

b. What would change if the government decides to raise the reserve requirement to 40 percent?

multiple choice

• Only $2.5 million in new money would be created.
• There would be $4 million less money.
• $4 million in new money would be created.
• $2.5 million in money would be eliminated.

3.)What would happen to each of these components of the liquidity-preference model if the Bank of Canada decides to raise the reserve requirement?

a. The money supply would:

(Click to select) ( Decrease , Increase ) .

b. The interest rates would:

(Click to select) ( Increase, Decrease .)

c. The quantity of money in the economy would:

(Click to select) ( Increase , Decrease )

d. Money demand curve:

(Click to select) ( A movement downward, A movement upward ) .

4.)From 2004 to 2009, the country of Zimbabwe underwent hyperinflation, in which prices rose rapidly. The government began printing bills as large as 100 billion Zimbabwe dollars.

Instructions: You may select more than one answer. Choose all the correct answers

Explain how this situation would have affected the characteristics of good money discussed in this chapter.

check all that apply

• Hyperinflation makes the value of money unstable.
• Hyperinflation stabilizes the value of money.
• Hyperinflation lowers the acceptability of money.
• Hyperinflation makes money more convenient.
• Hyperinflation increases the value of money.

5.)The economy is in recession and the Bank of Canada wants to increase the money supply. Should it increase or decrease the following?

a. Reserve requirements:

(Click to select) (Decrease , Increase .)

b. The bank rate:

(Click to select) ( Decrease , Increase .)

c. Purchases of bonds in the open market:

(Click to select) (Decrease, Increase )

6.)Say whether each of the following are types of M1 or M2, or both.

a. Chequable deposits:

(Click to select) (M2 , M1 and M2 , M1 ).

b. Dollar bills:

(Click to select) (M1 and M2 , M2, M1 ) .

c. Money in your chequing account:

(Click to select) (M1 and M2, M2 , M1) .

d. Money in your savings account:

(Click to select) ( M2 , M1 and M2, M1) .

e. Term deposit under $100,000:

(Click to select) ( M2 , M1 , M1 and M2)

7.)Suppose you live in a country perfect for growing tulips and governed by King Balthazar, who proposes that you use the tulips for your currency. After all, says Balthazar, they are widely accepted in the community, they've been valuable for years, and are highly portable. If you were Balthazar's economic advisor, which arguments from the list below would you use?

Instructions: You may select more than one answer. Select all the correct answerscheck all that apply

• Tulips will not make for good money because their value is not stable.
• Tulips will not make for good money because they are grown in the country.
• Tulips will not make for good money because they are fragile and perishable.
• Tulips will not make for good money because they are not convenient.
• Tulips will make for good money because they are grown in the country and are readily available.
• Tulips will make for good money because everyone can get access to them.
• Tulips will make for good money because they can be conveniently stored.

8.)For each of the following situations, identify whether the Bank of Canada is likely to pursue an expansionary or a contractionary monetary policy.

a. The unemployment rate is at 0.5 percent:

(Click to select) (Expansionary , Contractionary )

b. The economy is experiencing record growth in GDP:

(Click to select) (Expansionary , Contractionary )

c. The unemployment rate is at 15 percent:

(Click to select) ( Contractionary , Expansionary )

d. Inflation has reached 10 percent, a recent high:

(Click to select) ( Contractionary , Expansionary )

e. An earthquake recently demolished a major city, causing a major recession:

(Click to select) (Contractionary , Expansionary )

9.)Which tool of monetary policy is most likely being described by each of the following statements?

a. It's the major way the Bank of Canada enacts monetary policy:

(Click to select) (Bank rate , Changing the reserve requirement , Target for overnight rate , Open-market operations )

b. This tool is good for emergency situations that require major, large-scale action:

(Click to select) ( Changing the reserve requirement, Bank rate, Open-market operations , Target for overnight rate )

c. This tool goes through the Bank of Canada's role as lender of last resort:

(Click to select) ( Target for overnight rate , Changing the reserve requirement, Open-market operations, Bank rate )

d. This tool is best for everyday monetary policy:

(Click to select) (Open-market operations, Changing the reserve requirement , Bank rate , Target for overnight rate )

e. A major disadvantage of this tool is that it requires that banks to borrow from the Bank of Canada:

(Click to select) ( Open-market operations ,Target for overnight rate , Bank rate , Changing the reserve requirement )

f. Even if they aren't interested in buying, selling, or borrowing from the Bank of Canada, changes in this tool may inconvenience bank managers:

(Click to select) (Open-market operations, Changing the reserve requirement , Bank rate , Target for overnight rate )

10.)Name the monetary policy tool being used in each of the following examples.

a. The central bank buys government securities from banks:

(Click to select) ( Bank rate , Open-market operations ,Changing the reserve requirement .)

b. The central bank raises the cost of borrowing money:

(Click to select) (Open-market operations , Changing the reserve requirement , Bank rate .)

c. The central bank changes the amount of money the banks must hold from their depositors for withdrawal demands:

(Click to select) (Open-market operations , Bank rate ,Changing the reserve requirement .)