Chapter 11 and 12: FIXED BLUR

Question 1 (1 point) If the economy is experiencing an undesired inflationary gap, the Bank of Canada could O A) increase the supply of money, lowering interest rates, which would shift the AD curve inward. O B) shift the investment demand curve to the right by lowering interest rates, which would shift the AD curve outward. O c) decrease the supply of money, raising interest rates, which would shift the AD curve inward. O D) increase the supply of money, lowering interest rates, which would shift the AD curve outward. O E) decrease the demand for money, lowering interest rates, which would shift the AD curve outward. Question 2 (1 point) An increase in the money supply sets the monetary transmission mechanism in motion which results in ( A) a rise in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. B) a rise in the rate of interest, a rise in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. O c) a fall in the rate of interest, a rise in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. O D) a rise in the rate of interest, a fall in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. O E) a fall in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. Question 3 (1 point) The Canadian banking system is a(n) O A) gold-reserve system. B) target-reserve system. O C) fractional-reserve system. O D) asset-backed reserve system. O E) treasury-bill reserve system. Question 4 (1 point) Consider the strength of monetary forces in the economy. Other things being equal, the flatter the AS curve, the O A) smaller the impact on real output from any given increase in the money supply. O B) larger the impact on the price level from any given increase in the money supply. ( c) less sensitive the aggregate expenditure function to changes in the interest rate. O D) more sensitive the aggregate expenditure function to changes in the interest rate. O E) smaller the impact on the price level from any given increase in the moneyQuestion 5 (1 point) Consider the following list of entries that might appear on the balance sheet of a commercial bank. All figures are millions of dollars. Shareholders' equity 200 Demand deposits 1500 Foreign-currency reserves 2000 Deposits at the Bank of Canada 50 Mortgage loans 700 Notice (term) deposits 1200 Government deposits 60 Cash reserves 210 TABLE 26-1 Refer to Table 26-1. What are the total assets on the balance sheet of this commercial bank? O A) 2520 O B) 2960 O C) 3160 O D) 2410 O E) 2810 Question 6 (1 point) Suppose the market interest rate rises from 3% to 4%. This will lead to in bond prices and in bond yields. O Al a rise; a fall O B) a rise; a rise O C) a fall : a fall O D) a fall; a rise O E) no change; no changeQuestion 7 (1 point) Changes in the money supply in an open economy, as compared to a closed economy. O A) are likely to have a greater effect on AD because of the secondary effect that exchange rates have on exports. O B) are the same in either situation. O g) affect investment to a greater degree because foreign investors can create new investment in an open economy. O D) are likely to have a smaller effect on AD because the secondary effect of exchange rates will offset the changes created by monetary disturbances. O E) cannot be determined with the available information. Question 8 (1 point) Consider the supply of and demand for money. When the price level increases, ceteris paribus, it causes households and firms to try to O A) reduce money balances, which drives interest rates down. O B) reduce money balances, which drives interest rates up. O C) increase money balances, which drives interest rates down. O D) reduce money balances, which drives national income up. O E) increase money balances, which drives interest rates up. Question 9 (1 point) What is a commercial bank's target reserve ratio? O A) The fraction of its deposit liabilities that it wishes to holds as reserves, either as cash or as deposits with the Bank of Canada. ( B) The ratio of Canadian dollars to foreign currencies that the bank holds on its books. O c) The fraction of its deposit liabilities that it actually holds as cash in its own vaults. O D) The fraction of its deposit liabilities that are backed by gold. OF) The ratio of chequable deposits to term deposits that the bank holds on its books.Question 10 (1 point) In order to be considered "money," paper currency must be O A) convertible into a precious metal. O B) generally acceptable as a medium of exchange. O C) issued by a government agency. O D) issued by a chartered bank. E) impossible to counterfeit. Question 11 (1 point) Assume there are just two assets, money and bonds. We can expect that an individual with a given level of wealth will O A) hold lots of money even at very high interest rates. B) hold less money when the current interest rate is very low. O C) hold less money when bond prices rise. O D) not hold money as long as bonds pay a positive rate of interest. O E) hold more money when the current interest rate is very low. Question 12 (1 point) If all the commercial banks in the banking system collectively have $200 million in cash reserves and are satisfying their target reserve ratio of 5%, what is the amount of deposits they have? O A) $1500 million O B) $4000 million O C) $10 million O D) $0 O E) $1000 million