How to answer these mcq

1 Other things being equal, if you took money out of your savings deposit account and put it in a demand deposit account, what would be the effect on the money supply?

Question 1 options:

M2+ would increase

M2+ would decrease

M2+ would NOT change

M2 would decrease

Question 2(1 point)

What is the most important function of the Bank of Canada?

Question 2 options:

managing the national payments system

issuing currency

setting monetary policy

acting as the fiscal agent to the government

Question 3(1 point)

Scenario 14-3

Rebecca can produce either 20 tonnes of apples or 10 tonnes of grapes in a year, while Henry can produce either 10 tonnes of apples or 20 tonnes of grapes.

Refer to Scenario 14-3. What exchange rate results in mutually beneficial trade between Rebecca and Henry?

Question 3 options:

1 tonne of apples to 2 tonnes of grapes

1 tonne of grapes to 0.5 tonnes of apples

1 tonne of grapes to 1.5 tonnes of apples

1 tonne of grapes to 2 tonnes of apples

Question 4(1 point)

What is the term for exchange rates determined by the laws of supply and demand?

Question 4 options:

flexible exchange rates

equilibrium exchange rates

dirty exchange rates

fixed exchange rates

Question 5(1 point)

A bank has demand deposits of $100 million, and it desires a 25 percent reserve ratio. How much will it hold in reserve?

Question 5 options:

$100 million

$75 million

$25 million

$50 million

Question 6(1 point)

Rebecca is Canadian and has family in Scotland. When her family sends a monetary gift for her birthday, how is this gift classified?

Question 6 options:

as net secondary income

as service imports

as merchandise imports

as net primary income

Question 7(1 point)

Suppose you find $1000 hidden in your mattress and deposit it in a demand deposit account at your bank. The bank's desired reserve ratio is 20 percent. How much will the deposit directly create in excess reserves?

Question 7 options:

$1200

$1000

$800

$200

Question 8(1 point)

Which of the following statements about the velocity of money is the most accurate?

Question 8 options:

It is the average number of times that a dollar is used in purchasing goods and services.

It is inversely related to the rate of interest.

It is the rate at which the Consumer Price Index rises.

It is established by the Bank of Canada and, if needed, is adjusted four times a year.

Question 9(1 point)

Which of the following is a function of the Bank of Canada?

Question 9 options:

paying down the national debt

raising or lowering taxes

increasing or reducing government spending

overseeing the national payments system

Question 10(1 point)

What kind of relationship exists between the quantity of money demanded and the interest rate?

Question 10 options:

a positive relationship

an inverse relationship

a fixed relationship

a constant relationship

Question 11(1 point)

In order for mutually beneficial trade to occur, at what level must the exchange rate between the goods involved be set at?

Question 11 options:

at a level where the exchange ratio is exactly equal to the opportunity cost of producing the good in each country

at a level where each country will specialize in the production of those goods in which it has an absolute advantage

at a level where each country can export a good at a price below the opportunity cost of producing the good in the domestic market

at a level where each country can import a good at a price below the opportunity cost of producing the good in the domestic market

Question 12(1 point)

Which of the following would be classified in the capital account?

Question 12 options:

the sale of Belizean sugar cane to a Canadian food company

the purchase of Swiss francs by the Bank of Canada

the purchase of a British soccer team merchandise by a Canadian sports company

the importing of Jamaican rum

Question 13(1 point)

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Suppose banks desired a 100 percent reserve ratio. What would be the effect of a $4 million decrease in banking reserves?

Question 13 options:

a $4 million increase in the money supply

a $400 million decrease in the money supply

a $4 million decrease in the money supply

a $400 million increase in the money supply

Question 14(1 point)

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Which of the following is the best example of a tariff?

Question 14 options:

a limit imposed on the number of SUVs that can be imported from a Japan

a subsidy from the Canadian government to domestic manufacturers of SUVs so they can compete more effectively with foreign producers of SUVs

a tax placed on all SUVs sold in the domestic market

a $100-per-car fee imposed on all SUVs imported from South Korea

Question 15(1 point)

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Which of the following would result if we had NO money to serve as a medium of exchange?

Question 15 options:

We would all need to be self-sufficient

Gains from trade would be impossible.

Our cost of living would be higher

Transactions' cost of exchange would increase

Question 16(1 point)

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Which of the following is NOT a function of the Bank of Canada?

Question 16 options:

issuing currency

serving as a bank for the federal government

setting currency-exchange rates

being a lender of last resort

Question 17(1 point)

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Who is the governor of the Bank of Canada?

Question 17 options:

Tiff Macklem

Mark Carney

Ben Bernanke

Stephen Harper

Question 18(1 point)

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Which of the following statements about paper money in Canada is most accurate?

Question 18 options:

It is fiat money

It is equal to M1

It is convertible into gold or silver at the holder's request

It is partially backed by gold and silver at the Bank of Canada

Question 19(1 point)

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Under a flexible exchange rate system, what will a contractionary fiscal policy lead to?

Question 19 options:

an increase in foreign reserves

a decrease in foreign reserves

an appreciation of the domestic currency

a depreciation of the domestic currency

Question 20(1 point)

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Which of the following is NOT a reason that gold and silver have been historically used as money?

Question 20 options:

The issuer's name can be printed on gold and silver, but not on other commodities

They can last a very long time

They can easily be made into different shapes and weights

They are scarce and valuable

Question 21(1 point)

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Why does gold work better than bananas as a form of money?

Question 21 options:

Gold does NOT disintegrate over time, but bananas do

A value can be imprinted in gold, but NOT in bananas

Everyone can value pure gold, but NOT a banana

Gold is a natural element and bananas can be grown

Question 22(1 point)

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Suppose the Bank of Canada makes an open market sale and increases the bank rate. What will be the effect on the money supply?

Question 22 options:

It will have an indeterminate effect on the money supply

It will increase the money supply

It will leave the money supply unchanged

It will decrease the money supply

Question 23(1 point)

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What would be the impact of reducing existing tariffs on tomatoes?

Question 23 options:

It would decrease total Canadian consumption of tomatoes

It would increase Canadian consumption of domestically produced tomatoes

It would reduce exports of tomatoes.

It would increase imports of foreign-produced tomatoes

Question 24(1 point)

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Which of the following is one reason why nations trade?

Question 24 options:

Labour costs are too high in some countries to efficiently produce goods

The wants of their citizens exceed their productive capacity

Different countries have different levels of greed.

No one country produces all of what citizens within the country want

Question 25(1 point)

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What does the P in the equation of exchange represent?

Question 25 options:

average level of prices of final goods and services in the economy

marginal level of prices

profit earned in the economy

marginal propensity to spend

Question 26(1 point)

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Which of the following statement is true about the US Federal Reserve?

Question 26 options:

The directors of the Federal Reserve board are directly elected by the people

The Federal Reserve System consists 12 regional federal reserve banks

The Federal Reserve is owned by the US federal government

Interest rate decisions of the Federal Reserve are made by the Chairman and Vice Chairman of Federal Reserve

Question 27(1 point)

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What does the money demand curve illustrate?

Question 27 options:

the various amounts of money that individuals will hold at different interest rates

the quantity of bonds that the Bank of Canada will buy at different price levels

the various amounts of money that individuals will hold at different price levels

the various amounts of money that individuals will spend at different levels of GDP

Question 28(1 point)

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During the 2008-09 recession, the Canadian banking system was relatively unharmed compared with other developed countries. According to economists, what relative amounts of Canada's leverage ratios and capital reserves led to this result?

Question 28 options:

Canada had higher leverage ratios and higher capital reserves.

Canada had higher leverage ratios and lower capital reserves

Canada had lower leverage ratios and higher capital reserves

Canada had lower leverage ratios and lower capital reserves

Question 29(1 point)

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The National Bank of Anywhere desires to hold 20 percent reserves and has excess reserves of $40 000. What is the maximum amount of additional loans that the bank can extend?

Question 29 options:

$32 000

$8 000

$200 000

$40 000

Question 30(1 point)

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Suppose Scotland could produce 4 tonnes of potatoes or 2 tonnes of wheat per worker per year, while Ireland could produce 2 tonnes of potatoes or 3 tonnes of wheat per worker per year. What country has the comparative advantage and absolute advantage in producing potatoes?

Question 30 options:

Scotland has the comparative advantage in potato production, while Ireland has the absolute advantage

Scotland has both the comparative and absolute advantage in potato production.

Ireland has the comparative advantage in potato production, while Scotland has the absolute advantage.

Ireland has both the comparative and absolute advantage in potato production

Question 31(1 point)

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Which of the following is NOT a function of the Bank of Canada?

Question 31 options:

setting tax rates

being a lender of last resort

controlling inflation

setting monetary policy

Question 32(1 point)

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Which one of the following would be the most appropriate stabilization policy if the economy is operating beyond its long-run potential capacity?

Question 32 options:

an increase in government purchases, holding taxes constant

a reduction in taxes, holding government purchases constant

an increase in the bank rate

a purchase of bonds by the Bank of Canada

Question 33(1 point)

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Which of the following is a form of money?

Question 33 options:

a savings deposit

a treasury bill

a credit card

a stock

Question 34(1 point)

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A bank has $1 million in demand deposits, $250 000 in reserves, and desires a 20 percent reserve ratio. How much money can the bank directly create by loaning out its excess reserves?

Question 34 options:

$50 000

$250 000

$200 000

$1 000 000

Question 35(1 point)

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Which of the following best describes the role of the Bank of Canada as the lender of last resort?

Question 35 options:

It lends money to people in localities NOT served by chartered banks.

It lends money to developing nations whose own central banks have failed.

It keeps the money supply from drying up during economic panics

It provides mortgage money to people living in poverty.

Question 36(1 point)

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When is an expansionary monetary policy likely to increase real output more than just temporarily?

Question 36 options:

at virtually any output level

when the economy operates at less than capacity

when actual output is beyond the economy's long-run capacity

when the economy is at full employment

Question 37(1 point)

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Which of the following is most likely to cause the depreciation of the Canadian dollar?

Question 37 options:

a Canadian farmer relies on exports

a German family on vacation in Quebec

an American-owned company buys Canadian oil

a Canadian businessman on an extended trip through Africa

Question 38(1 point)

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Suppose Edland can produce either 30 units of good A or 30 units of good Z, and Georgeland can produce either 150 units of good A or 200 units of good Z. For them both to benefit from trade, how much will each unit of Z exchange for?

Question 38 options:

more than 1 unit of A

between 0.75 of a unit and 1 unit of A

0 units of A since only if the good Z is free will there be mutual benefit

between 0.1 of a unit and 0.75 of a unit of A

Question 39(1 point)

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If the rate of inflation in Canada falls relative to the rate of inflation in foreign nations, what will happen to the amount of Canadian net exports and subsequently the exchange rate for the Canadian dollar?

Question 39 options:

It will increase net exports, which in turn will decrease the value of the dollar

It will decrease net exports, which in turn will increase the value of the dollar.

It will increase net exports, which in turn will increase the value of the dollar

It will decrease net exports, which in turn will decrease the value of the dollar

Question 40(1 point)

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A bank receives a demand deposit of $3000. The bank loans out $1800 of this deposit and increases its excess reserves by $300. What is the bank's desired reserve ratio?

Question 40 options:

30 percent

60 percent

40 percent

10 percent

Question 41(1 point)

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If the exchange rate between euros and dollars is 2 euros per dollar, when a Canadian purchases a good valued at 40 euros, what is its cost in dollars?

Question 41 options:

$20

$40

$600

$80

Question 42(1 point)

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Which of the following is recorded as a credit in the Canadian balance of payments accounts?

Question 42 options:

the importing of toys from a Mexican company

the purchase of a Government of Canada bond by a British investment company

the purchase of a British soccer team by a Canadian investor

European travel expenditures of a Canadian postsecondary student

Question 43(1 point)

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A bank has $200 million in demand deposits and desires a 20 percent reserve ratio. How much will it hold as reserves?

Question 43 options:

$60 million

$100 million

$250 million

$40 million

Question 44(1 point)

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Scenario 11-2

A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.

Refer to Scenario 11-2. If the bank desires to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

Question 44 options:

Excess reserves are $700 000 and could be used to create $2 100 000 in the banking system.

Excess reserves are $300 000 and could be used to create $900 000 in the banking system

Excess reserves are $300 000 and could be used to create $300 000 in the banking system

Excess reserves are zero and could NOT be used to make any money in the banking system

Question 45(1 point)

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In a bid to get re-elected, politicians decide to decrease taxes when there is an inflationary gap. As a result, what action might the Bank of Canada decide to take?

Question 45 options:

increase the money supply

sell government securities to the chartered banks

reduce the bank rate

buy government securities from the general public

Question 46(1 point)

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If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment, which of the following would be most appropriate?

Question 46 options:

a larger government surplus and a reduction in the bank rate

a larger government deficit and an increase in the bank rate

a government surplus and the sale of securities in the open market by the Bank of Canada

a larger budget deficit and the purchase of securities in the open market by the Bank of Canada

Question 47(1 point)

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If the target for the overnight lending rate is 5 percent, what would be the respective bank rate?

Question 47 options:

5.5 percent

5 percent

4.75 percent

5.25 percent

Question 48(1 point)

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When the Bank of Canada purchases government securities from a chartered bank, what is the impact on that bank?

Question 48 options:

It receives reserves that can be used to make additional loans.

It automatically becomes poorer

It loses its ability to make loans

It loses equity.

Question 49(1 point)

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Compared with a no-trade situation, what occurs when a country imports a good?

Question 49 options:

Domestic consumers gain, domestic producers lose, and the losses outweigh the gains

Domestic consumers lose, domestic producers gain, and the gains outweigh the losses

Domestic consumers gain and domestic producers lose an equal amount

Domestic consumers gain, domestic producers lose, and the gains outweigh the losses

Question 50(1 point)

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If the demand for money increases, what will happen to interest rates and the quantity of money?

Question 50 options:

Interest rates will decrease, and the quantity of money will stay the same

Interest rates will increase, and the quantity of money will stay the same

Interest rates will decrease, and the quantity of money will decrease

Interest rates will increase, and the quantity of money will increase