Multiple Choice

Assume there is $5 million worth of currency held outside of the banks, $35 million in demand deposits and savings account at the chartered banks, and $25 million held in deposits at other financial institutions. What is the value of M2?

1. $30 million
2. $35 million
3. $65 million
4. $40 million

What Is the Equation of Exchange?

1. the price level the velocity of money = the money supply the quantity of goods and services produced
2. government spending = taxes + the federal budget deficit
3. the money supply the velocity of money = the price level the quantity of goods and services produced
4. the reciprocal of the desired reserve ratio = the deposit expansion multiplier

In a short run, which of the following would NOT result from a decrease in transfer payments?

1. a reduced price level
2. a decrease in any budget deficit or an increase in any budget surplus
3. reduced consumption purchases
4. reduced unemployment

Which of the following will shift the demand curve for money left?

1. higher interest rates in the bond market
2. higher prices
3. higher amounts of unexpected expenses
4. higher disposable incomes

If the target for the overnight lending rate is 4 percent, what would be the respective bank rate?

1. 4 percent
2. 4.5 percent
3. 3.75 percent
4. 4.25 percent

When the Bank of Canada buys a Canadian government bond, what is the impact on the volume of loans issued by the banking system and investment?

1. The volume of loans issued by the banking system increases and investment will tend to decrease.
2. The volume of loans issued by the banking system decreases and investment will tend to increase.
3. The volume of loans issued by the banking system increases and investment will tend to increase.
4. The volume of loans issued by the banking system decreases and investment will tend to decrease.

If the Bank of Canada sold Canadian dollars on the foreign exchange market, what would be the likely result?

1. at least a temporary decline in the exchange rate of the Canadian dollar
2. a leftward shift in the dollar supply curve
3. a rightward shift in the dollar demand curve
4. at least a temporary increase in the exchange rate of the Canadian dollar

Which of the following would supply Canadian dollars to the foreign exchange market?

1. the sale of a Canadian corporation to a Saudi Arabian investor
2. the sale of wheat from Saskatchewan to an American bakery
3. the purchase of Guatemalan coffee by a Canadian distributor
4. the spending of Japanese tourists in Canada