The Multiplier Effect - PASS
24 important questions on The Multiplier Effect - PASS
1. The two parts of the inflation-control target are that the inflation-control target range will be ________ percent a year, and policy will aim at keeping the trend of inflation at ________ percent a year.
A) 3 to 5; 4
B) 1 to 3; 2
C) 2 to 4; 3
D) 0 to 2; 1
E) -1 to 1; 0
2. As the sole issuer of Canadian money, the Bank of Canada can set any one of three variables:
A) the monetary base, the exchange rate, and the short-term interest rate.
B) the money base, the interest rate, and the unemployment rate.
C) the rate of inflation, the interest rate, and the unemployment rate.
D) the exchange rate, the interest rate, and the inflation rate.
E) the inflation rate, the unemployment rate, and the real economic growth rate.
3. What is the overnight loans rate?
A) The percentage change in the volume of loans that take place overnight.
B) The interest rate that the Bank of Canada charges chartered banks.
C) The interest rate on loans that the big banks make to each other.
D) The volume of loans that take place during the night.
E) The interest rate that the Bank of Canada pays when it buys securities from chartered banks.
(Bank rate and overnight loans rate are different things)
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4. An open market operation
A) refers to the Bank of Canada's sales and purchases of corporate stock.
B) can change bank deposits but cannot alter the quantity of money.
C) is the purchase or sale of government of Canada securities by the Bank of Canada from or to a chartered bank or the public.
D) refers to loans made by the Bank of Canada to chartered banks.
E) refers to the purchase or sale of Canadian currency in exchange for foreign currency.
5. The bank rate is the interest rate
A) banks charge their very best loan customers.
B) banks pay on term deposits.
C) the Bank of Canada pays on reserves held by banks.
D) the Bank of Canada charges when it lends reserves to the big banks.
E) received for holding Government of Canada Treasury Bills.
6. The sale of government bonds by the Bank of Canada
A) lowers interest rates.
B) decreases bank reserves.
C) increases the quantity of money.
D) increases the banks' loans to the public.
E) increases bank reserves.
(People withdraw to pay for bonds so the bank reserves decrease)
7. The central bank of Econland has the same inflation-control target as the Bank of Canada. The CPI inflation rate in Econland was 3.9 percent in May 2016 and 2.8 percent in February 2016. The CPI inflation rate was
A) in the target range in May but not February.
B) in the target range in February but not May.
C. in the target range in both February and May.
D) outside the target range in both May and February.
8. In an open market operation aimed at increasing expenditure, the Bank of Canada
A) sells government bonds, decreasing bank reserves, decreasing lending, decreasing the overnight rate.
B) sells government bonds, decreasing bank reserves, decreasing lending, increasing the overnight rate.
C) sells government bonds, decreasing bank reserves, increasing lending, increasing the overnight rate.
D) buys government bonds, increasing bank reserves, increasing lending, decreasing the overnight rate.
E) buys government bonds, increasing bank reserves, increasing lending, increasing the overnight rate.
9. If the overnight rate is above target, the Bank ________ securities to ________ reserves, which ________ the supply of overnight funds and ________ the overnight rate.
A) buys; increase; decreases; raises
B) sells; increase; increases; lowers
C) buys; decrease; decreases; raises
D) sells; decrease; decreases; raises
E) buys; increase; increases; lowers
(Buy bonds to increase bank results and reserves)
10. Which of the following quotations correctly describes the impact of monetary policy on the economy?
A) "House sales are down lots, due to the higher money growth."
B) "The extra money pumped into the economy by the central bank is creating more exports."
C) "The tightening of money growth is helping sell goods abroad."
D) "Businesses are investing more, now that monetary policy has become less expansionary."
E) "The extra money pumped into the economy by the central bank is creating fewer jobs."
11) To lower interest rates, the Bank of Canada can
A) increase the treasury bill rate.
B) raise the exchange rate.
C) buy government securities.
D) decrease bank reserves.
E) raise the bank rate.
12. To decrease aggregate demand, the Bank of Canada can
A) raise the overnight loans rate, which decreases the quantity of money.
B) lower the overnight loans rate, which increases the quantity of money.
C) lower the overnight loans rate, which decreases the quantity of money.
D) raise the overnight loans rate, which increases the quantity of money.
E) raise the overnight loans rate, which decreases the government budget deficit.
13. An increase in the quantity of money leads to
A) a decrease in net exports.
B) a decrease in real GDP.
C) a decrease in the price level.
D) an increase in aggregate demand.
14. If the Bank of Canada lowers the overnight loans rate, the exchange rate ________, imports ________, and exports ________.
A) rises; increase; increase
B) rises; increase; decrease
C) falls; decrease; increase
D) falls; decrease; decrease
E) falls; increase; decrease
15. The Bank of Canada raises the overnight loans rate. In the foreign exchange market people ________ dollars and the price of the dollar ________ because the Canadian interest rate differential ________.
A) sell; rises; falls
B) sell; falls; falls
C) buy; rises; rises
D) buy; falls; rises
E) buy; rises; falls
(When the interest rate increases, the base idea is that people demand Canadian dollars to either ride the anticipated appreciation or invest in Canada, more commonly the former)
16. When the Bank of Canada raises the overnight loans rate, other short-term interest rates
A) fall, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward.
B) fall, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward.
C) rise, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward.
D) rise, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward.
E) none of the above.
17. In the short run, lowering the overnight loans rate shifts the ________ curve ________ and ________ real GDP.
A) aggregate demand; leftward; decreases
B) aggregate demand; rightward; increases
C) short-run aggregate supply; rightward; increases
D) aggregate demand; leftward; increases
E) long-run aggregate supply; rightward; increases
18. In response to an inflationary gap, the Bank of Canada
A) waits until the price level falls before acting.
B) lowers the overnight loans rate by selling securities.
C) raises the overnight loans rate by selling securities.
D) lowers the overnight loans rate by buying securities.
E) raises the overnight loans rate by buying securities.
19. If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by ________ securities. Bank reserves ________ and the supply of loanable funds ________. The quantity of money ________.
A) selling; decrease; decreases; decreases
B) purchasing; decrease; decreases; decreases
C) purchasing; decrease; increases; decreases
D) selling; increase; increases; increases
E) purchasing; increase; increases; increases
20. The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to
A) lower inflationary pressures.
B) increase the overnight loans rate.
C) stimulate aggregate demand.
D) raise the value of the Canadian dollar.
E) help banks make profits.
22. Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?
A) the supply of loanable funds decrease
B) the long-term real interest rate rises
C) exports decrease
D) aggregate demand increases
E) imports increase
When the Bank of Canada raises interest rates, the international monetary transmission mechanism creates a _________ and the domestic transmission mechanism creates a _________.
A) negative demand shock; negative demand shock
B) positive demand shock; positive demand shock
C) positive demand shock; negative demand shock
D) negative supply shock; negative supply shock
A balance sheet recession
A) is caused by the collapse of asset prices, requiring that more borrowing occur to increase asset values
B) makes it easier to steer the economy towards recovery because more borrowing occurs, making it difficult to control the money supply
C) makes the monetary transmission faster with monetary policy because players are eager to borrow which stimulates the economy
D) causes transmission problems for monetary policy because players resist borrowing, spending and lending. They opt instead for the security of money and savings
The timing of the monetary “brake” is crucial. If the central bank waits too long to step on the brake, it risks
A) a stagnating economy
B) decreasing aggregate demand
C) decreasing consumer confidence
D) inflation
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