ECON 105 Macroeconomics Study Questions MULTIPLE …

1 ECON 105 Macroeconomics Study QuestionsK. Wainwright Part II: Money & Banking and Open EconomyMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the ) Suppose you found a $100 bill that was stored under your grandmother's mattress and youdecided to deposit this money in a Regina Bank. If the desired reserve ratio were 20 percent and allexcess reserves were lent out, the new deposit of $100 would lead to an expansion of the moneysupply ofA) $ ) $ ) $ ) $ ) $ )2) Which of the following is consistent with the predictions of Gresham's law?A) The disappearance of coins circulating in Canadaduring periods when the Canadiandollar is worth less than the ) Debasement of a metallic money will be followed by ) An increase in the money supply will be followed by ) increased circulation of coin in Canadaduring periods when the Canadian dollar is worthsignificantly less than the ) Increases in the money supply led to the hyperinflation of the 1920s in )3) The basic functions of the Bank of Canada includeA) acting as banker for the chartered ) regulating the stock ) acting as a broker for large private ) providing deposit insurance for Canadian dollar ) all of the above3)4)

2 The major problem of a fractionally backed, convertible currency is that ofA) paper money being less durable than ) perennial shortages of paper ) ) the inability to redeem the currency into metal if too much is ) clipping if too little of the currency is issued by the central monetary )5) The basic functions of the Bank of Canada includeA) regulating the money ) supporting the financial ) acting as banker for the chartered ) acting as lender of last ) all of the above5)1 Macroeconomics Study Questions6) A central bank can create money byA) increasing the rate of ) purchasing government securities on the open ) selling government treasury bills to the chartered ) selling some of its foreign-currency reserves for domestic ) issuing its own Central Bank )7) The basic functions of the Bank of Canada includeA) regulating the stock ) acting as a lender of last resort to the commercial ) acting as a lender of last resort to the large primary manufacturing ) providing deposit insurance for Canadian dollar ) all of the above7)8) The Canada Deposit Insurance Corporation (CDIC) was set up to protectA) member financial institutions in case of non-payment of loans from ) depositors with Canadian dollar accounts in any Canadian financial institution for up to amaximum of $100 000 per )

3 Depositors with Canadian dollar accounts in member institutions for up to a maximum of $60000 per ) depositors of any currency in any Canadian financial institution for up to a maximum of $100000 per ) member financial institutions in case of non payment of loans from the )9) If most individuals will accept paper currency in transactions and paper currency is convertibleinto gold, then banks can safely issueA) more paper currency than the value of the gold they ) as much paper currency as they ) paper currency equal to the bank's commercial debt divided by their gold ) paper currency equal to a fraction of the gold they ) no more paper currency than the value of the gold they )10) The Bank of Canada purchases $5 million worth of government securities from an investmentdealer with a cheque drawn on the Bank of Canada.

4 The dealer deposits this cheque at a CanadianChartered Bank. The desired reserve ratio of all banks is 25 percent. Assume all chartered banks areoperating with no excess reserves and there is no cash drain. The Chartered Bank is immediately ina position to expand its loans byA) $5 ) $15 ) $ ) $ ) $20 )2 Macroeconomics Study Questions11) Doug is saving money in a piggy bank to purchase a new snowboard next winter. This representsusing money asA) a store of ) a medium of ) a unit of ) a medium of deferred ) all of the above11)12)Jevan compares the unit price of chocolate bars in order to get the "best buy". This represents usingmoney asA) a store of ) a unit of ) a unit of deferred ) a medium of ) all of the above12)13) The Canadian dollar isA)backed by ) fully backed by gold, ) fractionally backed by gold and ) debt )backed by neither gold nor )14) If all the banks in the banking system collectively have $20 million in cash reserves and have adesired reserve ratio of 5 percent, the maximum amount of demand deposits the banking systemcan support isA) $4 ) $40 ) $80 ) $100 ) $400 )15) The investment demand function (Id curve) describes theA) positive relationship between investment, the rate of interest, and aggregate ) negative relationship between investment and and aggregate )

5 Negative relationship between the demand for money and the interest ) positive relationship between investment and the rate of ) negative relationship between the interest rate and )3 Macroeconomics Study Questions16) According to the views of classical economists, if the money supply doubles,A) money prices will ) relative prices will ) there will be no effect on money ) money prices will be ) real income will )FIGURE 28-117) Referring to Figure 28-1, a leftward shift in the LPcurve is caused byA) a decrease in either the price level or the real ) an increase in the rate of ) an increase in the real ) a decrease in the rate of ) an increase in the price )18) One reason for the downward slope of the ADcurve is that a rise in the price level leads to arelationship between the interest rate and equilibrium real GDP that is,A) inverse because, ceteris paribus, a rise in the price of bonds causes a rise in the interest ) inverse because, ceteris paribus, a rise in the price level raises the quantity of money demandedand thus raises the interest ) direct because, ceteris paribus, a rise in the price level lowers the quantity of money ) direct because, ceteris paribus, a rise in the price level raises the quantity of money ) inverse because, ceteris paribus, a rise in the price level causes an increase in the profits )4 Macroeconomics Study Questions19)

6 A decrease in the money supply is most likely toA) raise interest rates, investment, and aggregate ) raise interest rates and investment, and lower aggregate ) lower interest rates, investment, and aggregate ) raise interest rates, lower investment, and lower aggregate ) lower interest rates, raise investment, and raise aggregate )20) The speculative motive for holding money implies that the demand for moneyA) is less than the demand for holding bonds as long as the rate of interest exceeds ) varies positively with wealth and negatively with the rate of ) varies negatively with wealth and positively with the rate of ) has no relation to the rate of ) increases with the availability of credit )21) Financial assets, as opposed to real assets, areA) more liquid than real ) created by borrowing and lending ) representive of a liability to the issuer and an asset to the ) such things as money, bank deposits and ) all of these21)22) A rise in the price level, given no change in the supply of money, willA) increase the demand for money and decrease aggregate ) decrease the demand for money and decrease aggregate ) increase the demand for money and increase aggregate ) decrease aggregate demand but not affect the demand for ) decrease the demand for money and increase aggregate )23)

7 If a person is holding money for the purchase of goods and services, this demand for money isknown as theA) speculative ) nominal balance ) transactions ) real balance ) precautionary )24) When I expect interest rates to rise in the near future, I will be willing toA)buy bonds, but only if their price ) sell bonds ) put my money in a savings account rather than buy )buy bonds ) maintain only the current holding of )5 Macroeconomics Study Questions25) When the price level increases it causes households and business firms to try toA) increase money balances, which drives interest rates ) reduce money balances, which drives national income ) reduce money balances, which drives interest rates ) increase money balances, which drives interest rates ) reduce money balances, which drives interest rates )26) Which one of the following statements correctly describes the transmission mechanism?

8 A) An increase in government spending causes the AEcurve to shift upwards, leading to a ) An increase in personal consumption leads to an upward shift in the AEcurve and therebyincreases real ) An decrease in imports causes the AEcurve to shift upwards, leading to a higher interest ) A decrease in the money supply leads to a lower interest rate, higher investment, an upwardshift in the AE curve and a higher ) An increase in the money supply leads to a lower interest rate, higher investment, an upwardshift in the AE curve and a higher )27) The short run monetary policy target currently used by the Bank of Canada is to setA) a target range for the exchange rate between the Canadian dollar and the US ) the inflation ) a target range for the overnight lending )M2 = real GDP/M1E) a target range for the 5-year mortgage rate on residential )28) The bank rate is theA) primary method used by the Bank of Canada to control the money ) same as a margin ) interest rate at which the Bank of Canada will lend funds to the Canadian ) interest rate that commercial banks charge their best ) interest rate at which the Bank of Canada will lend funds to commercial banks whosereserves are temporarily below the required )29) If Bank Rates increases during an expansion of real GDP, then the Bank of CanadaA)

9 Must have been decreasing the money ) must have been increasing the money ) must have lowered the overnight lending ) may have changed the money supply in either ) must have held the money supply )6 Macroeconomics Study Questions30) The role that the money supply played in the Great Depression is viewed differently byMonetarists and Keynesians. Monetarists argue thatA) a massive expansion of the money supply was the reason why the Great Depression ended inthe mid ) money in the US was not a contributor to the economic decline in ) the Bank of Canada was correct in not providing emergency assistance to chartered banks atthe ) a massive reduction in the money supply was clearly the major cause of the fall in output ) a reduction in autonomous expenditure which had little to do with the amount of moneyavailable was the major cause of the f