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80 Cards in this Set
- Front
- Back
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Which one of the following is NOT a function of money?
a. store of value b. unit of account c. hedge against deflation d. hedge against inflation |
d
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Which one of the following describes the composition of M1+ money?
a. currency and demand deposits b. currency, government bonds, and coins c. currency, savings accounts, and government bonds d. currency, demand deposits, and money market mutual funds |
a
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Which one of the following is an example if fiat money?
a. gold. b. silver c. paper dollars d. cigarette in prisoner-of-war camps |
c
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Which one of the following is NOT a function of the Bank of Canada?
a. issue currency b. act as banker to the commercial banks c. act as banker to the federal government d. insure the deposits of the public at Canadian banks. |
d
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Which of the following is a characteristic of commodity money?
a. has intrinsic value b. has no intrinsic value c. is used exclusively in Canada d. is used as reserves to back fiat money |
a
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Which of the following describes how the governor of the Bank of Canada is insulated from short-term political pressure?
a. the governor has life-time tenure b. the governor is elected by the public c. the governor is appointed to a seven year term d. the governor is supervised by the finance committee of parliament. |
c
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Which one of the following statements is true?
a. The Bank of Canada currently uses the overnight rate for long-term control of the money supply. b. The Bank of Canada currently uses open-market operations for short-term control of the money supply. c. Sterilization is the process of offsetting foreign exchange market operations with open-market operations d. The Bank of Canada has frequently used changes in reserve requirements in control of the money supply |
c
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Which one of the following is used to calculate the fixed percentage required for bank reserves?
a. loans b. deposits c. assets d. government bonds |
b
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If The reserve ratio is 2 percent, which one of the following is the value of the money multiplier?
a. 2 b. 3 c. 10 d. 50 |
d
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Which one of the following policy actions by the Bank of Canada would likely increase the money supply?
a. raising reserve requirements b. selling government bonds c. decreasing the overnight rate |
c
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Suppose the Bank of Canada buys US$200 million in the foreign exchange market for CDN$215 million. Which one of the following describes how the Bank of Canada would sterilize the foreign exchange market operation?
a. It would lower the overnight rate. b. It would raise the overnight rate c. It would buy government bonds on the open market d. it would sell government bonds on the open market |
d
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Which one of the following is an outcome of a decrease in the reserve ratio?
a. reserve rise b. money supply falls c. money multiplier rises |
c
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Which one of the following defines the bank rate?
a. The interest rate bank pay on the public's deposits. b. The interest rate the Bank of Canda charges on loans to banks. c. The interest rate the Bank of Canada pays on the public's deposits. d. The interest rate the public pays when borrowing from banks |
b
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Suppose Glenda writes a $1000 cheque on her account to buy a government bond from her friend Anthony. If Anthony deposits the cheque in his bank and if the reserve ratio is 10%, which one of the following is the potential change in the money supply?
a. Zero b. $1000 c. $4000 d. $5000 |
a
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Suppose the Bank of Canada purchases a $1000 government bond from Hiroko. If Hiroko deposits the entire $1000 in her bank and if the reserve ratio is 20 percent which one of the following is the potential change in the money supply as a result of the Bank of Canada's action?
a. Zero b. $1000 c. $4000 d. $5000 |
d
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Suppose all banks maintain a 100 poercent reserve ratio. Which one of the following would be the outcome if an indivudal deposits $1000 of currency in a bank?
a. The money supply is unaffected b. the money supply increases by more than $1000 c. the money supply increase by less than $1000 d. the money supply decrease by more than $1000 |
a
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Suppose the Bank of Canada engages in an open-market purchase and at the same time it raises the overnight rate. Which one of the following would be the outcome?
a. The money supply should rise b. the money supply should fall c. the money supply should remain unchanged d. It is uncertain what would happen to the money supply. |
d
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Givern the following T-account, and assuming the reserve requirement is 10 percent, which one of the following is the largest new loan this bank can prudently make?
Bank X Assets | Liabilities Reserves $150 | Deposits $1000 Loans $850 | a. 0$ b. $50 c. $150 d. $1000 |
b
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Which one of the following describes the three main tools of monetary policy?
a. coin, currency, and demand deposits. b. the money supply, government purchases and taxation c. government expenditures, taxation and reserve requirements d. open-market operations, reserve requirements and overnight rate. |
d
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Suppose the Bank of Canada purchases a government bond from a person who deposits the entire amount from the sale into his bank. If the bank holds some of the deposit as excess reserves, which one of the following describes what will happen to money supply?
a. It will rise less than the money multiples would suggest. b. It will rise more than the money multiplier would suggest. c. It will fall less than the money multiplies would suggest d. It will fall more than the money multiplies would suggest |
a
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In the long run, which one of the following is a cause of inflation?
a. governments that print too much money b. increases in the price of inputs, such as labour and oil c. banks that have market power and refuse to lend money d. governments that raise taxes so high that the cost of doing business increases and, hence, the prices also increase |
a
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Which one of the following terms refers to prices rising at an extraordinarily high rate?
a. inflation b. deflation c. hyperinflation d. hypoinflation e.disinflation |
c. hyperinflation
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WHich one of the following occurs if the price level doubles?
a. nominal income is unaffected b. the money supply has been cut by half d. the value of money has been cut by half d. the quantity demanded of money falls by half |
c
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In the long run which one of the following is the demand for money MOST dependent upon?
a. interest rates b. the level of prices c. the availability of credit cards d. the availability of banking outlets |
b
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Which one of the following is the conclusion of the quantity theory of money?
a. An increase in the money supply causes a proportional increase in velocity b. An increase in the money supply causes a proportional increase in prices c. An increase in the money supply causes a proportional increase in real output d. An increase in the money supply causes a proportional decrease in velocity |
b
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Which one of the following is an example of a real variable?
a. The dollar wage b. the price of corn c. the nominal interest rate d. the ratio of the price of milk to the price of bread |
d
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Which one of the following is the quantity equation?
a. money x price level = velocity x real output b. money x real output = velocity x price level c. money x velocity = price level x real output |
c
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If money is neutral, which of the following can be assumed?
a. an increase in the money supply does nothing b. a change in the money supply affects only real variables such as real output c. the money supply cannot be changed because it is tied to a commodity such as gold d. a change in the money supply affects only nominal variables such as prices and dollar wages |
d
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If the money supply grows 5 percent, and real output grows 2 percent and velocity is constant which one of the following is the amount that prices should rise by?
a. 5 percent b. less than 5 percent c. more than 5 percent |
b
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Which one of the following defines velocity?
a. the annual unstable output b. the annual rate of turnover of output c. the annual rate of turnover of the money supply d. the annual rate of turnover of business inventories |
c
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Which one of the following is a reason that a country would employ an inflation tax?
a. the government has a balanced budget b. an inflation tax is the most equitable of all taxes c. the government does not understand the causes and consequences of inflation d. government expenditures are high and the government has inadequate tax collections and difficulty borrowing |
d
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Which of the following is characteristic of inflation tax?
a. a tax on people who hold money b. usually employed by governments with balanced budgets c. a tax on people who hold interest- bearings savings accounts d. an explicit tax paid quarterly by businesses based on the amounts of increase in the price of their products. |
a
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Suppose the nominal interest rate is 7 percent while the money supply is growing at a rate of 5 percent per year. If the government increases the growth rate of the money supply from 5 percent to 9 percent, which of the following should the nominal interest rate become in the long run according to the Fisher effect?
a. 4 percent b. 9 percent c. 11 percent d. 12 percent |
c
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If the nominal interest rate is 6 percent and the inflation rate is 3 percent which one of the following is the real interest rate?
a. 3 percent b. 6 percent c. 9 percent d. 18 percent |
a
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Which one of the following occurs if actual inflation turns out to be greater than people expected?
a. no redistribution occurs b. the real interest rate is unaffected c. wealth is redistributed to lenders from borrowers d. wealth is redistributed to borrowers from lenders |
d
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Which one of the following costs of inflation does not occur when inflation is constant and predictable?
a. menu costs b. shoe leather costs c. arbitrary redistribution of wealth d. costs due to inflation-induced tax distortions |
c
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Suppose that, because of inflation, a business in Russia must calculate, print and mail a new price list to its customers each month. Which one of the following is this an example of?
a. menu costs b. shoe leather costs c. arbitrary redistribution of wealth d. costs due to inflation-induced tax distortions |
a
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Suppose that, because of inflation, people in Brazil economize on currency and go to the bank each day to withdraw their daily currency needs. Which one of the following is this an example of?
a. menu costs b. shoe leather costs c. costs due to inflation-induced tax distortions d. costs due to inflation-induced relative price variability that misallocates resources |
b
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If the real interest rate is 4 percent, the inflation rate is 6 percent, and the tax rate is 20 percent, which one of the following is the after-tax real interest rate?
a. 1 percent b. 2 percent c. 3 percent d. 4 percent |
b
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Which one of the following statements is true about a situation where real incomes are rising at 3 percent per year?
a. Inflation were 0 percent, people should receive raises of about 3 percent b. If inflation were 5 percent, people should receive raises of about 5 percent per year c. If money is neutral an increase in the money supply will alter the rate of growth of real income. |
a
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Which one of the following statements about economic fluctuations is true?
a. a depression is a mild recession b. a recession is when output rises above the natural rate of output c. economic fluctuations have been termed "business cycle" because the movements in output are regular and predictable d. a variety of spending, income and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together |
d
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Which one of the following would shift the aggregate-demand curve to the right?
a. a rise in interest rates b. a cut in personal income taxes c. an exchange rate appreciation d. a decrease in government spending on highways |
c
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Which one of the following would shift the aggregate-demand curve to the left?
a. a fall in expected future profits by firms b. a fall in interest rates c. a boom in the stock market d. an exchange rate depreciation |
b
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Which one of the following is NOT a reason why the aggregate-demand curve slopes downward?
a. the wealth effect b. the interest-rate effect c. the real exchange-rate effect d. the classical dichotomy/monetary neutrality effects |
d
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In the model of aggregate supply and aggregate demand, which one of the following is the initial impact of an increase in consumer optimism?
a. a shift of aggregate demand to the left b. a shift of aggregate demand to the the right c. a shift of short-run aggregate supply to the left d. a shift of short-run aggregate supply to the right |
b
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Which one of the following statements describes what occurs in a long-run aggregate-supply curve?
a. the long-run aggregate-supply curve shifts left when the natural rate of unemployment falls b. the long-run aggregate-supply curve shifts right when the government raises the minimum wage c. the long-run aggregate-supply curve is vertical because an equal change in all prices and wages leaves output unaffected d. The long-run aggregate-supply curve is positively sloped because price expectations and wages tend to be fixed in the long run |
c
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Which one of the following is a reason that the aggregate-demand curve slopes downward (negatively) according to the wealth effect?
a. Lower prices increase the real value of money holding and consumer spending increases b. lower prices decrease the real value of money holding and consumer spending decreases c. lower prices reduce money holdings and increase lending, interest rates fall, and investment spending increases d. lower prices increase money holdings and decrease lending, interest rates rise, and investment spending falls |
a
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Which one of the following is the natural rate of output?
a. The amount of real GDP produced when there is no unemployment b. the amount of real GDP produced when the economy is at the natural rate of investment c. the amount of real GDP produced when the economy is at the natural rate of aggregate demand d. the amount of real GDP produced when the economy is at the natural rate of unemployment |
d
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Which one of the following refers to a scenario in which the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production?
a. the misperceptions theory of the short-run aggregate-supply curve b. the stick wage theory of the short-run aggregate-supply curve c. the sticky-price theory of the short run aggregate supply curve d. the classical dichotomy theory of the short-run aggregate-supply curve |
b
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Suppose the price level falls but supplies notice only that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. Which one of the following refers to this scenario?
a. the misperceptions theory of the short-run aggregate-supply curve b. the stick wage theory of the short-run aggregate-supply curve c. the sticky-price theory of the short run aggregate supply curve d. the classical dichotomy theory of the short-run aggregate-supply curve |
a
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Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending by firms. According to the model of aggregate demand aggregate supply which one of the following is what happens to prices and output in the short run?
a. prices rise, output rises b. prices rise, output falls, c. prices fall, output falls d. prices fall, output rises |
c
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Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending by firms. If the policymakers allow the economy to adjust to long-run equilibrium on its won according to the model of aggregate demand and aggregate supply which one of the following is what happens to prices and output in the long run.
a. prices rise, output is unchanged from its initial value b. prices fall, output is unchanged from its initial value c. output rises, prices are unchanged from the initial value d. output falls, prices are unchanged from the initial value e. output and the price level are unchanged from their initial values |
b
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Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, which one of the following is what happens to prices and output in the short run?
a. prices rise, output rises b prices rise, output falls c. prices fall, output falls d. prices fall, output rises |
b
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Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If the policymakers allow the economy to adjust to long-run equilibrium on its own, according top the model of aggregate demand and aggregate supply what happens to prices and output in the long run?
a. prices rise, output is unchanged from its initial value b. prices fall, output is unchanged from its initial value c. output rises, prices are unchanged from the initial value d. output and the price level are unchanged from their initial values |
d
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Which one of the following describes when stagflation occurs?
a. when there are falling prices and falling output b. when there are falling prices and rising output c. when there are rising prices and rising output d. when there are rising prices and falling output |
d
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Which one of the following events leads to an initial impact that takes the form of a shift in the short-run aggregate-supply curve to the right?
a. a drop in oil prices b. a decrease in the money supply c. an increase in price expectations d. an increase in government spending on military equipment |
a
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Suppose the economy is operating in a recession. If policymakers wished to move output to its long-run natural rate, which one of the following should they attempt to do?
a./ shift aggregate demand to the right b. shift aggregate demand to the left c. shift short-run aggregate supply to the right d. shift short-run aggregate supply to the left |
a
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Suppose the economy is operating in a recession. If policymakers allow the economy to adjust to the long-run natural rate on its own, which one of the following describes the likely outcome?
a. People will raise their price expectations and aggregate demand will shift left b. People will reduce their price expectations and aggregate demand will shift right c. people will raise their price expectations and the short-run aggregate supply will shift left d. People will reduce their price expectations and the short run aggregate supply will shift right |
d
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According to the model of aggregate supply and aggregate demand, in the long run which one of the following describes the effects of an increase in the money supply?
a. It should cause prices to rise and output to rise b. It should cause prices to fall and out to fall c. It should cause prices to rise and output to remain unchanged d. It should cause prices to fall output to remain unchanged |
c
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Which one of the following actions by policymakers is said to "accommodate" an adverse supply shock?
a. respond to the adverse supply shock by decreasing short-run aggregate supply b. fail to respond to the adverse supply shock and allow the economy to adjust on its own. c. respond to the adverse supply shock by increasing aggregate demand, which further raises prices d. respond to the adverse supply shock by decreasing aggregate demand, which lowers prices |
c
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Which one of the following determines the interest rate, as suggested by Keyne's liquidity preference theory of the interest rate?
a. the supply and demand of loan-able funds b. the supply and demand of money c. the supply and demand of labour d. aggregate supply and aggregate demand |
b
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When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, which one of the following is an outcome of an increase in the interest rate?
a. it decreases the demand for money b. It increases the demand for money c. it decreases the quantity demanded of money d. It increases the quantity demanded of moeny |
c
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When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, which one of the following is an outcome of an increase in the price level?
a. It shifts money demand to the right and increases the interest rate b. it shift money demand to the left and increases the interest rate c. it shifts money demand to the right and decreases the interest rate d. it shift money demand to the left and decreases the interest rate |
a
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Which one of the following is the MOST important reason for the downward slope of the aggregate-demand curve in a closed economy?
a. the fiscal effect b. the wealth effect c. the interest-rate effect d. the real exchange-rate effect |
c
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In the market for real output, which one of the following is the initial effect of an increase in the money supply?
a. Aggregate demand shifts to the right b. aggregate demand shift to the left c. aggregate supply shifts to the right d. aggregate supply shifts to the left |
a
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Which one of the following is the short-run effect of an increase in the money supply in an open economy?
a. an increase in the exchange rate b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate |
d
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Which one of the following is the long-run effect of an increase in the money supply in an open economy?
a. It is greater under a flexible exchange rate b. It is smaller than in a closed economy c. it is greater under a fixed exchange rate d. It is the same as in a closed economy |
a
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Suppose a wave of business and consumer pessimism causes a reduction in spending. Which one of the following is the likely result if the Bank of Canada chooses to engage in activist stabilization policy?
a. It should increase government spending and decrease taxes b. it should decrease government spending and increase taxes c. it should increase the money supply and decrease interest rates d. It should decrease the money supply and increase interest rates. |
c
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Which one of the following is an outcome of a decrease in government spending?
a. It shifts aggregate supply to the right b. It shifts aggregate supply to the left c. It shifts aggregate demand to the right d. It shifts aggregate demand to the left |
d
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If the marginal propensity to consume (MPC) is 0.75 and the marginal propensity to import (MPI) is 0.25 which one of the following is the value of the multiplier?
a. 0.75 b. 2.00 c. 5.25 d. 7.50 |
b
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Which one of the following would occur with an increase in the marginal propensity to consume (MPC)
a. raised value of the multiplier b. lowered value of the multiplier c. no impact on the value of the multiplier d. rarely any occurrence because the MPC is set by Federal law |
a
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Suppose a wave of business and consumer optimism has increased spending such that the current level of output exceeds the long-run natural rate. Which one of the following describes what actions policymakers should take in order to engage in activist stabilization policy?
a. decrease taxes, which shifts aggregate demand to the right b. decrease taxes, which shifts aggregate demand to the left c. decrease government spending, which shifts aggregate demand to the right d. decrease government spending which shifts aggregate demand to the left |
d
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Which one of the following terms refers to a scenario in which an increase in government spending in the short run raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment?
a. the multiplier effect b. the investment accelerator c. the crowding-out effect d. supply-side economics |
c
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Which one of the following statements regarding taxes is correct?
a. a decrease in taxes shifts the aggregate supply curve to the left b. an increase in taxes shifts the aggregate-demand curve to the right c. a change in taxes has a greater effect on aggregate demand under a fixed exchange rate than under a flexible exchange rate. d. Most economists believe that, in the short run, the greater impact of a change in taxes is on aggregate supply, not aggregate demand. |
c
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Suppose the government increase expenditures by $6 billions. Which one of the following occurs if the multiplier effect exceeds the crowding out effect?
a. The aggregate supply curve shifts to the right by more than $6 billion b. the aggregate supply curve shifts to the left by more than $6billion c. The aggregate demand curve shifts to the right by more than $6 billion d. the aggregate demand curve shifts to the left by more than $6 billion |
c
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Which one of the following terms refers to an increase in government spending that increases the income of some people, such that those people would spend some of that increased income on additional consumer goods?
a, the multiplier effect b. the investment accelerator c. the crowding-out effect d. supply-side economics |
a
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Which one of the following terms refers to an increase in government spending that would cause firms to purchase additional plants and equipment?
a, the multiplier effect b. the investment accelerator c. the crowding-out effect d. supply-side economics |
b
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Which one of the following is an automatic stabilizer?
a. military spending b. spending on public schools c. employment insurance benefits d. spending on civil service salaries |
c
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Which one of the following statements about stabilization policy is true?
a. Parliament has no role in the use of fiscal policy b. Long lags enhance the ability of policymakers to "fine-tune" the economy c. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than does an activist stabilization policy. d. In the short run, a decision by the Bank of Canada to increase the money supply is essentially the same as a decision to increase the interest rate |
c
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Which one of the following statements is correct?
a. fiscal policy has no lasting impact on aggregate demand under a flexible exchange rate b. A flexible exchange rate eliminates the crowding-out effect on investment and net exports of an expansionary fiscal policy c. The Coyne Affair illustrated the conflict between the federal and provincial governments regarding the coordinated use of fiscal policy d. Keyne's book, The General Theory of Employment, Interest and Money, emphasized the key role of aggregate supply in explaining short-run economic fluctuations. |
a
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