Questions Self-Test Chapter 13
MULTIPLE CHOICE 1. The most important function of the Bank of Canada is: a. raising or lowering taxes. b. regulating the supply of money. c. increasing or reducing government spending. d. none of the above. ANS: B 2. When Bank of Canada wants to change the money supply, it most frequently a. changes the bank rate. b. changes the reserve requirement. c. conducts open market operations. d. uses helicopters do drop more money into the economy, or a giant vacuum to suck notes from our wallets. ANS: C 3. Bank of Canada can increase the price level by conducting open market a. sales and raising the bank rate. b. sales and lowering the bank rate. c. purchases and raising the bank rate. d. purchases and lowering the bank rate. ANS: D 4. The velocity of money is: a. established by the Bank of Canada b. the average number of times that a dollar is used in purchasing final goods and services. c. inversely related to the rate of interest. d. the rate at which the Consumer Price Index rises. ANS: B 5. An increase in the money supply and a decrease in real GDP at the same time is consistent with the equation of exchange if: a. velocity rises rapidly enough. b. velocity falls rapidly enough. c. the price level rises rapidly enough. d. the price level falls rapidly enough. e. either b) or c) occurs. ANS: E 6. In order to increase the of rate growth of the money supply, the Bank of Canada can: a. raise the bank rate. b. lower the bank rate. c. buy government securities on the open market. d. sell government securities in the open market. e. both b) and c) would be true. ANS: E
1
7. The monetary policies generated by the Bank of Canada a. must be consistent with fiscal policies that are made in Parliament. b. are sometimes inconsistent with fiscal policies. c. must be ratified by Parliament. d. must be approved by the minister of finance. ANS: B 8. If the Bank of Canada wishes to expand the money supply, it a. buys stocks. b. sells stocks. c. Buys government bonds d. Sells government bonds ANS: C 9. Which of the following is most frequently used when the Bank of Canada is attempting to adjust the money supply? a. deposit switching b. open market operations c. changing the bank rate d. moral suasion e. all of the above ANS: B 10. Why does the Bank of Canada have imperfect control over the money supply over short periods? a. because of unpredictable changes in chartered bank reserves b. because the public responds to open market operations in unpredictable fashions c. because the Bank of Canada does not know how much reserves will change when it buys or sells securities d. because of unpredictable changes in public desire to hold cash and banks' desires to hold reserves ANS: D
2