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D.Banks hold reserves so that they can make payments.Demand and supply in the market for _______ determine the long-term real interest rate.In the short run, a change in the _______ changes the equilibrium real interest rate.A.loanable funds; overnight loans rateThis is the correct answer.B.loanable funds; saving rateC.Treasury bills; demand for loanable fundsD.bank reserves; supply of loanable fundsIf the interest rate on Treasury bills is lower than the overnight loans rate, the quantity ofovernight loans supplied ______ and the demand for Treasury bills ______.A.increases; increasesB.increases; decreasesThis is the correct answer.C.decreases; increasesD.decreases; decreasesThe price of Treasury bills falls and the interest rate rises.Canada is experiencing low inflation and real GDP is less than potential GDP.Describe the Bank of Canada's actions that will restore full employment.The Bank of Canada conducts an open market ______ to hit the new ______ overnight loans ratetarget.A.sale; lowerB.purchase; lowerThis is the correct answer.C.sale; higherD.purchase; higherThe monetary base increases. The supply of money increases and the interest rate falls.The supply of loanable funds ______ and the long-term interest rate ______.A.increases; risesB.decreases; fallsC.increases; fallsThis is the correct answer.D.decreases; rises
Investment ______, and aggregate demand ______ with a multiplier effect.A.decreases; increasesB.decreases; decreasesC.increases; decreasesD.increases; increasesChoose the statement that is incorrect.A.The Bank of Canada's inflation target is defined in terms of the 12-month rate of change in thetotal CPI.B.The Bank of Canada's job is to control the quantity of money and interest rates to avoid inflationand when possible, prevent excessive swings in real GDP growth and unemployment.C.The Bank of Canada tries to maximize the output gap, especially when that gap is positive.This is the correct answer.D.The Bank of Canada's inflation target is the 2 percent midpoint of the 1 to 3 percent inflation-control range.TestB-30Choose the statement that is incorrect.A.The long-term interest rate influences expenditure decisions.B.In the long run, demand and supply in the loanable funds market depends on demand and supplyin the market for bank reserves.This is the correct answer.C.Demand and supply in the market for loanable funds determine the long-term real interest rate,which equals the long-term nominal interest rate minus the expected inflation rate.D.Changes in the overnight loans rate change the supply of bank loans, which changes the supply ofloanable funds and changes the interest rate in the loanable funds market in the short run.Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate. The inflation rate is 3 percent a year and the output gap is zero percent.