Question 1

Which of the following statements about the historical relationship between nominal interest rates and inflation in Canada is true?

Accepted Answer

A)  The nominal interest rate has always been smaller than the inflation rate.
B)  The nominal interest rate has always moved with the inflation rate.
C)  The nominal interest rate and the inflation rate have tended to move together,but the movements are not perfectly matched because the real interest rate has not been constant.
D)  The observed relationship is not consistent with the theory.

Question 2

Which of the following is NOT part of M1?

Accepted Answer

A)  currency
B)  personal chequing accounts
C)  personal savings deposits
D)  current accounts

Question 3

What happens to real money demand (rises,falls,no change)due to a change in each of the following factors?
a.A tax on stock market transactions is introduced.
b.Computerized bond trading reduces transaction costs.
c.People's average level of wealth rises.
d.The threat of a recession increases the riskiness of stocks and bonds.
e.The interest rate paid on chequing account balances declines.
f.The price level falls in a one-time jump.

Accepted Answer

a.rises
b.falls
c.ri...

Question 4

If the interest elasticity of money demand is -1/4,by what percent does money demand rise if the nominal interest rate rises from 4% to 5%?

Accepted Answer

A)  6.25%
B)  0.25%
C)  -0.25%
D)  -6.25%

Question 5

Which of the following types of money is more liquid?

Accepted Answer

A)  M1
B)  M2+
C)  M3
D)  Currency

Question 6

New technology allows people to pay for their purchases using their cell phones.This

Accepted Answer

A)  increases the demand for money.
B)  increases the supply of money.
C)  decreases the demand for money.
D)  decreases the supply of money.

Question 7

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4,by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Accepted Answer

A)  7.50%
B)  6.25%
C)  5.00%
D)  1.25%

Question 8

Suppose you read in the paper that the Central Bank of Canada plans to expand the money supply.The Central Bank is most likely to do this by

Accepted Answer

A)  printing more currency and distributing it.
B)  purchasing government bonds from the public.
C)  selling government bonds to the public.
D)  buying newly issued government bonds directly from the government itself.

Question 9

Why did some of the countries of Eastern Europe have inflation rates over 100%,while others didn't? Which factor was more important in explaining the differing inflation rates,real money demand or nominal money supply? Why did the countries with high inflation rates allow inflation to get so high?

Accepted Answer

Some countries had high inflation while ...

Question 10

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Accepted Answer

A)  they are available only to institutions,not to individuals.
B)  they can be used as a medium of exchange,but are not as useful as the components of M1 as a store of value.
C)  they can be used as a medium of exchange,but are less useful because of restrictions on their use for transactions.
D)  they can easily be turned into cash for transaction purposes,but cannot be used directly as a medium of exchange.

Question 11

Many economic models use the expected inflation rate to explain changes in macroeconomic variables.Yet the expected inflation rate cannot be observed directly.Explain how the expected inflation is measured by economists.

Accepted Answer

One approach is to simply ask people wha...

Question 12

Mr.Pierpont has wealth of $200,000.He wants to keep at least $80,000 in bonds at all times and will shift $10,000 into bonds from his chequing account for each percentage point that the interest rate on bonds exceeds the interest rate on his chequing account.If the interest rate on chequing accounts is 4% and the interest rate on bonds is 9%,how much does Mr.Pierpont keep in his chequing account?

Accepted Answer

A)  $50,000
B)  $70,000
C)  $130,000
D)  $150,000

Question 13

Describe the Bank of Canada's policy of gradualism in the 1970s.What money aggregate did they attempt to target.What led to great difficulties in their targeting? How long was this policy followed?

Accepted Answer

The Bank of Canada began the policy of g...

Question 14

Explain the main factors contributing to the 2008 financial crisis in the U.S.How did this crisis impact the Canadian economy?

Accepted Answer

See "The U.S.Housing Crisis and its Afte...

Question 15

Suppose velocity is 3,real output is 6000,and the price level is 20.What is the level of real money demand in this economy?

Accepted Answer

A)  100
B)  2,000
C)  40,000
D)  120,000

Question 16

A credit card is

Accepted Answer

A)  the most liquid asset.
B)  money.
C)  a means of payment,but not money.
D)  a store of value.

Question 17

The asset market equilibrium condition indicates that

Accepted Answer

A)  the price level in an economy is determined by the ratio of money supply to the real demand for money.
B)  the price level in an economy is determined by the ratio of the real demand for money to money supply.
C)  the price level in an economy is determined by the ratio real demand for money to interest rates.
D)  the price level in an economy is determined by the ratio of money supply to real GDP.

Question 18

An introduction of ATMs (automatic teller machines) ,other things being constant

Accepted Answer

A)  reduces interest rates since it shifts money demand leftward.
B)  reduces interest rates since it shifts money demand rightward.
C)  increases interest rates since it shifts money demand leftward.
D)  increases interest rates since it shifts money demand rightward.

Question 19

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Accepted Answer

A)  Money demand rises proportionately to the rise in wealth.
B)  Money demand rises,but less than proportionately to the rise in wealth.
C)  The overall effect is ambiguous.
D)  Money demand declines.

Question 20

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Accepted Answer

A)  less risk and less liquidity.
B)  less risk and more liquidity.
C)  more risk and less liquidity.
D)  more risk and more liquidity.

Exam 7: The Asset Market, money, and Prices

If the interest elasticity of money demand is -1/4,by what percent does money demand rise if the nominal interest rate rises from 4% to 5%?

Correct Answer
verified

An introduction of ATMs (automatic teller machines) ,other things being constant

Correct Answer
verified

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Correct Answer
verified

A credit card is

Correct Answer
verified

Suppose you read in the paper that the Central Bank of Canada plans to expand the money supply.The Central Bank is most likely to do this by

Correct Answer
verified

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4,by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Correct Answer
verified

Why did some of the countries of Eastern Europe have inflation rates over 100%,while others didn't? Which factor was more important in explaining the differing inflation rates,real money demand or nominal money supply? Why did the countries with high inflation rates allow inflation to get so high?

Correct Answer
verified
Some countries had high inflation while ...
View Answer

Which of the following statements about the historical relationship between nominal interest rates and inflation in Canada is true?

Correct Answer
verified

Correct Answer
verified
a.rises
b.falls
c.ri...
View Answer

Many economic models use the expected inflation rate to explain changes in macroeconomic variables.Yet the expected inflation rate cannot be observed directly.Explain how the expected inflation is measured by economists.

Correct Answer
verified
One approach is to simply ask people wha...
View Answer

Correct Answer
verified

Which of the following is NOT part of M1?

Correct Answer
verified

Which of the following types of money is more liquid?

Correct Answer
verified

New technology allows people to pay for their purchases using their cell phones.This

Correct Answer
verified

The asset market equilibrium condition indicates that

Correct Answer
verified

Explain the main factors contributing to the 2008 financial crisis in the U.S.How did this crisis impact the Canadian economy?

Correct Answer
verified
See "The U.S.Housing Crisis and its Afte...
View Answer

Suppose velocity is 3,real output is 6000,and the price level is 20.What is the level of real money demand in this economy?

Correct Answer
verified

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Correct Answer
verified

Describe the Bank of Canada's policy of gradualism in the 1970s.What money aggregate did they attempt to target.What led to great difficulties in their targeting? How long was this policy followed?

Correct Answer
verified
The Bank of Canada began the policy of g...
View Answer

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Correct Answer
verified

Exam 7: The Asset Market, money, and Prices

If the interest elasticity of money demand is -1/4,by what percent does money demand rise if the nominal interest rate rises from 4% to 5%?

Correct AnswerverifiedShow Answer

An introduction of ATMs (automatic teller machines) ,other things being constant

Correct AnswerverifiedShow Answer

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Correct AnswerverifiedShow Answer

A credit card is

Correct AnswerverifiedShow Answer

Suppose you read in the paper that the Central Bank of Canada plans to expand the money supply.The Central Bank is most likely to do this by

Correct AnswerverifiedShow Answer

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4,by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Correct AnswerverifiedShow Answer

Why did some of the countries of Eastern Europe have inflation rates over 100%,while others didn't? Which factor was more important in explaining the differing inflation rates,real money demand or nominal money supply? Why did the countries with high inflation rates allow inflation to get so high?

Correct AnswerverifiedSome countries had high inflation while ...View AnswerShow Answer

Which of the following statements about the historical relationship between nominal interest rates and inflation in Canada is true?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.risesb.fallsc.ri...View AnswerShow Answer

Many economic models use the expected inflation rate to explain changes in macroeconomic variables.Yet the expected inflation rate cannot be observed directly.Explain how the expected inflation is measured by economists.

Correct AnswerverifiedOne approach is to simply ask people wha...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT part of M1?

Correct AnswerverifiedShow Answer

Which of the following types of money is more liquid?

Correct AnswerverifiedShow Answer

New technology allows people to pay for their purchases using their cell phones.This

Correct AnswerverifiedShow Answer

The asset market equilibrium condition indicates that

Correct AnswerverifiedShow Answer

Explain the main factors contributing to the 2008 financial crisis in the U.S.How did this crisis impact the Canadian economy?

Correct AnswerverifiedSee "The U.S.Housing Crisis and its Afte...View AnswerShow Answer

Suppose velocity is 3,real output is 6000,and the price level is 20.What is the level of real money demand in this economy?

Correct AnswerverifiedShow Answer

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Correct AnswerverifiedShow Answer

Describe the Bank of Canada's policy of gradualism in the 1970s.What money aggregate did they attempt to target.What led to great difficulties in their targeting? How long was this policy followed?

Correct AnswerverifiedThe Bank of Canada began the policy of g...View AnswerShow Answer

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Some countries had high inflation while ...
View Answer

Correct Answer
verified

Correct Answer
verified
a.rises
b.falls
c.ri...
View Answer

Correct Answer
verified
One approach is to simply ask people wha...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
See "The U.S.Housing Crisis and its Afte...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Bank of Canada began the policy of g...
View Answer

Correct Answer
verified