5. Monetary policy will have a large impact on output if ___________. a. the LM curve is horizontal b. the IS curve is horizontal c. the LM curve is steep d. the IS curve is steep
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5.
a. the LM curve is horizontal
b. the IS curve is horizontal
c. the LM curve is steep
d. the IS curve is steep
6. The interest rate paid by a commercial bank when borrowing from a central bank is known as __________.
a. currency rates
b. discount rate
c. overnight policy rate
d. base rate/base lending rate
Step by step
Solved in 3 steps
- Money market equilibrium depends on what the central bank targets. How does the money market adjust to the equilibrium? If the central bank targets _______. A. the short-term interest rate, the quantity of money demanded adjusts B. the quantity of money demanded, the short-term interest rate adjusts C. the monetary base, the quantity of money supplied adjusts D. the quantity of money, the short-term interest rate adjustsHow can interest rates remain stable, with a constant rate of inflation and an increasing money supply? a. The money transmission mechanism does not apply in a situation of sustained inflation. b. The declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise. c. The declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise. d. The rising price level is increasing the demand for money, offsetting the impact of the rising money supply. e. The rising price level is decreasing the demand for money which is pushing interest rates up.7. The goal of monetary policy in Canada is price stability, while the goal of monetary policy in the United States is price stability and maximum employment. 8. The Bank of Canada can counter deflationary pressures by expanding its balance sheet. In the past two decades monetary policy in Canada and the United States is well described as following a Taylor rule. 9. The real interest rate can be measured precisely, and therefore it the best indicator of the stance of monetary policy. 10. 10 An increase in the expected rate of inflation results in an increase in the money supply. 11. true or false questions
- The possible effect of an expansionary monetary policy would be _______.a. decrease in money supply and decrease interest ratesb. increase in bank revenues through increase in investmentsc. increase in money supply and decrease in interest ratesd. increase in interest rates and increase in money supply21. If the demand for money is very insensitive to changes in the interest rate: A. the money demand curve will be relatively flat, and monetary policy will be very ineffective. B. the money demand curve will be relatively flat, and monetary policy will be very effective. C. the money demand curve will be relatively steep, and monetary policy will be very ineffective. D. the money demand curve will be relatively steep, and monetary policy will be very effective. E. changes in the money supply will have only small effects on the interest rate.Monetary policy affects the economy with a long lag, in part because A. proposals to change monetary policy must go through both the House and Senate before being sent to the president. B. changes in interest rates primarily influence investment spending, and firms make investment plans far in advance. C. monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. D. changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
- d. The Federal Reserve decides to take action to reduce the inflation rate in the US. i. What open market operation should the Fed undertake? ii. Use a correctly labeled graph of the money market to show the impact of the open market operation. iii. Explain how the change in the interest rate you identified on your graph in part (d) (ii) would affect price level and real output in the US. iv. Explain the impact of the change in price level you identified in part (d) (iii) on real wages in the short run. v. Explain the impact of the change in price level you identified in part (d) (iii) on people who had previously loaned money at a fixed interest rate. e. If the open market operation you identified in part (d) (i) was equal to $6 million, what would be the maximum total change in the money supply if the required reserve ratio is 10 percent? Explain how you determined this amount.Aside from money supply, the Central Bank can also cause ________. a. increases in the employment b. increases in the government’s budget c. increases in the interest rate d. increases in aggregate outputThe conduct of monetary policy is made more difficult because of lags. Two reasons for these time lags are the time it takes for A. the political process to approve the changes and households and firms to adjust their spending plans. B. the provinces to approve the changes and the Bank to implement them. C. the Bank of Canada governor to make a decision and the Parliament to grant approval. D. households and firms to adjust their spending plans and the multiplier process to work itself out.
- 61. The total demand for money curve will increase (as a result of): A. if investors perceive less risk in the stock market and expect stock prices to increase causing investors to want to buy stocks. B. a decrease in nominal GDP. C. if investors perceive more risk in the stock market and expect stock prices to decline causing investors to want to sell their stocks. D. an increase in interest rates.40. The equilibrium interest rate is determined by ___________________________________. Response option group a. the money demand and supply of the economy, and occurs when people are willing to keep the exact amount of money offered by the monetary authorities b. the aggregate demand and supply of the economy, and occurs when people are willing to keep the exact amount of money offered by the monetary authorities c. the aggregate supply of the economy, and occurs when people are willing to keep the exact amount of money offered by the monetary authorities d. the aggregate demand of the economy, and occurs when people are willing to keep the exact amount of money offered by the monetary authorities 48. The market where negotiable certificates are sold is known as the ___________ market. Response option group a.capital b.negotiable c. of money d. current 49. The sum of the marginal propensity to consume and the marginal propensity to save is ___________. Response option group a. equal…1. Explain how to the Central Bank can reduce the money supply with open market operations. Show the impact of this contractionary monetary policy on the interest rate and discuss the implications to the economy. 2. Suppose the economy is in a recession with high unemployment. a. Identify a monetary policy that would restore the economy to its natural rate of employment and steady-state equilibrium output levels. Draw a graph of the money market to illustrate the effect of this monetary policy. Show the resulting change in the interest rate and discuss the implications. b. Identify a fiscal policy that would restore the economy to its natural rate of employment. Discuss the drawbacks and the benefits of this policy.
