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| 1 | |
What does “monetizing the debt” involve? |
| | A) | Government selling bonds to the general public |
| | B) | Government selling bonds to the Bank of Canada |
| | C) | The Bank of Canada selling bonds to government |
| | D) | The Bank of Canada selling bonds to the general public |
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| 2 | |
Refer to Figure 12.8 to answer this question. According to supply-side economists, at what level were tax rates in Canada in the 1980s? |
| | A) | At some level like 0a |
| | B) | At some level like 0b |
| | C) | At some level like 0c |
| | D) | At 0d |
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| 3 | |
Suppose that government wishes to affect the level of aggregate demand in the economy. All of the following, except one, are consistent policy measures. Which is the exception? |
| | A) | A tax increase and an increase in money supply |
| | B) | A tax reduction and an increase in money supply |
| | C) | An increase in government spending and an increase in money supply |
| | D) | A decrease in government spending and a decrease in money supply |
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| 4 | |
If Canadian policy-makers wish to maintain the value of the dollar relative to the U.S. dollar, what should they do? |
| | A) | Keep the money supply constant |
| | B) | Continually adjust the money supply to keep interest rates in line with American rates |
| | C) | Increase the money supply whenever the U.S. dollar starts to appreciate against the Canadian dollar |
| | D) | Purchase American dollars |
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| 5 | |
What is the most serious criticism of anti-inflationary monetary policy? |
| | A) | Monetary policy is probably ineffective in fighting inflation. |
| | B) | Overemphasis on controlling inflation comes at the expense of the equally valid goals of low unemployment and economic growth. |
| | C) | Maintaining internal price stability means losing control of the exchange rate. |
| | D) | It leads to interest rates being far too low. |
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| 6 | |
An increase in government spending can result in crowding-out. Which of the following is a correct statement of the process? |
| | A) | It leads to a decrease in savings, which leads to a decrease in investment spending. |
| | B) | It leads to an increase in money supply, which pushes interest rates up and causes a decrease in investment spending. |
| | C) | It causes bond prices to increase, which pushes interest rates up and leads to a decrease in investment spending. |
| | D) | It increases the price level and the demand for money, which causes interest rates to increase and investment spending to decrease. |
| | E) | It leads to an increase in GDP and in savings, which increases investment spending. |
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| 7 | |
What effect does expansionary monetary policy have on the interest rate and the (flexible) exchange rate? |
| | A) | The interest rate will fall, and exchange rate will rise. |
| | B) | The interest rate will fall, and exchange rate will fall. |
| | C) | The interest rate will rise, and exchange rate will rise. |
| | D) | The interest rate will rise, and exchange rate will fall. |
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| 8 | |
Why, according to some economists, should Canada adopt the U.S. dollar as its currency? |
| | A) | Because it would maximize foreign long-term investment in Canada |
| | B) | Because it would enhance the Bank of Canada’s monetary policy |
| | C) | Because it would eliminate the need for active fiscal policy |
| | D) | Because it would eliminate inflation |
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