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a) An open market purchase by the Bank of Canada would result in: O a fall in the excess reserves held by commercial banks O a rise in the bank rate. an increase in commercial bank reserves and an expansion of bank lending and deposits. a fall in the money supply as commercial banks reduced their loans and deposits

a) An open market purchase by the Bank of Canada would result in: O a fall in the excess reserves held by commercial banks O a rise in the bank rate. an increase in commercial bank reserves and an expansion of bank lending and deposits. a fall in the money supply as commercial banks reduced their loans and deposits

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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For all the questions below select the appropriate answer a) An open market purchase by the Bank of Canada would result in: O a fall in the excess reserves held by commercial banks. O a rise in the bank rate. O an increase in commercial bank reserves and an expansion of bank lending and deposits. a fall in the money supply as commercial banks reduced their loans and deposits b) When a central bank sets an inflation rate target as the primary goal of monetary policy O it must also set a fixed exchange rate target that is independent of its inflation target O it must also set a money supply target that is independent of its inflation target. O it must also accept the money supply, exchange and interest rate consistent with its inflation target O it must accept and support the government budget target set by the Minister of Finance. c) The Bank of Canada would use an SPRA when: O a temporary excess supply of monetary base puts downward pressure on the overnight interest rate a temporary shortage of monetary base puts upward pressure on the overnight interest rate O it wants to raise the ovemight interest rate and the bank rate. it wants to provide a long term increase in the monetary base d) if a central bank conducts monatary policy by setting a target for the money supply, or the money supply growth rate, as the Bank of Canada did in the late 1970's O it must then set the interest rate as required for equilibrium real GDP equal to potential GDP O it must then accept the interest rate, exchange rate and inflation rate required by its money supply target. O it must then set the exchange rate required for a zero inflation rate it must also set a target for the inflation rate that is independent of its money supply growth rate target e) When money is neutral in the long run but not in the short run it means that monetary policy: O cannot change shert run equilibrium output but can change potential output and long run inflation rates O can change short run equilibrium cutput and long run inflation rates but not potential output can change short run equilibrium output to reduce output gaps and can also change potential output. O can change potential output but cannot change short run equilibrium output to reduce output gaps.
Transcribed Image Text:For all the questions below select the appropriate answer a) An open market purchase by the Bank of Canada would result in: O a fall in the excess reserves held by commercial banks. O a rise in the bank rate. O an increase in commercial bank reserves and an expansion of bank lending and deposits. a fall in the money supply as commercial banks reduced their loans and deposits b) When a central bank sets an inflation rate target as the primary goal of monetary policy O it must also set a fixed exchange rate target that is independent of its inflation target O it must also set a money supply target that is independent of its inflation target. O it must also accept the money supply, exchange and interest rate consistent with its inflation target O it must accept and support the government budget target set by the Minister of Finance. c) The Bank of Canada would use an SPRA when: O a temporary excess supply of monetary base puts downward pressure on the overnight interest rate a temporary shortage of monetary base puts upward pressure on the overnight interest rate O it wants to raise the ovemight interest rate and the bank rate. it wants to provide a long term increase in the monetary base d) if a central bank conducts monatary policy by setting a target for the money supply, or the money supply growth rate, as the Bank of Canada did in the late 1970's O it must then set the interest rate as required for equilibrium real GDP equal to potential GDP O it must then accept the interest rate, exchange rate and inflation rate required by its money supply target. O it must then set the exchange rate required for a zero inflation rate it must also set a target for the inflation rate that is independent of its money supply growth rate target e) When money is neutral in the long run but not in the short run it means that monetary policy: O cannot change shert run equilibrium output but can change potential output and long run inflation rates O can change short run equilibrium cutput and long run inflation rates but not potential output can change short run equilibrium output to reduce output gaps and can also change potential output. O can change potential output but cannot change short run equilibrium output to reduce output gaps.
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