Money and Banking
Exam Answer Key
Course Introduction
This course explores the fundamental concepts and operations of money and banking within modern economies. Students will examine the nature and functions of money, the role and structure of financial institutions, the process of money creation, and the functioning of central banks. The course covers key topics such as the regulation of banks, monetary policy, interest rate determination, and the impact of money and banking on economic stability and growth. Emphasis is placed on understanding how central banks influence the economy through monetary tools and how financial markets interact with the broader economic system.
Recommended Textbook
Macroeconomics 3rd Edition Canadian by Paul Krugman Robin Wells
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19 Chapters
5325 Verified Questions
5325 Flashcards
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) I know when I shop at the local grocery store,I am helping my community.Which economic principle does this statement BEST represent?
A) People usually respond to incentives,exploiting opportunities to make themselves better off.
B) There are gains from trade.
C) One person's spending is another person's income.
D) Overall spending sometimes gets out of line with the economy's productive capacity.
Answer: C
Q2) The Taco Hut charges the same price for everything on its menu: $3 will buy a taco,a burrito,or nachos.You buy the taco and think that if you had not purchased the taco,you would have purchased the burrito.The opportunity cost of the taco is:
A) $3.
B) your enjoyment of the burrito.
C) $3 and your enjoyment of the burrito.
D) $3,your enjoyment of the burrito,and your enjoyment of the nachos.
Answer: B
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Chapter 2: Economic Models: Trade-Offs and Trade
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296 Flashcards
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Sample Questions
Q1) (Figure: Production Possibilities and Circular-Flow Diagram)Use Figure: Production Possibilities and Circular-Flow Diagram.Assume the two figures represent the same economy.Suppose that in the circular-flow diagram capital that used to flow to firms producing coconuts now flows to firms producing fish.This adjustment in the economy would be BEST represented in the production possibilities figure by a move from point A toward:
A) point A (no movement).
B) point B (a decrease in coconut production and an increase in fish production).
C) point C (a decrease in coconut production).
D) point D (an outward shift of the entire curve).
Answer: B
Q2) In the circular-flow diagram,households receive money for _____ in the _____ market.
A) producing and selling goods and services;product
B) selling resources;product
C) selling resources;factor
D) selling goods and services;factor
Answer: C
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Chapter 3: Supply and Demand
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Sample Questions
Q1) (Figure: The Demand and Supply of Wheat)Use Figure: The Demand and Supply of Wheat.If a price of $8 temporarily exists in this market,a _____ of _____ bushels per period will result.
A) shortage;2 000
B) surplus;4 000
C) shortage;4 000
D) surplus;6 000
Answer: B
Q2) (Figure: Demand for Coconuts)Use Figure: Demand for Coconuts.If there is an increase in preference for coconuts,it will be represented in the figure as a:
A) shift from D<sub>1</sub> to D<sub>2</sub>
B) movement from point A to point B
C) shift from D<sub>1</sub> to D<sub>3</sub>
D) movement from point B to point E
Answer: A
Q3) An increase in income will always shift the demand curve to the right.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Price Controls and Quotas: Meddling With Markets
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Sample Questions
Q1) Suppose that the federal government imposes a price ceiling of $5 per ATM transaction.If the average market-clearing price for an ATM transaction is $2,the price ceiling will not be binding in this instance.
A)True
B)False
Q2) (Figure: Rent Controls)Use Figure: Rent Controls.If rent controls are set at Rent<sub>0</sub>:
A) the shortage of rental units is the distance Q<sub>1</sub>-Q<sub>3</sub>.
B) some renters will be willing to pay a price as high as Rent<sub>4</sub> for Q<sub>0</sub> units.
C) no one will have to pay a higher actual price than Rent<sub>0</sub>,nor will anyone be willing to do so.
D) there will be a surplus of rental units.
Q3) A quota is the minimum amount of some good that can be bought and sold in the market.
A)True
B)False
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Page 6
Chapter 5: International Trade
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Sample Questions
Q1) An example of a tariff is a:
A) limit on the total number of Honda automobiles imported from Japan.
B) regulation specifying that each imported Honda automobile must meet certain emission exhaust guidelines.
C) tax of $500 on each Honda automobile produced in Canada.
D) tax of 10% of the value of each Honda automobile imported from Japan.
Q2) If labour is abundant in South Africa but capital is scarce,when South Africa opens to trade,the price of labour will _____ and the price of capital will _____.
A) rise;rise
B) fall;fall
C) rise;fall
D) fall;rise
Q3) Import protections are often imposed because:
A) import protections increase total surplus,even though some groups are harmed.
B) groups representing import-competing industries are more cohesive than consumers.
C) benefits to producers outweigh the costs to the consumer.
D) the loss in consumer surplus is usually quite small.
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) If all of the households and businesses start saving more during economic hard times,then aggregate income will fall,hurting everyone in the economy.This is known as the:
A) quantity theory.
B) crowding-out theory.
C) paradox of thrift.
D) permanent income hypothesis.
Q2) If the economy grew at 3% this year and average prices increased _____,people would be better off this year than the last year.
A) by 3%
B) faster than 3%
C) less than 3%
D) faster than 10%
Q3) The annual percentage change in the aggregate price level is negative when there is:
A) deflation.
B) disinflation.
C) inflation.
D) spiraling inflation.
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Page 8
Chapter 7: Gdp and the Cpi: Tracking the Macroeconomy
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321 Flashcards
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Sample Questions
Q1) An example of investment spending is the:
A) amount of funds raised by the government in the financial markets.
B) purchase of government bonds by a private household.
C) purchase of a freezer by an ice-cream parlor.
D) purchase of stock shares by a mutual fund.
Q2) The total value of all final goods and services produced in a given year,calculated using the prices of a selected base year,is:
A) real GDP.
B) nominal GDP.
C) net exports.
D) consumption spending.
Q3) In the circular-flow diagram,households:
A) supply goods.
B) supply services.
C) supply resources.
D) buy resources.
Q4) Aggregate output is the total quantity of intermediate goods and services produced in a year.
A)True
B)False
Page 9
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Chapter 8: Unemployment and Inflation
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332 Flashcards
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Sample Questions
Q1) Statistics Canada calls a person who is out of work,would like to work,but has given up looking for work:
A) unemployed.
B) employed.
C) a discouraged worker.
D) lazy.
Q2) Alex expects the inflation rate to be 4%.If Alex borrows money at a nominal interest rate of 5%,his real interest rate is:
A) greater than the nominal interest rate.
B) less than the nominal interest rate.
C) equal to the nominal interest rate.
D) negative.
Q3) Which statement is FALSE?
A) Both frictional and structural unemployment can occur,even if unemployment is at its natural level.
B) Cyclical unemployment is unemployment in excess of the natural rate.
C) A new university graduate looking for that first professional job may be frictionally unemployed.
D) Efficiency wages may cause frictional unemployment.
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Page 10
Chapter 9: Long-Run Economic Growth
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298 Flashcards
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Sample Questions
Q1) Canadian real GDP per capita in 2015 was _____% as much per person as it was in 1900.
A) 16
B) 189
C) 46
D) 905
Q2) If technology advances:
A) more output can be obtained from the same inputs.
B) more inputs are needed to produce the same output.
C) less output can be obtained from the same inputs.
D) less output can be produced even with more inputs.
Q3) In an economy whose aggregate real output is growing faster than the total population:
A) real GDP per capita is rising.
B) standard of living is declining.
C) national income is falling.
D) nominal GDP per capita is decreasing.
Q4) Physical capital consists of man-made resources like machines and buildings.
A)True
B)False
Page 11
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Chapter 10: Savings, Investment Spending, and the Financial System
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385 Verified Questions
385 Flashcards
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Sample Questions
Q1) Which item is NOT a financial intermediary?
A) pension funds
B) mutual funds
C) a life insurance company
D) a credit card company
Q2) Which financial assets are likely to be the MOST liquid?
A) stocks
B) bonds
C) mutual funds shares
D) bank demand deposits
Q3) In an open economy,GDP is $12 trillion this year.Consumption is $8 trillion,and government spending is $2 trillion.Taxes are $0.5 trillion.Exports are $1 trillion,and imports are $3 trillion.How much is the net capital inflow?
A) $1 trillion
B) $2 trillion
C) $3 trillion
D) $4 trillion
Q4) Most human capital is provided by private spending for private education.
A)True
B)False
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Chapter 11: Income and Expenditure
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Sample Questions
Q1) Two-thirds of total spending is usually attributed to:
A) consumption.
B) investment.
C) government spending.
D) net exports.
Q2) If the marginal propensity to save is small,it will:
A) make the multiplier smaller.
B) make the multiplier larger.
C) not affect the value of the multiplier.
D) increase the interest rate.
Q3) Suppose that the marginal propensity to consume is 0.8 and investment spending increases by $100 billion.The increase in real GDP is:
A) $100 billion,the same amount as investment spending.
B) $125 billion,composed of $100 billion in investment spending and $25 billion in consumption.
C) $80 billion,composed of $100 billion in investment spending and a decrease in consumption of $20 billion.
D) $500 billion,composed of $100 billion in investment spending and $400 billion in consumption.
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Page 13
Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) (Figure: AD-AS Model II)Refer to Figure: AD-AS Model II.Which occurrence will raise the price level?
A) SRAS curve shifts to the left.
B) SRAS curve shifts to the right.
C) AD curve shifts to the left.
D) The economy moves down the aggregate demand curve.
Q2) During the Great Depression,Canada underwent a movement _____ along the short-run aggregate supply curve;during the 1979 oil crisis,Canada underwent a _____ shift in the short-run aggregate supply curve.
A) down;leftward
B) up;leftward
C) up;rightward
D) down;rightward
Q3) The short-run aggregate supply curve is positively sloped because:
A) business people are subject to money illusion.
B) wages are sticky.
C) workers care about nominal wages,not real wages.
D) of diminishing returns to labour.
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Chapter 13: Fiscal Policy
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Sample
Questions
Q1) Suppose the government increases taxes by more than is necessary to close an inflationary gap.What is the MOST likely result?
A) Equilibrium real GDP will be more than anticipated.
B) The economy will move into a recession.
C) The economy will generate a larger inflationary gap than anticipated.
D) This will not have any adverse effects on the economy,since inflation has been abated.
Q2) If the government increases its spending when the economy is expanding,automatic stabilizers _____ the government spending multiplier.
A) may or may not affect
B) will increase
C) will not affect
D) will decrease
Q3) In 2010,many lenders refused to make more loans to Greece because they were not confident that Greece was able to repay its debt.
A)True
B)False
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) Most of the subprime loans were made by loan originators,who sold the loans to other investors for securitization.
A)True
B)False
Q2) The responsibilities of the Bank of Canada do NOT include:
A) controlling monetary base.
B) setting the prime rate.
C) overseeing and regulating the banking system.
D) setting the bank rate.
Q3) The Wall Street Reform and Consumer Protection Act,also called Dodd-Frank,was passed in the 1930s to correct the problems that led to the Great Depression.
A)True
B)False
Q4) Currency is about _____% of M1+.
A) 9
B) 55
C) 75
D) 100
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Chapter 15: Monetary Policy
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Sample Questions
Q1) If the economy is at potential output and the Bank of Canada increases the money supply,interest rates will likely increase in the short run.
A)True
B)False
Q2) In the long run,an increase in the quantity of money:
A) increases real output.
B) increases prices but not long-run output.
C) increases real interest rates.
D) has no effect on the economy.
Q3) If the economy is at potential output and the Bank of Canada decreases the money supply,the price level will likely decrease in the short run.
A)True
B)False
Q4) If the economy is at potential output and the Bank of Canada decreases the money supply,in the short run the likely result will be a decrease in investment and a decrease in consumption.
A)True
B)False
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) To balance its budget,the government of Zimbabwe borrowed large amounts of money in world markets.
A)True
B)False
Q2) Okun's law is less than a 1:1 ratio because some:
A) employers quickly lay off workers.
B) employers change the working hours of current employees as demand changes.
C) employees act to job share.
D) workers are not counted as unemployed when they are actively seeking work.
Q3) The notion that there is a trade-off between inflation and unemployment is expressed as a _____ curve.
A) Phillips
B) Keynes
C) Schumpeter
D) Friedman
Q4) In the long run,there is a negative relationship between the inflation rate and the unemployment rate.
A)True
B)False
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Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) Keynesian economists didn't oppose monetary policy,but they felt that it was ineffective in fighting a recession.
A)True
B)False
Q2) A fundamental feature of early classical macroeconomics is that:
A) aggregate demand and aggregate income are usually unequal.
B) prices of inputs and outputs are usually relatively rigid.
C) the economy's level of employment can remain substantially below its natural level over a long period.
D) the economy can achieve full employment on its own,though there may be short periods in which employment falls below the natural level.
Q3) Challenges to Keynesian economics were based on the:
A) fact that lags in fiscal policy make it relatively ineffective.
B) liquidity trap,which makes fiscal policy ineffective.
C) possibility of a trade-off between inflation and unemployment.
D) usefulness of discretionary fiscal policy.
Q4) Keynes emphasized short-run effects of aggregate demand on aggregate output.
A)True
B)False
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Chapter 18: International Macroeconomics
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Sample Questions
Q1) If the price levels in two countries are equal,then the real exchange rate between their currencies equals the nominal exchange rate.
A)True
B)False
Q2) A financial investor from Vancouver purchases bonds issued by the government of Peru.In the accounting for Canadian international transactions,this transaction would appear in the _____,and it would be entered as a payment _____ foreigners.
A) current account;from
B) current account;to
C) financial account;from D) financial account;to
Q3) China has fixed the exchange rate between the yuan and the Canadian dollar.Therefore,a recession in China _____ Canadian _____ to China more than if the exchange rate floated.
A) raises;exports
B) reduces;imports
C) raises;imports
D) reduces;exports
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Chapter 19: Graphs in Economics
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Sample Questions
Q1) The relation between two variables that move in opposite directions is said to be:
A) independent.
B) positive.
C) direct.
D) negative.
Q2) (Figure: Seasonally Adjusted Unemployment Rate)Use Figure: Seasonally Adjusted Unemployment Rate.The distance between each labeled point on the horizontal axis is 1 year,and the distance between each labeled point on the vertical axis is 1 percentage point of unemployment.Unemployment was _____ between 1/2001 and 1/2002 and _____ between 1/1999 and 1/2000.
A) increasing;decreasing
B) increasing;increasing
C) decreasing;increasing
D) decreasing;decreasing
Q3) The fact that two variables always move together over time:
A) does not prove that one of the variables is dependent on the other.
B) proves that one of the variables is dependent on the other. C) proves that changes in one variable cause changes in the other.
D) is often illustrated or depicted using either a pie chart or a bar chart.
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Page 21