Money and Banking Exam Questions
Course Introduction
Money and Banking explores the fundamental roles of money, financial institutions, and central banks in the economy. The course examines the nature of money, the creation and regulation of banking systems, and the operation of financial markets. Topics include monetary policy, interest rate determination, the structure and function of the Federal Reserve System, international banking, and the impact of financial regulations.
Through theoretical frameworks and real-world examples, students gain an understanding of how money and banking systems influence economic activity, stability, and growth.
Recommended Textbook
Macroeconomics 6th Canadian Edition by Andrew B. Abel
Available Study Resources on Quizplus
15 Chapters
1206 Verified Questions
1206 Flashcards
Source URL: https://quizplus.com/study-set/2127
Page 2
Chapter 1: Introduction to Macroeconomics
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/42358
Sample Questions
Q1) The short-run, but sometimes sharp, contractions and expansions in economic activity are called
A) recession.
B) stagnation.
C) inflation.
D) business cycles.
Answer: D
Q2) The unemployment rate is the
A) number of unemployed divided by the number of employed.
B) number of employed divided by the number of unemployed.
C) number of unemployed divided by the labour force.
D) labour force divided by the number of unemployed.
Answer: C
Q3) A country is said to be experiencing deflation when
A) prices of most goods and services are rising over time.
B) prices of most goods and services are falling over time.
C) total output is rising over time.
D) total output is falling over time.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: The Measurement and Structure of the Canadian Economy
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/42359
Sample Questions
Q1) Nations such as Egypt and Turkey have wide differences between GNP and GDP because both countries
A) have a high level of imports and exports relative to GNP.
B) have a large portion of their GNP produced by multinational corporations.
C) have a large number of citizens working abroad.
D) purchase large amounts of military wares from other countries.
Answer: C
Q2) The three approaches to measuring economic activity are the
A) cost, income, and expenditure approaches.
B) product, income, and expenditure approaches.
C) consumer, business, and government approaches.
D) private, public, and international approaches.
Answer: B
Q3) One problem with using market values to measure GDP is that
A) you cannot compare completely heterogeneous goods by using their dollar values.
B) some useful goods and services are not sold in markets.
C) prices for some goods change every year.
D) market values of export goods are usually priced in foreign currencies.
Answer: B
Page 4
To view all questions and flashcards with answers, click on the resource link above.
Chapter 3: Productivity, Output, and Employment
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/42360
Sample Questions
Q1) The marginal product of capital
A) is measured by the slope of the line tangent to the production function relating output and capital.
B) is larger when the capital stock is relatively larger.
C) is smaller when the capital stock is relatively smaller.
D) displays diminishing marginal productivity only when the capital stock is small.
Answer: A
Q2) Floods have just ravaged the countryside and cities! You would expect this supply shock to shift the
A) marginal product of labour curve up and to the right, raising the quantity of labour demanded at any given real wage.
B) marginal product of labour curve down and to the left, reducing the quantity of labour demanded at any given real wage.
C) real wage curve up, reducing the quantity of labour demanded at any given real wage.
D) real wage curve down, raising the quantity of labour demanded at any given real wage.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
5
Chapter 4: Consumption, Saving, and Investment
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/42361
Sample Questions
Q1) When a person receives an increase in wealth, what is likely to happen to consumption and saving?
A) Consumption increases and saving increases.
B) Consumption increases and saving decreases.
C) Consumption decreases and saving increases.
D) Consumption decreases and saving decreases.
Q2) The Canadian consumption function is given by C = 50 + 0.75 Y. This implies that
A) Canadians spend 75 percent of their income on average.
B) each Canadian spends 75 percent of her/his income.
C) Canadians on average spend 75 cents out of each additional dollar earned.
D) Canadian spend 50 dollars of their income on average.
Q3) What are the economic consequences of reductions in defense spending by the government? What happens to national saving, the interest rate, and investment?
Q4) A decrease in the real interest rate will
A) increase the desired capital stock.
B) decrease the desired capital stock.
C) have no effect on the desired capital stock.
D) have the same effect on the desired capital stock as an increase in corporate taxes.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Saving and Investment in the Open Economy
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/42362
Sample Questions
Q1) The difference between the current account balance and net exports is
A) the capital account.
B) net unilateral transfers plus net factor payments from abroad.
C) adjustments in net foreign assets.
D) income receipts from foreign assets.
Q2) Consider a small open economy with desired national saving of S<sup>d</sup> = 20 + 200 r<sup>w</sup> and desired investment of I<sup>d</sup> = 30 - 200 r<sup>w</sup>.<sup> </sup>Calculate national saving, investment, and the current account balance in equilibrium when the real world interest rate is
a. r<sup>w</sup> = 0.025
b. r<sup>w</sup> = 0.05
c. r<sup>w</sup> = 0.0
d. Now suppose something causes desired national saving to increase by 10, so that it is now S<sup>d</sup> = 30 + 200 r<sup>w</sup>. Repeat parts a, b, and c.
e. Suppose, with desired national saving at its original level of S<sup>d</sup> = 20 + 200 r<sup>w</sup>, something causes desired investment to rise by 10, I<sup>d</sup> = 40200 r<sup>w</sup>. Repeat parts a, b, and c.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Long-Run Economic Growth
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/42363
Sample Questions
Q1) Which of the following statement is not true?
A) In the Solow model, the marginal productivity of capital depends on the level of capital.
B) In the endogenous growth model, the marginal productivity of capital is diminishing.
C) In the Solow model, the marginal productivity of capital diminishes as capital increases.
D) In the endogenous growth model, the marginal productivity of capital is constant.
Q2) The endogenous growth theory attempts to
A) replace the Solow model with a model in which money growth plays a key role.
B) explain how societies can more easily reach the "Golden Rule."
C) show how population growth reduces capital and output.
D) explain why productivity changes.
Q3) In the very long run, the level of consumption per worker can grow continually if A) the saving rate continually falls.
B) the population growth rate continually rises.
C) productivity continually improves.
D) the depreciation rate continually rises.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: The Asset Market, Money, and Prices
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/42364
Sample Questions
Q1) Suppose the money demand function is given by M<sup>d</sup>/P = 640 + 0.1 Y5000i. Suppose the Central Bank changes the nominal money supply depending on income and inflation: M<sup>s</sup> = 1000 + 0.1 Y - 4000p.
a. If expected inflation equals actual inflation = 0.03, Y = 1000, and r = 0.02, calculate the price level.
b. If inflation rises to 0.04 while the other variables remain as in part a, calculate the price level.
c. If expected inflation rises to 0.04 while the other variables remain as in part a, calculate the price level.
d. If the real interest rate rises to 0.03 while the other variables remain as in part a, calculate the price level.
Q2) A good that is used as a medium of exchange as well as being a consumption good is called
A) a barter money.
B) a commodity money.
C) a legal tender.
D) a debased money.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Business Cycles
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/42365
Sample Questions
Q1) When plotted with the aggregate price level on the vertical axis and output on the horizontal axis, the long-run aggregate supply curve
A) slopes upward.
B) slopes downward.
C) is vertical.
D) is horizontal.
Q2) Christina Romer's estimates of the business cycles prior to World War II showed that
A) the business cycles had greater fluctuations before World War II than previous estimates had shown.
B) the business cycles had smaller fluctuations before World War II than previously estimated, but still larger fluctuations than after World War I.
C) the business cycles had smaller fluctuations before World War II.
D) there was no difference in the size of business fluctuations prior to and after World War II.
Q3) When a recession occurs, do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: The IS-LMAD-AS Model: A General Framework for
Macroeconomic Analysis
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/42366
Sample Questions
Q1) To reach general equilibrium, the price level adjusts to shift the ________ until it intersects with the ________.
A) IS curve; FE line and LM curve
B) FE line; LM and IS curves
C) LM curve; FE line and IS curve
D) ND curve; FE line and NS curve
Q2) A decrease in the effective tax rate on capital would shift the IS curve ________ and the LM curve ________.
A) down; is unchanged
B) down; left
C) up; is unchanged
D) up; left
Q3) Suppose Bank of Canada sells government bonds to the banks and public. This will cause
A) the LM curve to shift up.
B) the IS curve to shift up.
C) the LM curve to shift down.
D) the IS curve to shift down.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Exchange Rates, Business Cycles, and Macroeconomic
Policy in the Open Economy
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/42367
Sample Questions
Q1) The Bretton Woods system relied on
A) a flexible-exchange-rate system.
B) a floating-exchange-rate system.
C) a fixed-exchange-rate system.
D) an exchange-rate union.
Q2) If all countries produce the same good (or the same set of goods) and goods are freely traded among countries, so that the real exchange rate equals one, then the relationship between domestic and foreign prices and the nominal exchange rate is
A) P = P<sub>For</sub> / e<sub>nom</sub>.
B) P = e<sub>nom</sub> × P<sub>For</sub>.
C) e<sub>nom</sub> = P × P<sub>For</sub>.
D) P = P<sub>For</sub>.
Q3) If investors are to hold both Canadian and foreign bonds, the interest rate on Canadian bonds
A) must equal that of foreign bonds.
B) must always exceed that on foreign bonds.
C) must equal that on foreign bonds plus the expected rate of depreciation.
D) must equal that on foreign bonds, on average.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/42368
Sample Questions
Q1) A business cycle fact that does not seem to be consistent with the simple RBC theory is that
A) inflation tends to slow during or immediately after a recession.
B) inflation tends to increase during or immediately after a recession.
C) inflation tends to remain the same during or immediately after an expansion.
D) inflation tends to slow during or immediately after an expansion.
Q2) Friedman and Schwarz argue that money is not neutral because
A) theoretical models of the economy don't show monetary neutrality.
B) money is a leading, procyclical variable.
C) they found several historical incidents in which changes in the money supply were not responses to macroeconomic conditions, and output moved in the same direction as money.
D) they found no evidence that productivity changes or changes in government spending contributed to business cycles; only monetary changes preceded every recession.
Q3) If the utilization rates of capital and labour are procyclical, then A) output will rise in recessions and decline in expansions.
B) measured productivity will be constant.
C) the Solow residual will be procyclical.
D) prices will be countercyclical.
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Keynesian Business Cycle Analysis:
Non-Market-Clearing Macroeconomics
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/42369
Sample Questions
Q1) In the Keynesian model, the difference between using monetary and fiscal policy to eliminate a recession is that
A) monetary policy will eliminate a recession quicker than fiscal policy will.
B) fiscal policy will eliminate a recession quicker than monetary policy will.
C) an expansionary monetary policy will leave the economy with a lower real interest rate than an expansionary fiscal policy.
D) an expansionary fiscal policy will leave the economy with a lower real interest rate than an expansionary monetary policy.
Q2) In the Keynesian model, the economy can be off the FE line and the LRAS in the short run, because
A) the interest rate is slow to adjust.
B) the unemployment rate is high during recession.
C) the actual price level differs from what was expected when nominal wage contracts were signed.
D) real wage is sticky in short run.
Q3) Describe the effects of an oil price shock in a Keynesian model; why are such supply shocks difficult to handle using macroeconomic stabilization policies?
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Unemployment and Inflation
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/42370
Sample Questions
Q1) The main determinant of how quickly expected inflation adjusts to changes in monetary policy is
A) the slope of the Phillips curve.
B) the slope of the short-run aggregate supply curve.
C) the credibility of the Central Bank.
D) the degree of indexation in the economy.
Q2) The insider-outsider theory suggests that
A) insiders get lower wages but higher benefits than outsiders.
B) unemployment insurance leads to higher rates of unemployment.
C) unions seek high wages without causing firms to cut employment.
D) the minimum wage forces low-skilled workers to become unemployed.
Q3) The most important factor determining how quickly expected inflation adjusts when the government attempts to reduce inflation is
A) the slope of the Phillips curve.
B) the credibility of the government's disinflationary policy.
C) the degree of gradualism in the government's disinflationary policy.
D) the slope of the IS curve.
Q4) What is the Lucas critique, and why was it so important to macroeconomists in the 1970s?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Monetary Policy and the Bank of Canada
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/42371
Sample Questions
Q1) Which of the following is not a policy instrument of the Bank?
A) open-market operations
B) overnight rates operating board
C) changes in reserve requirements
D) changes in the government deficit
Q2) The primary purpose of the lender of last resort is to
A) influence the nation's money supply.
B) prevent financial crises.
C) control banks' excess reserves.
D) influence the amount of loans that banks provide to the public.
Q3) Which of the following tasks does not represent the Bank of Canada's responsibility?
A) implementing monetary policy
B) serving as a lender of last resort
C) implementing fiscal policy
D) acting as fiscal agent for the federal government
Q4) Should the Central Bank be independent? Or should the Central Bank be required to confer with Parliament to coordinate fiscal and monetary policies? Explain the pros and cons.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Government Spending and Its Financing
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/42372
Sample Questions
Q1) A decrease in taxes on the current generation would have no effect on consumption or national saving if
A) individuals face borrowing constraints.
B) individuals increase their consumption by less than the tax cut.
C) consumers bequeath all of the tax cut to the next generation.
D) consumers are not forward looking concerning their future tax burden.
Q2) What are the main reasons (give at least three) that Ricardian equivalence might not hold?
Q3) Provincial and local governments rely on ________ as their primary source of tax receipts.
A) direct taxes from persons
B) investment income
C) indirect taxes
D) direct taxes from enterprises
Q4) Since the 1950s, transfer payments' share of GDP has
A) steadily increased.
B) steadily decreased.
C) remained fairly steady.
D) increased during Liberal governments and decreased during Conservative governments.
To view all questions and flashcards with answers, click on the resource link above. Page 17