Lab 6-Chapter 25
1) If the interest rate is above the equilibrium rate, how is equilibrium achieved in the money market?
A) People buy bonds to get rid of their excess money, raising the price of bonds and lowering the rate of
interest.
B) People sell goods to get rid of their excess money, lowering the price of goods and lowering the rate of
interest.
C) People sell bonds to get rid of their excess money, raising the price of bonds and lowering the rate of
interest.
D) People buy goods to get rid of their excess money, lowering the price of goods and lowering the rate of
interest.
E) People sell bonds to get rid of their excess money, lowering the price of bonds and lowering the rate of
interest.
2) The ratio of currency to deposits is called the
A) excess reserve ratio.
B) currency ratio.
C) monetary reserve ratio.
D) reserve ratio.
E) currency drain ratio.
3) Money can take the form of any one of the following except:
A) credit cards.
B) chequing deposits.
C) commodity.
D) saving deposits.
E) fiat.
4) All else constant, an increase in real GDP will
A) not affect the demand for real money balances.
B) increase the demand for real money balances.
C) decrease the demand for real money balances up to a point, and then the demand will automatically
rise.
D) increase the demand for real money balances up to a point, and then the demand will automatically
fall.
E) decrease the demand for real money balances.
5) If the price of a bond is $1,000 and the fixed income on the bond is $100, then the rate of interest on the bond
is
A) 20 percent.
B) 200 percent.
C) 5 percent.
D) 10 percent.
E) none of the above.
6) Banks minimize the cost of borrowing by all but one of the following methods:
A) reducing the cost of finding borrowers and lenders.
B) borrowing from many people and lending to many borrowers.
C) spreading the cost amongst a large number of borrowers.
D) creating a place for borrowers and lenders to meet.
E) assuring that there are more borrowers than lenders.
7) The Monetary Base consists of the sum of
A) Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and coins
held by banks and the public.
B) Bank of Canada notes held within the Bank of Canada, bank deposits at the Bank of Canada, and coins
held by banks.
C) Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and
Notes and coins held by banks.
D) Bank of Canada notes held outside the Bank of Canada, the desired reserves of chartered banks, and
coins held by banks.
E) Bank of Canada notes held within the Bank of Canada, bank deposits at the Bank of Canada, and coins
held by banks and the public.
8) A bank can destroy money by
A) decreasing its reserves.
B) increasing its desired reserves.
C) destroying some cheques.
D) buying some securities.
E) lending its excess reserves.
9) Which of the following does not affect the size of the monetary base?
A) the amount of loans issued by chartered banks
B) the amount of coins issued by the Canadian Mint
C) the amount of notes issued by the Bank of Canada
D) a change in the amount of coins and notes held by the public
E) the amount of commercial bank deposits at the Bank of Canada
10) If the interest rate increases, the
A) market price of a bond will rise.
B) sale of bonds will decrease, all else constant.
C) value of an asset earning a fixed amount of income falls.
D) demand for bonds will fall, all else constant.
E) value of an asset earning a fixed amount of income rises.