Midterm 1 ea nb w12Midterm 1 ea nb w12Student: ___________________________________________________________________________1.When the nominal exchange increases from 78 yen per dollar to 80 yen per dollar, the dollar hasA.appreciated.B.depreciated.C.become overvalued.D.become undervalued.E.been devalued.2.The principal supplier(s) of Canadian dollars to the foreign exchange market is/areA.foreigners wishing to purchase Canadian goods or assets.B.foreigners wishing to purchase foreign goods or assets.C.Canadian households or firms wishing to purchase Canadian goods or assets.D.Canadian households or firms wishing to purchase foreign goods or assets.E.the Bank of Canada.3.Holding all else constant, an increase in the preferences of Canadians for Mexican goods will _________ the supply of dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.A.increase; increaseB.increase; decreaseC.not change; not changeD.decrease; increaseE.decrease; decrease4.Holding all else constant, an increase in the real interest rate on U.S. assets will _________ the supply of Canadian dollars in the foreign exchange market and _________ the equilibrium U.S. dollar-Canadian dollar exchange rate.A.increase; increaseB.increase; decreaseC.not change; not changeD.decrease; increaseE.decrease; decrease5.Holding all else constant, an increase in preferences by Americans for Canadian goods will _________ the demand for Canadian dollars in the foreign exchange market and _________ the equilibrium U.S. dollar-Canadian dollar exchange rate.A.increase; increaseB.increase; decreaseC.not change; not changeD.decrease; increaseE.decrease; decrease6.Holding all else constant, tighter monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.A.increase; increaseB.increase; decreaseC.not change; not changeD.decrease; increaseE.decrease; decrease7._________ policy focuses on the government's budget, while _________ policy aims at changing the underlying structures or institutions of the economy.A.Monetary; structuralB.Monetary; fiscalC.Fiscal; monetaryD.Fiscal; structuralE.Structural; monetary8.When a government collects more in taxes than it spends, it runs aA.trade deficit.B.trade surplus.C.budget deficit.D.budget surplus.E.trade imbalance.9.The total of all federal government bonds outstanding is theA.unemployment debt.B.trade debt.C.federal government deficitD.federal government debtE.unconventional monetary debt10.Unconventional monetary policy typically occurs when the economy experiencesA.trade surplusesB.trade deficitsC.government deficitsD.government surplusesE.financial panic or severe recession11.A decision by a government to sell businesses currently operated by the government to private investors is an example of ________ policy.A.aggregationB.fiscalC.monetaryD.structuralE.productivity12.Which of the following would be considered an example of fiscal policy?A.A broad government initiative to reduce the country's reliance on agriculture and promote high-technology industries.B.A reduction in income tax rates.C.The provision of additional cash to the banking system.D.Interest rate hikes generated by a reduction in the money supply.E.A decision by a developing country to reduce government control of the economy and to become more market-oriented.13.Which of the following would be considered an example of monetary policy?A.A broad government initiative to reduce the country's reliance on agriculture and promote high-technology industries.B.A reduction in income tax rates.C.The provision of additional cash to the banking system.D.An attempt to reduce the government budget deficit by reducing spending.E.A decision by a developing country to reduce government control of the economy and to become more market-oriented.14.Microland has a population of 50 people; 40 of them worked last year, with a total output of $200,000. Output per person of Microland wasA.$200,000.B.$200.C.$4,000.D.$40,000.E.$5,000.15.In Econland, exports equal 25% of total output, while imports equal 20% of total output. Econland hasA.a budget surplus.B.a budget deficit.C.a trade surplus.D.a trade deficit.E.balanced trade.16.In Econland, population and average labour productivity are constant. If a larger proportion of the population becomes employed workers, then total output will _________ and output per person will ______.A.increase; increaseB.decrease; decreaseC.remain constant; remain constantD.decrease; remain constantE.remain constant; decrease17.Bradley is a university graduate interested in finding full-time employment in his area of specialty. After looking for several weeks, Bradley is discouraged and begins to work three days a week as a lawn care worker in the neighbourhood. Bradley would be classified asA.a discouraged worker.B.involuntarily unemployed.C.employed.D.seasonally unemployed.E.not in the labour force.18.Who of the following would be classified as unemployed?A.Brenda Smith, an 18-year-old full-time university student.B.Mario Faubert, a NHL hockey player at home sick with the flu.C.Jack Little, a 21-year-old new college graduate actively looking for his first job.D.Sarah Lopez, a public school teacher on vacation.E.Amanda Pie, a full-time homemaker.19.Data for an economy show that the unemployment rate is 10%, the participation rate is 80%, and 200 million people 15 years or older are not in the labour force. How many people are unemployed this economy?A.20 million.B.80 million.C.200 million.D.800 million.E.1,000 million.20.The labour force divided by the working age population equals theA.unemployment rate.B.employment rate.C.participation rate.D.population rate.E.duration rate.21.The number of people unemployed and employed equals theA.working-age population.B.labour force.C.employment rate.D.unemployment rate.E.participation rate.22.Who of the following would be counted as unemployed by Statistics Canada?A.A person with a part-time job.B.A person with a full-time job.C.A person with no job who is willing to work and had looked for a job in the last four weeks.D.A person with no job who is willing to work and had not looked for a job in two months.E.A retired person.23.Real GDP per capita is positively associated with all of the following EXCEPTA.more and better goods and services.B.better health and life expectancies.C.better education.D.higher net exports.E.a higher standard of living.24.Peg's Manicure Manor did 4,000 sets of nails in the year 2011 and 4,500 sets of nails in the year 2012. The price of a set of nails was $20 in 2011 and $22 in 2012. If the year 2011 is the base year, Peg's contribution to real GDP in 2012 was _________ and to nominal GDP in 2012 was ________.A.$80,000; $88,000B.$80,000; $90,000C.$80,000; $99,000D.$90,000; $99,000E.$99,000; $99,00025.Peg's Manicure Manor did 4,000 sets of nails in the year 2011 and 4,500 sets of nails in the year 2012. The price of a set of nails was $20 in 2011 and $22 in 2012. If the year 2011 is the base year, Peg's contribution to real GDP in 2011 was _________ and in 2012 was ________.A.$80,000; $88,000B.$80,000; $90,000C.$80,000; $99,000D.$88,000; $90,000E.$90,000; $99,00026.If a firm produces 100 units of a particular good during a year and, of these, only 90 units are sold during the same year, then the 10 unsold units are treated as the firm's inventory investment expenditure for the year, as if the firm had bought the items for its stock of inventories from itself. For the economy as a whole, this accounting practice ensures thatA.production equals expenditure each year.B.inventory investment is always positive each year.C.capital consumption allowances are zero each year.D.saving and investment are equal each year.E.net private-sector investment is zero each year.27.Capital income includesA.profits, rent, and interest.B.wages and salaries.C.earnings of the self-employed.D.capital gains from stock sales.E.transfer payments.28.If prices in the current year are higher on average than in the base year, then real GDP in the current year _________ nominal GDP in the current year.A.is greater thanB.is less thanC.is equal toD.could be greater or less thanE.is one-third of29.Refer to the table above. What are the economy's net exports?A.- $0.8 million.B.- $0.3 million.C.$0.3 million.D.There is not sufficient information to calculate net exports.E.$0.8 million.30.Consumption expenditure is subdivided into four categories, includingA.durables, nondurables, services and new homes.B.durables, nondurables, semi-durables, and new homes.C.durables, nondurables, semi-durables, and services.D.durables, nondurables, exports and imports.E.durables, nondurables, net exports and services.31.Given the following data for an economy, compute the value of GDP.A.130.B.140.C.150.D.160.E.320.32.Which of the following would increase the net export component of Canada's GDP?A.A car produced in Japan is purchased in British Columbia.B.A bottle of British Columbia wine is purchased in California.C.A bottle of French wine is purchased in Quebec.D.A car produced in Cambridge, Ontario is purchased in Winnipeg, Manitoba.E.A bottle of French wine is purchased in London, England.33.Which of the following would increase the private-sector investment component of Canada's GDP?A.You purchase a new washing machine produced in Canada.B.You purchase a new washing machine produced in France.C.A laundry in Calgary purchases a new washing machine produced in Canada.D.A laundry in Mexico purchases a new washing machine produced in Canada.E.The Canadian government purchases a new washing machine produced in Canada for rangers to use in a Canadian national park.34.Government purchases include all of the following EXCEPTA.pension benefits paid by the federal government.B.the construction of a new courthouse built by a local government.C.the salary paid to an elementary school teacher employed by a local public school board.D.the purchase of new military hardware by the Canadian Forces.E.the construction of new highways by provincial governments.35.Goods and services that are consumed by the ultimate user are called ________ goods and services.A.intermediateB.finalC.value addedD.nominalE.real36.Long-lived goods used for producing other goods and services are calledA.consumption goods.B.non-market goods.C.value-added goods.D.publicly provided goods.E.capital goods.37.If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers, and uses the rest to make jam that is sold to consumers for $100,000, Bountiful Orchard's contribution to GDP isA.$50,000.B.$100,000.C.$150,000.D.$200,000.E.$250,000.38.In what circumstances would lenders most benefit?A.When there is an unanticipated decrease in inflationB.When there is an anticipated increase in inflationC.When there is an unanticipated increase in inflationD.When there is an anticipated decrease in inflationE.When there is zero inflation39.The zero bound on nominal interest rate hypothesis claims thatA.if the rate of inflation is low, the nominal interest rate will be high.B.the nominal interest rate can be negative.C.the real interest rate cannot be negative.D.the lower bound on both the nominal and the real interest rates are zero.E.because the nominal interest rate cannot be negative, the central bank may lose the ability to stimulate the economy with rate cuts if the inflation rate and, therefore, the nominal interest rate is low to begin with.40.The downward nominal wage rigidity hypothesis says thatA.because people typically resist nominal wage cuts, some amount of inflation can facilitate real wage cuts in industries where they are needed without requiring nominal wage cuts, thus making the labour market more flexible and efficient.B.nominal wages are rigid because of union activism.C.nominal wages are rigid but real wages are flexible.D.both nominal and real wages are rigid because of union activism.E.because people typically resist nominal wage cuts, high rates of inflation are needed to facilitate deep real wage cuts and greater economic efficiency.41.If workers and employers agree to a three-year wage contract expecting 5% inflation and inflation turns out to be 3%, thenA.workers gain; employers gain.B.workers gain; employers lose.C.workers lose; employers gain.D.workers lose; employers lose.E.neither workers nor employers are affected by the unexpectedly low inflation.42.The Bank of Canada's target inflation rate is _________ per year.A.3%B.2%C.4%D.1%E.5%43.If all prices, including the price of beef, increased by 3%, then the relative price of beef _______ and there ________ inflation.A.increased; isB.increased; is noC.remained constant; isD.remained constant; is noE.decreased; is44.The market interest rate in Alpha is 7% and the market interest rate in Beta is 10%, but the inflation rate in Alpha is 3% and inflation rate in Beta is 8%. Which of the following statements is true?A.The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta.B.The real interest rate is lower in Alpha, but the nominal interest rate is lower in Beta.C.Both the real and nominal interest rates are higher in Alpha.D.Both the real and nominal interest rates are higher in Beta.E.The real and nominal interest rates are the same in Alpha and Beta.45.The process of converting current dollar values into real terms is called _________, while the process of adjusting nominal quantities to maintain their purchasing power is called _________.A.deflation; inflationB.inflation; hyperinflationC.inflation; deflationD.deflating; indexingE.indexing,; deflating46.One family earned an income of $28,000 in 2000. Over the next five years, their income increased by 15%, while the consumer price index (CPI) increased by 20%. After five years, this family's nominal income ________ and their real income ________.A.decreased; decreasedB.decreased; increasedC.increased; did not changeD.increased; increasedE.increased; decreased47.If the consumer price index increased from 80 to 84, the rate of inflation isA.4%.B.5%.C.10%.D.20%.E.30%.48.If the price index is 130, this means thatA.prices are 130% higher than in the base year.B.prices are 0.13 times higher than in the base year.C.prices are 30% higher than in the base year.D.nominal GDP must be inflated to determine the real GDP.E.prices are 30% lower than in the base year.49.If the total expenditures of a typical family were $40,000 per year in 2008 and the exact same basket of goods and services cost $45,000 in the year 2012, the family's cost of livingA.increased by 11.1%.B.decreased by 11.1%.C.increased by 12.5%.D.decreased by 12.5%.E.was unchanged.50.Over short periods of time, producers typically vary production at preset prices to meet changes in demand. This means that when economy-wide demand decreases, actual output ________ potential output and creates a(n) ________; and when economy-wide demand increases actual output ________ potential output and creates a(n) _________.A.falls below; recessionary gap; rises above; expansionary gapB.falls below; expansionary gap; rises above; recessionary gapC.rises above; expansionary gap; falls below; recessionary gapD.rises above; recessionary gap; falls below; expansionary gapE.falls below; expansionary gap; falls below; recessionary gap51.The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, the natural rate of unemployment is 5%, and the actual rate of unemployment is 3%. What is actual GDP in Alpha?A.$480 billion.B.$490 billion.C.$500 billion.D.$510 billion.E.$520 billion.52.If the actual rate of unemployment is 7%, what is the natural rate of unemployment if output is 2% below potential?A.4%.B.5%.C.6%.D.7%.E.8%.53.The natural rate of unemployment includesA.only frictional unemployment.B.frictional and structural unemployment.C.frictional, structural, and cyclical unemployment.D.frictional, structural, and seasonal unemployment.E.frictional and seasonal unemployment.54.In Macroland, potential GDP equals $500 billion and actual GDP equals $450 billion. Macroland has a(n) _________ gap equal to __________% of potential GDP.A.expansionary; 10B.expansionary; 11C.recessionary; 11D.recessionary; 10E.recessionary; 5055.Potential output is theA.same as actual output.B.same as the output gap.C.same as the natural rate of unemployment.D.amount of output produced when resources are used at normal rates.E.amount of output produced when there is an expansionary gap.56.Which of the following statements is NOT true about the labour market during economic fluctuations?A.The unemployment rate rises during recessions.B.The unemployment rate rises during expansions.C.The part of unemployment that is associated with recessions is called cyclical unemployment.D.Real wages grow slowly or decline during recessions.E.Workers are less likely to receive promotions during recessions.57.The recurrent ups and downs in the level of economic activity extending over several years are a description ofA.a recession.B.a business trough.C.a business cycle.D.a noncyclical fluctuation.E.an expansionary phase.58.Economic activity moves through a period of expansion to a _______ and then moves into a period of _______ until it reaches a _______.A.peak; expansion; troughB.peak; recession; troughC.trough; expansion; peakD.trough; recession; peakE.peak; recession; peak59.If the marginal propensity to import (m) is greater than zero, the income-expenditure multiplier will be ___________ the value when m is equal to zero. Also, the larger the value of m, the _________ value of the income-expenditure multiplier.A.smaller than; smallerB.smaller than; largerC.larger than; smallerD.larger than; largerE.equal to; smaller60.One drawback in using fiscal policy as a stabilization tool is thatA.it does not affect potential output in addition to planned aggregate expenditure.B.its effects are frequently offset by automatic stabilizers.C.it is not always flexible enough to use to close output gaps.D.it is not useful for dealing with prolonged episodes of recession.E.it does not affect planned aggregate expenditure.61.The experience of the period 1939-1942 convinced many Canadian economists of the real world relevance of Keynes' explanation of how __________ could eliminate a(n) ________ and sharply reduce the _________.A.monetary policy; inflationary gap; unemployment rateB.fiscal policy; inflationary gap; unemployment rateC.government purchases; recessionary gap; unemployment rateD.government purchases; inflationary gap; employment rateE.taxation policy; recessionary gap; unemployment rate62.The shift in the PAE line shown in the Keynesian cross diagram may be caused by which of the following?A.An increase in government purchases.B.An increase in the marginal propensity to consume.C.A decrease in government transfers.D.A decrease in private-sector investment.E.A decrease in the marginal propensity to consume.63.In Macroland, planned aggregate expenditure equals 100,000 + 0.5Y. If autonomous government purchases increase by 5000, short-run equilibrium output will change fromA.100,000 to 100,200B.200,000 to 205,000C.205,000 to 210,000D.200,000 to 210,000E.800,000 to 800,10064.In the basic Keynesian model, a tax increaseA.reduces short-run equilibrium output.B.increases short-run equilibrium output.C.reduces potential output.D.increases potential output.E.moves short-run equilibrium output to potential output.65.If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.5Y and potential output (Y*) equals 4,400, government purchases must ________ to eliminate any output gap.A.increase by 20B.increase by 200C.increase by 250D.decrease by 200E.decrease by 25066.In the basic Keynesian model, to close a recessionary gap of $5 billion, taxes must beA.increased by $5 billion.B.decreased by $5 billion.C.increased by more than $5 billion.D.increased by less than $5 billion.E.decreased by less than $5 billion.67.Suppose C = 100 + 0.5(Y - T) and T = 200, I = 150, G = 250 and NX = 50. If government purchases are reduced from G = 250 to G = 210, and at the same time net exports increase from NX = 50 to NX = 60, the net result is a decrease in Y (GDP) ofA.20.B.30.C.40.D.50.E.60.68.Suppose C = 100 + 0.75(Y - T) and T = 200, I = 150, G = 250 and NX = 50. Then, an increase in net exports from NX = 50 to NX = 65 will result in an increase in Y (GDP) ofA.25.B.35.C.50.D.60.E.75.69.Data on output and planned aggregate expenditure in Macroland are given below:Based on these data, the short-run equilibrium level of output is _________ and the income-expenditure multiplier equals ________.A.3,000; 1.0B.5,000; 1.2C.5,000; 1.5D.5,000; 2.0E.6,000; 5.070.Consider the Canadian economy initially at potential output. An economic expansion in the U.S. _________ the demand for exports from Canada, resulting in an increase in Canada's planned aggregate expenditure and a(n) __________ output gap in Canada.A.reduces; expansionaryB.increases; expansionaryC.reduces; recessionaryD.increases; recessionaryE.reduces; autonomous71.In the Keynesian cross diagram, the 45 line represents the short-run equilibrium condition that ____________.A.Y = PAEB.I > I PC.I < I PD.PAE = C + I P+ G + NXE.Y = Y*72.In the short run, when output equals planned aggregate expenditure,A.potential output equals GDP.B.planned private-sector investment equals actual private-sector investment.C.autonomous planned aggregate expenditure equals induced planned aggregate expenditure.D.planned private-sector investment is greater than actual private-sector investment.E.planned private-sector investment is less than actual private-sector investment.73.Ron's Desk Company expects to sell $10,000,000 worth of desks and to produce $10,500,000 worth of desks in the coming year. The company purchases $100,000 of new equipment during the year. Sales for the year turn out to be $10,500,000. Actual investment by Ron's Desk Company equals _______ and planned investment equals _______.A.$100,000; $100,000B.$100,000; $600,000C.$500,000; $600,000D.$600,000; $100,000E.$600,000; $600,00074.The four components of planned aggregate expenditure areA.spending on domestic goods, domestic services, foreign goods, and foreign services.B.spending on durable goods, inventory investment, government debt, and net exports.C.consumption, planned private-sector investment, government transfers, and net interest.D.consumption, interest payments, transfer payments, and net exports.E.consumption, planned private-sector investment, government purchases, and net exports.75.The basic Keynesian model assumes that, in the _______, producers sell whatever is demanded at _______ prices. It, therefore, assumes that the price level is constant and the inflation rate is _______.A.short run; preset; zeroB.short run; preset; lowC.long run; preset; zeroD.medium run; preset; zeroE.short run; variable; zero76.Hyperinflation is caused by rates of ________ of several hundred percent or more per year, which is usually the result of governments accumulating large ________.A.GDP growth; trade deficitsB.GDP growth; budget deficitsC.money growth; trade deficitsD.money growth; budget deficitsE.consumption growth; trade deficits77.The measure of the speed at which money changes hands in transactions involving final goods and services is calledA.the speed of money.B.the acceleration of money.C.the velocity of money.D.the force of money.E.the turnover of money.78.The money supply in Macroland is currently 3,000, bank reserves are 500, currency held by the public is 500, and the banks' desired reserve-deposit ratio is 20%. Assuming that the values of the currency held by the public and the desired reserve-deposit ratio do not change, if the Central Bank of Macroland wishes to decrease the money supply to 2,500, then it should conduct an open-market ________ government bonds to/from the public.A.purchase of 100B.purchase of 250C.purchase of 500D.sale of 100E.sale of 50079.In Macroland, currency held by the public is 2000 econs, bank reserves are 300 econs, and the desired reserve-deposit ratio is 10%. If the central bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ________ econs to _________ econs, assuming that the public does not wish to change the amount of currency it holds.A.2,000; 2,200B.2,300; 2,500C.3,000; 5,000D.5,000; 7,000E.5,300; 7,50080.Monetary policy decisions by the Bank of Canada are implemented through changes inA.the money supply.B.the prime rate.C.the bank rate.D.the overnight rate target.E.long-term real interest rates.81.An episode when depositors, spurred by news or rumours of the imminent bankruptcy of a particular bank, rush to withdraw their deposits from that bank is called a(n)A.open-market withdrawal.B.open-market sale.C.banking panic.D.bank run.E.reserve requirement crisis.82.The table above represents a bank's T-account. Suppose it is the only bank in town and individuals in town hold no cash. Assuming the reserve ratio is 10%, what will be the bank's deposits and reserves at the end of the money creation process?A.Deposits will equal $200,000 and reserves will equal $20,000.B.Both deposits and reserves will equal $200,000.C.Deposits will equal $2,000,000 and reserves will equal $200,000.D.Both deposits and reserves will equal $2,000,000.E.Both deposits and reserves will equal $2,200,000.83.Banks could not create money ifA.the required reserve ratio was zero.B.the Bank of Canada stopped selling bonds.C.people held no money as cash.D.people held all their money as cash.E.people stopped using bank machines.84.Commercial banks create new moneyA.by printing currency.B.by issuing cheques.C.through multiple rounds of lending and borrowing.D.when they buy government bonds from the Bank of Canada.E.when they increase their desired reserve-deposit ratio.85.In Macroland, there is $1,000,000 in currency that can either be held by the public or used by banks as reserves. The banks' desired reserve-deposit ratio is 10%. If the public of Macroland decides to hold less currency, decreasing the proportion they hold from 50% to 25%, the money supply in Macroland willA.increase.B.decrease.C.remain the same.D.may either increase or decrease.E.will increase initially, but then return to the original level.86.Based on the following information, compute the value of the M2 measure of the money supply.A.$20 billion.B.$50 billion.C.$130 billion.D.$550 billion.E.$630 billion.87.Money eliminates the need for a double coincidence of wants primarily through its use as aA.unit of account.B.medium of exchange.C.store of value.D.standard of confidence.E.legal tender.88.When money is the basic measure of economic value, it serves as aA.financial intermediary.B.double coincidence of wants.C.store of value.D.medium of exchange.E.unit of account.89.If there were an inflationary gap, the proper government policies would involveA.higher government purchases, lower taxes, and a higher key policy rate.B.higher government purchases, higher taxes, and a higher key policy rate.C.lower government purchases, higher taxes, and a higher key policy rate.D.lower government purchases, lower taxes, and a lower key policy rate.E.higher government purchases, lower taxes, and a lower key policy rate.90.The episode of nine successive cuts in the official interest rate in 2001 illustrates that, despite its stated goal of ensuring low and stable inflation, the Bank of Canada is also prepared to act pre-emptively toA.avoid future recessions.B.avoid future inflation.C.avoid future structural unemployment.D.avoid future expansionary gaps.E.avoid future budget deficits.91.To eliminate the output gap shown in the figure below, with a view to prevent inflation from emerging, the central bank should take a(n) _______ and _______ the official interest rate by a sufficient amount. If successful, such a policy may be expected shift the expenditure line _______.A.expansionary monetary policy action; raise; downB.contractionary monetary policy action; raise; downC.expansionary monetary policy action; lower; downD.contractionary monetary policy action; raise; upE.expansionary monetary policy action; raise; up92.In an economy in which planned aggregate expenditure is given by PAE = 3,000 + 0.75Y - 10,000r, the central bank is currently setting the interest rate at 0.06 (6%). If potential output equals 10,000, the central bank must ________ the interest rate to _______ to restore full employment.A.lower; 3%B.lower; 4%C.lower; 5%D.raise; 7%E.raise; 8%93.Contractionary monetary policy is a(n) ________ in interest rates with the intention of reducing a(n) ________ gap.A.reduction; expansionaryB.reduction; recessionaryC.reduction; inflationaryD.increase; expansionaryE.increase; recessionary94.In the short run, if the Bank of Canada decreases interest rates, then consumption and investment ______, planned aggregate expenditure ______, and short-run equilibrium output _______.A.increase; increases; increasesB.increase; increases; decreasesC.increase; decreases; decreasesD.decrease; decreases; increasesE.decrease; decreases; decreases95.Macroeconomists typically assume that most market interest rates move in tandem with the central bank's official interest rate. While this assumption allows them to speak of "the" interest rate, it is a simplification of the fact that central banks generally have better control over _______ than over _______.A.short-term nominal interest rates; long-term nominal interest ratesB.short-term real interest rates; short-term nominal interest ratesC.long-term nominal interest rates; short-term nominal interest ratesD.long-term mortgage rates; short-term mortgage ratesE.the prime business rate; the overnight rate96.The Bank of Canada keeps the overnight rate within the operating band by standing ready to ________ funds at the lower limit of the band and to ________ funds at the upper limit.A.lend; borrowB.lend; lendC.borrow; lendD.borrow; borrowE.give away; take97.At the end of each working day, any bank with a surplus of funds will use the ________ to lend funds to another bank that is short of funds, charging the ________ rate.A.Large Value Payment System; overnightB.Large Value Transfer System; overnightC.Large Value Wire System; bankD.Financial Wire System; bankE.Transfer Payment System; prime business98.The overnight rate refers toA.the interest rate that commercial banks charge to their least risky business borrowers.B.the market interest rate that financial institutions charge each other for overnight loans.C.a term used to describe the range of possible overnight interest rates.D.the interest rate that the Bank of Canada charges commercial banks for overnight loans.E.accounts held at the Bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another.99.If overnight funds in the overnight loans market are trading above the overnight rate target, then the Bank of Canada will _______ Government of Canada bonds, driving the overnight market rate ______; conversely, if overnight funds are trading below the overnight target rate, then the Bank will _______ Government of Canada bonds, driving the overnight interest rate _______.A.sell; up; buy; downB.buy; down; sell; upC.sell; down; buy; downD.buy; up; buy; downE.buy; up; sell; up100.Under its current operating procedure, the Bank of Canada implements monetary policy by announcing a target for the ________, and then intervenes (if necessary) in the _______ in order to maintain this rate within a _______ percentage-point operating band above and below this target.A.overnight rate; overnight loan market; 0.50B.prime business rate; money markets; 0.25C.overnight rate; money markets; 0.25D.overnight rate; overnight loan market; 0.25E.overnight rate; money markets; 0.50