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Canada MacroEconomics

QUIZ NO. 2

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

If the Bank of Canada chooses a constant rate of growth in the money supply equal to the average long-run growth rate of real GDP as a policy variable, we can conclude that it is targeting
bond prices as a short run target.
the reserves of the commercial banks and is engaged in expansionary monetary policy.
the reserves of the commercial banks and is engaged in contractionary monetary policy.
the core inflation rate as a long run target.
One way that the Canadian economy can reduce its indebtedness to foreign creditors is to
induce the government's budget deficit.
decrease private saving.
decrease its national saving rate.
increase public saving.
If Bank Rates increases during an expansion of real GDP, then the Bank of Canada
must have been decreasing the money supply.
must have been increasing the money supply.
must have lowered the overnight lending rate.
may have changed the money supply in either direction.
To lower interest rates, the Bank of Canada could
decrease the commercial banks' reserves.
buy securities.
raise the treasury bill rate.
raise the reserve requirement.
Which of the following is true? A debit entry in the Canadian balance-of-payments accounts
is any transaction that results in a payment to other nations.
is a payment in the balance-of-payments accounts for foreign countries.
arises when Canadian assets are sold to foreigners.
occurs when Canadians receive investment income from foreign countries.



One of the results of the restrictive monetary policy adopted by the Bank of Canada of the early 1980s was that over the first half of the 1980s
inflation fell dramatically and real GDP remained at full employment levels.
inflation fell dramatically, but was accompanied by a major recession.
inflation remained over 10 percent and there was a major recession.
unemployment fell, but inflation accelerated due to higher interest rates.
One way that the Canadian economy can reduce its indebtedness to foreign creditors is to
decrease its national saving rate.
reduce taxes.
induce the government's budget deficit.
increase public saving.
In 1979-1980, the Bank of Canada, contracted the rate of growth of the money supply in an attempt to reduce inflation. One problem with this policy was that
an unexpected excess demand for money (M1) caused the policy to be more contractionary than necessary, leading to recession.
it proved completely ineffective in influencing either real GDP or the price level.
the demand for money dropped at the same time, causing the policy to be more expansionary than necessary, leading to further inflation.
an unexpected excess demand for money (M1) caused the policy to be more expansionary than necessary, leading to further inflation.
During a period of renewed inflation fears in 1988, the governor of the Bank of Canada, Mr. John Crow, announced that monetary policy would be more guided by
exchange rate targets since depreciation of the Canadian dollar tends to be inflationary.
real GDP growth.
the goal of long term price stability.
unemployment levels and the level of prices.
When a Japanese firm buys Canadian lumber, this appears as a
credit on the Canadian balance-of-payments current account.
credit on the Japanese balance-of-payments capital account.
credit on the Japanese balance-of-payments current account.
as a debit on Canada's balance-of-payments and only as a credit on Japan's balance-of-payments