EC CHAPTER 15

7) The Bank of Canada assumed the monopoly of issuing bank notes in ________. A) 1945 B) 1939 C) 1940 D) 1949

A

7) The Bank of Canada quarterly Monetary Policy Report is published every ________, ________, ________ and ________. A) January; April; July; October B) February; May; August; November C) March; June; September; December D) January; February; August; December

A

1) According to the performance of the Canadian economy, and the evolution of economic theory, what is the most important goal of monetary policy? A) Currency stability B) Price stability C) GDP growth D) Employment growth

B

14) Of the major central banks of the world, the most independent is ________. A) the Federal Reserve System B) the European Central Bank C) the Bank of Canada D) the Bank of England

B

1) The theory of bureaucratic behaviour suggests that the objective of a bureaucracy is to maximize ________. A) the public's welfare B) profits C) its own welfare D) conflict with the executive and legislative branches of government

C

2) Which of the following are entities of the Federal Reserve System? A) Federal Reserve Banks B) The FOMC C) The Board of Advisors D) Both A and B

D

3) The ability of a central bank to set monetary policy instruments is ________. A) political independence B) goal independence C) policy independence D) instrument independence

D

1) From 1929 to 1933 the Canadian real GDP fell by almost ________. A) 30 percent B) 40 percent C) 50 percent D) 20 percent

A

1) Which of the following functions does the Bank of Canada perform? A) Bank note issue B) Municipal government fiscal policy management C) Provincial government fiscal policy management D) Advise the Federal Reserve

A

10) The Maastricht Treaty which established the European Central Bank, defined price stability as an inflation rate equal to ________. A) It did not specify exactly. B) 0 percent C) 1 percent D) 2 percent

A

10) The oldest central bank, having been founded in 1656, is the ________. A) Riksbank, the central bank of Sweden B) Deutsche Bundesbank C) Bank of Japan D) Federal Reserve System

A

14) As the federal government's fiscal agent the Bank of Canada provides ________ management services for the federal government. A) debt B) cost C) financial D) economic

A

5) The overall responsibility for the operation of the bank of Canada is held by the ________. A) Board of Directors B) Federal Government C) Ministry of Finance D) Provincial governments

A

5) The systematic and permanent differences in macroeconomic outcomes that differ by political party are known as ________ business cycles. A) partisan B) electoral C) real D) nominal

A

6) Base money is also know as ________. A) monetary base B) power money C) monetary liability D) fund accounts

A

1) Which of the following are entities of the Bank of Canada? A) The Office of the Superintendent of Financial Institutions (OSFI) B) The Governing Council C) The Canada Deposit Insurance Corporation (CDIC) D) The Federal Reserve

B

13) Regarding central bank independence, ________. A) the Fed is more independent than the European Central Bank B) the European Central Bank is more independent than the Fed C) the trend in industrialized nations has been to reduce central bank independence D) the Bank of England has the longest tradition of independence of any central bank in the world

B

7) The main motivation for the formation of the Bank of Canada in 1934 was ________. A) financial B) the need for Canada to reflect its growing political independence from Britain C) the need for Canada to coordinate its international trade policy D) government debt

B

9) The Eurosystem has a structure like that of the ________. A) Bank of Canada B) Federal Reserve System C) Bank of England D) Swiss National Bank

B

10) In its role as the federal government's fiscal agent, the Bank of Canada provides debt management services for the federal government such as ________. A) advising on provincial government borrowings B) managing new debt offerings by the federal government C) servicing the federal government's outstanding debt D) Both B and C of the above.

D

10) Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process can ________. A) impart an inflationary bias to monetary policy B) impart a deflationary bias to monetary policy C) generate a political business cycle, in which just before an election expansionary policies are pursued to lower unemployment and interest rates D) cause both A and C of the above

D

10) Under the current "joint responsibility system," ________. A) in the event of a serious policy conflict the minister of finance can issue a directive that the Bank of Canada must follow B) the government accepts full responsibility for monetary policy C) the Bank of Canada does not have considerable autonomy in the conduct of day-to-day monetary policy D) Both A and B of the above.

D

11) Putting the Bank of Canada under control of the government ________. A) may place too much pressure on the Bank of Canada to finance federal budget deficits B) impart an inflationary bias to monetary policy C) generate a political business cycle, in which just before an election contractionary policies are pursued to raise unemployment and interest rates D) may cause only A and B of the above

D

11) Under the current "joint responsibility system," ________. A) the Bank of Canada and the minister of finance consult regularly B) in the event of a serious policy conflict the minister of finance can issue a directive that the Bank of Canada must follow C) the Bank of Canada has full responsibility for monetary policy D) Only A and B of the above.

D

11) Which of the following are entities of the Eurosystem? A) The European Central Bank B) The central banks of the European Union countries that have adopted the euro C) The central banks of the euro area countries and of the European Union countries that have not yet adopted the euro D) Only A and B of the above

D

12) In its role as provider of central banking services, the Bank of Canada ________. A) serves as a lender of last resort if a deposit-taking institution faces a liquidity crisis B) plays a central role in Canada's national mortgage system C) is responsible for the government's operating accounts and for managing the government's foreign exchange reserves D) Both A and C of the above.

D

4) Which of the following is an element of the Bank of Canada? A) The Office of the Superintendent of Financial Institutions (OSFI) B) The Governing Council C) The Board of Directors D) Only B and C of the above are Bank of Canada entities.

D

5) The benefit of the Ban k of Canada's role as the lender-of-last-resort include ________. A) easing liquidity problems of any financial institution B) deterring bank runs and panics C) reducing the monetary base to increase liquidity D) Both A and B

D

6) Instrument independence is ________. A) the ability of the central bank to set monetary policy goals B) the ability of the government to set monetary policy goals C) the ability of the government to set monetary policy instruments D) the ability of the central bank to set monetary policy instruments

D

21) The Bank of Canada's goal of low inflation is closely tied to ________. A) economic growth B) price volatility C) low interest rates D) growth in the money supply

A

2) Which goal has been set jointly by the Bank and the Department of Finance? A) Currency stability B) GDP growth C) Price stability D) Employment growth

C

1) Instrument independence is the ability of ________ to set monetary policy ________. A) the central bank; goals B) Parliament; goals C) Parliament; instruments D) the central bank; instruments

D

1) Which of the following is not an entity of the Federal Reserve System? A) Federal Reserve Banks B) The FDIC C) The Board of Governors D) The Board of Advisors

D

12) Which of the following are entities of the Eurosystem? A) The European Central Bank B) National finance ministries in each country C) The Governing Council of the European Central Bank D) Both A and C of the above

D

13) The case for Bank of Canada independence does not include the idea that ________. A) political pressure would impart an inflationary bias to monetary policy B) a politically insulated Bank would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level C) a Bank of Canada under the control of the government might make the so-called political business cycle more pronounced D) the principal-agent problem is perhaps worse for the Bank of Canada than for politicians since the former does not answer to the voters on election day

D

17) Which of the following statements are true of the Bank of England? A) The Bank of England was established in 1894. B) Until 1997, the decision to raise or lower interest rates resided not with the Bank of England but with the chancellor of the Exchequer. C) The government can overrule the Bank and set rates "in extreme economic circumstances" and "for a limited period." D) Both B and C of the above.

D

18) Countries with the most independent central banks have low inflation ________. A) but have higher unemployment than countries with less independent central banks B) but have higher output fluctuations than countries with less independent central banks C) and have lower rates of unemployment than countries with less independent central banks D) but have no higher unemployment or output fluctuations than countries with less independent central banks

D

2) The case for Bank of Canada independence includes the idea that ________. A) a politically insulated Bank of Canada would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level B) a Bank of Canada under the control of the government might make the so-called political business cycle more pronounced C) the principal-agent problem is perhaps worse for the Bank than for politicians since the former does not answer to the voters on election day D) Only A and B of the above.

D

22) Which of the following statements about central bank structure and independence are not true? A) In recent years, with the exception of the Bank of England and the Bank of Japan, most countries have reduced the independence of their central banks, subjecting them to greater democratic control. B) Before the Bank of England was granted greater independence, the Federal Reserve was the most independent of the world's central banks. C) Both theory and experience suggest that more independent central banks produce better monetary policy. D) Only A and B of the above are false statements.

D

3) The theory of bureaucratic behaviour suggests that the Bank of Canada will fight ________. A) to preserve the public's welfare B) to maximize profits C) minimize its own welfare D) to preserve autonomy

D

3) Which of the following statements concerning an independent central bank are true? A) Politicians may prefer an independent central bank, as it can be used as a "whipping boy" or "scapegoat" for poor economic performance. B) Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process may generate a political business cycle, in which just before an election contractionary policies are pursued to raise unemployment and interest rates. C) Putting the Bank of Canada under control of the government may place too much pressure on the Bank of Canada to finance federal budget deficits, thereby imparting an inflationary bias to monetary policy. D) Only A and C of the above are true statements.

D

4) Which of the following statements concerning an independent central bank are true? A) Politicians may prefer an independent central bank, as it can be used as a "whipping boy" or "scapegoat" for poor economic performance. B) Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process may generate a political business cycle, in which just before an election expansionary policies are pursued to lower unemployment and interest rates. C) Putting the Bank of Canada under control of the government may place too much pressure on the Bank to finance federal budget deficits, thereby imparting an inflationary bias to monetary policy. D) All of the above are true statements.

D

12) Critics of the current system of Bank of Canada independence contend that ________. A) the current system is undemocratic B) voters have too much say about monetary policy C) the governor has too much control over monetary policy on a day-today basis D) Both B and C of the above are true.

A

14) Critics of Bank of Canada independence argue ________. A) that it is undemocratic to have monetary policy controlled by an elite group responsible to no one B) that an independent Bank of Canada conducts monetary policy with a consistent inflationary bias C) that the Bank of Canada, since it does not face a binding budget constraint, spends too much of its earnings D) Only A and B of the above.

A

15) Recent research indicates that inflation performance (low inflation) has been found to be best in countries with ________. A) the most independent central banks B) political control of monetary policy C) money financing of budget deficits D) a policy of always keeping interest rates low

A

15) The Bank of Canada serves as a lender of last ________ when a deposit-taking financial institution faces a ________ crisis. A) resort; liquidity B) minute; liquidity C) resort; profitability D) minute; profitability

A

15) The oldest central bank, having been founded in 1694, is the ________. A) Bank of England B) Deutsche Bundesbank C) Bank of Japan D) Federal Reserve System

A

16) Because of its unique power to ________ base money, the Bank of Canada can ease the liquidity problems of ________. A) create; financial institutions B) create; provincial governments C) save; financial institutions D) save; provincial governments

A

16) Recent research indicates that inflation performance (low inflation) has been found to be best in countries with ________. A) the most independent central banks B) the least independent central banks C) political control of monetary policy D) a policy of always keeping interest rates low

A

17) Changes in the ________ lead to ________ changes in the money supply. A) monetary base; multiple B) monetary base; equal C) inflation rate; multiple D) inflation rate; equal

A

17) Recent research has found that countries with the most independent central banks have experienced ________. A) the lowest average rates of inflation B) rates of inflation no different from countries with less independent central banks C) the highest average rates of inflation D) high inflation from financing deficits

A

18) Canada's national payments system currently clears and settles payments and transactions, at a volume that is currently ________ times our annual GDP. A) 15 B) 10 C) 5 D) 2

A

18) While legislation enacted in 1998 granted the Bank of Japan new powers and greater autonomy, its critics contend that its independence is ________. A) limited by the Ministry of Finance's control over a portion of its budget B) too great because it need not pursue a policy of price stability even if that is the popular will of the people C) too great since the Ministry of Finance no longer has veto power over the bank's budget D) limited since the Ministry of Finance can dismiss senior bank officials

A

19) The Bank of Canada's lender-of-last resort lending is coordinated with ________ and ________. A) Office of the Superintendent of Financial Institutions Canada; Canada Deposit Insurance Corporation B) Office of the Superintendent of Financial Institutions Canada; the Department of Finance C) the Department of Finance; Canada Deposit Insurance Corporation D) Office of the Superintendent of Financial Institutions Canada; Canada Investment and Savings

A

19) The Bank of Japan was founded in ________. A) 1882 B) 1922 C) 1932 D) 1952

A

2) Economist Stanley Fisher defined two types of independence of central banks: ________ and ________ independence. A) instrument; goal B) policy; goal C) instrument; political D) parliamentary; decision

A

2) The theory of bureaucratic behavior suggests that a consumer's behaviour is motivated by the ________. A) maximization of personal welfare B) maximization social welfare C) minimization of government intervention D) minimization political pressure

A

2) Unemployment rates in Canada after the Great Depression rose close to ________. A) 20 percent B) 25 percent C) 30 percent D) 10 percent

A

2) Which of the following is a responsibility of the Bank of Canada? A) Funds management B) Fiscal policy C) Equalization payments D) Foreign policy

A

20) In its responsibility for the government's operating accounts, the Bank of Canada ________. A) shifts balances between accounts at the Bank of Canada and the banks B) shifts balances between chartered banks C) sells Canada Savings Bonds on behalf of the federal government D) manages foreign exchange transactions

A

20) The trend in recent years is that more and more governments ________. A) have been granting greater independence to their central banks B) have been reducing the independence of their central banks to make them more accountable for poor economic performance C) have mandated that their central banks focus on controlling inflation D) have required their central banks to cooperate more with their Ministers of Finance

A

22) The purchase and sale of government securities by the Bank of Canada is known as ________. A) open market buyback operations B) repurchase agreements C) interbank borrowing D) monetary base transactions

A

23) The Bank of Canada ultimate objective is ________. A) price stability B) to keep interest rates low C) economic growth D) low unemployment

A

23) Which of the following statements about central bank structure and independence are true? A) In recent years there has been a remarkable trend toward increasing independence. B) In recent years, greater independence has been granted to many central banks, with the exception of the Bank of England and the Bank of Japan, which are still subject to strict governmental control. C) In theory, central banks subject to government control produce better monetary policy, but experience suggests that more independent central banks have produced superior monetary policy results. D) Only A and B of the above are true statements.

A

24) The responsibility of monetary policy in Canada was given by the 1967 Bank of Canada Act to the ________. A) government B) Bank of Canada C) provincial governments D) parliament

A

3) All of the following have served as Bank of Canada governors except for ________. A) Roy Romanow B) David Dodge C) Gordon Thiessen D) John Crow

A

3) Increased operational independence by the Bank of Canada has also raised the standards for ________. A) accountability B) secrecy C) misconduct D) confusion

A

3) The Great Depression contributed to significant changes in Canadian ________. A) monetary policy B) nationalization C) growth policy D) immigration

A

3) Treasury bills are a responsibility of ________. A) the Bank of Canada B) Canada Investment and Savings C) Ministry of the Treasury D) the federal government

A

3) Which of the following are entities of the Federal Reserve System? A) Federal Reserve Banks B) The FDIC C) The Board of Advisors D) Both A and B of the above are Federal Reserve entities

A

4) Bank of Canada started operations in ________. A) 1935 B) 1925 C) 1915 D) 1945

A

4) Foreign exchange reserves are held by ________. A) the federal government B) the department of finance C) the Ministry of Central Banking D) individual provinces and territories

A

4) Goal independence is the ability of ________ to set monetary policy ________. A) the central bank; goals B) Congress; goals C) Congress; instruments D) the central bank; instruments

A

4) The board of governors members of the federal reserve system in the U.S. are appointed by the ________ and confirmed by the ________. A) president; senate B) president; house of representatives C) senate; president D) house of representatives; president

A

5) According to the authors of your textbook, the Federal Reserve is ________. A) remarkably free of the political pressures that influence other government agencies B) more responsive to the political pressures that influence other government agencies C) constrained in its policy making by the congressional threat to reduce Fed independence D) Both A and C of the above.

A

6) The Board of Directors appoints the governor of the Bank of Canada for a renewable term of ________ years. A) seven B) five C) eight D) six

A

7) Goal independence is ________. A) the ability of the central bank to set monetary policy goals B) the ability of the government to set monetary policy goals C) the ability of the prime minister to set monetary policy instruments D) the ability of the government to set monetary policy instruments

A

7) The European Central Bank is located in ________. A) Frankfurt B) London C) Paris D) Rome

A

7) The strongest argument for an independent Bank of Canada rests on the view that subjecting the Bank to more political pressures would impart ________. A) an inflationary bias to monetary policy B) a deflationary bias to monetary policy C) a disinflationary bias to monetary policy D) a countercyclical bias to monetary policy

A

8) The Bank of Canada enjoys ________. A) instrument independence B) political dependence C) goal independence D) Both A and C of the above.

A

9) The strongest argument for an independent Bank of Canada rests on the view that subjecting the Bank to more political pressures would impart ________. A) an inflationary bias to monetary policy B) a deflationary bias to monetary policy C) a disinflationary bias to monetary policy D) a countercyclical bias to monetary policy

A

1) The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies. A) expansionary; higher unemployment; contractionary B) expansionary; a higher inflation rate; contractionary C) contractionary; higher unemployment; expansionary D) contractionary; a higher inflation rate; expansionary

B

12) Under the current "joint responsibility system," ________. A) the Bank of Canada does not have considerable autonomy in the conduct of day-to-day monetary policy B) in the event of a serious policy conflict the minister of finance can issue a directive that the Bank of Canada must follow C) the government has no responsibility for the policy being followed by the Bank of Canada D) the Bank of Canada has full responsibility for monetary policy

B

2) Which of the following are entities of the Bank of Canada? A) The Office of the Superintendent of Financial Institutions (OSFI) B) The Board of Directors C) The Canada Deposit Insurance Corporation (CDIC) D) The Department of Finance

B

5) The Great Depression contributed to significant changes in Canadian ________. A) deficits B) monetary policy C) foreign affairs policy D) immigration policy

B

5) The ability of a central bank to set monetary policy goals is ________. A) political independence B) goal independence C) policy independence D) instrument independence

B

6) The Great Depression ________. A) was of fundamental importance in the creation of the Bank of Montreal B) contributed to significant changes in government policy C) involved the largest increase in the level of economic activity in the history of Canada D) contributed to significant changes in foreign affairs policy

B

11) Which of the following functions are not performed by the Bank of Canada in its role as the federal government's fiscal agent? A) Advising on federal government borrowings B) Managing new debt offerings by the federal government C) Setting interest rates payable on time deposits D) Servicing the federal government's outstanding debt

C

16) Which of the following statements are true of the Bank of England? A) The Bank of England was established in 1919. B) The governor and four deputy governors comprise the monetary policy making body. C) Until 1997, the decision to raise or lower interest rates resided not with the Bank of England but with the chancellor of the Exchequer. D) Both B and C of the above.

C

21) Which of the following statements about central bank structure and independence are true? A) In recent years, with the exception of the Bank of England and the Bank of Japan, most countries have reduced the independence of their central banks, subjecting them to greater democratic control. B) Before the Bank of England was granted greater independence, the Federal Reserve was the most independent of the world's central banks. C) Both theory and experience suggest that more independent central banks produce better monetary policy. D) While the European Central Bank is independent, it is not as independent as the Federal Reserve.

C

8) The Bank of Canada has regional offices in which of the following cities? A) Saskatoon B) Edmonton C) Montreal D) Winnipeg

C

8) Which of the following functions are not performed by the Bank of Canada? A) Cheque clearing B) Conducting economic research C) Setting interest rates payable on time deposits D) Issuing new currency

C

9) The Bank of Canada has regional offices in the following cities, except ________. A) Toronto B) Vancouver C) Edmonton D) Halifax

C

13) In its role as provider of central banking services, the Bank of Canada holds deposit accounts of the ________. A) provincial governments B) directly clearing members of the Canadian Payments Association C) international organizations, such as the International Monetary Fund D) Both B and C of the above.

D

6) According to the author of your textbook, the Federal Reserve is ________. A) remarkably free of the political pressures that influence other government agencies B) more responsive to the political pressures that influence other government agencies C) probably somewhat constrained in its policy making by the congressional threat to reduce Fed independence D) Both A and C of the above.

D

6) Advocates of Bank of Canada independence fear that subjecting the Bank to direct government control would ________. A) impart an anti-inflationary bias to monetary policy B) force monetary authorities to sacrifice the long-run objective of price stability C) make the so-called political business cycle even more pronounced D) Both B and C of the above.

D

8) Supporters of the current system of Bank of Canada independence believe that a less autonomous Bank would ________. A) adopt a short-run bias toward policymaking B) pursue overly expansionary monetary policies C) be more likely to create a political business cycle D) do each of the above

D

8) The Executive Board of the European Central Bank ________. A) consists of the European Central Bank's president, vice president, and four other members B) is responsible for the business of the European Central Bank C) is responsible for the implementation of monetary policy in accordance with the guidelines set by the Governing Council D) All of the above.

D

9) In its role as provider of paper money, the Bank of Canada ________. A) works closely with private sector partnerships and note-issuing authorities in other countries in order to improve cost-effectiveness, increase the durability of Canadian bank notes, and reduce counterfeiting B) tries to preserve the integrity and safety of Canadian currency in the most economical and efficient manner possible C) None of the above. D) Both A and B of the above.

D

9) The Bank of Canada enjoys ________. A) instrument independence B) political independence C) goal independence D) Only A and B of the above.

D