Econ ch. 26-27

104) Note: This question requires a calculator with an exponent function. Refer to Table 26-2. What is real GDP in this economy in Year 20 if the annual growth rate is 4%? A) 2191 B) 8000 C) 20 800 D) 80 000 E) 836 683

A) 2191

26) If most individuals accept paper currency in transactions, and paper currency is convertible into gold, then banks can safely issue A) no more paper currency than the value of the gold they hold. B) more paper currency than the value of the gold they hold. C) as much paper currency as they please. D) paper currency equal to a fraction of the gold they hold. E) paper currency equal to the bank's commercial debt divided by their gold reserves.

B) more paper currency than the value of the gold they hold.

38) Refer to Table 26-1. What is the level of national saving for this economy? A) -$200 B) -$150 C) -$50 D) $150 E) $200

C) -$50

90) Assume that Bank ABC has a target reserve ratio of 10%. If Bank ABC receives a new deposit of $100 000, the largest new loan this bank could initially make, and maintain its target reserve ratio, is A) $ 1000. B) $ 10 000. C) $ 90 000. D) $100 000. E) $900 000.

C) $ 90 000.

79) Refer to Table 27-3. The maximum creation of new deposits by the banking system, including the dealer's original deposit at Bank XYZ, is A) $25 million. B) $22.5 million. C) $20 million. D) $15 million. E) $5 million.

C) $20 million.

75) Refer to Table 27-2. Assume that Bank North is operating at its target reserve ratio and has no excess reserves. If Bank North receives a new deposit of $400, it can immediately expand its loans by ________ while maintaining its target reserve ratio. A) $260 B) $272 C) $340 D) $400 E) $700

C) $340

101) Consider a new deposit of $10 000 to the Canadian banking system. Assuming that all Canadian banks have a target reserve ratio of 2%, and that there is no cash drain, the banking system as a whole could create ________ as a result of this single new deposit. A) $10 000 of new deposits B) $50 000 of new deposits C) $500 000 of new deposits D) $980 000 of additional loans E) $1 000 000 of additional loans

C) $500 000 of new deposits

86) Suppose you found a $100 bill that was lost for many years under your grandmother's mattress and you decided to deposit this money in a commercial bank. If the target reserve ratio were 20% and all excess reserves were lent out, your new deposit of $100 would lead to an eventual expansion of the money supply of A) $120. B) $200. C) $500. D) $1200. E) $2000.

C) $500.

103) Note: This question requires a calculator with an exponent feature. Refer to Table 26-2. What is real GDP in this economy in Year 20 if the annual growth rate is 1%? A) 200 B) 1020 C) 1220 D) 6727 E) 20 200

C) 1220

13) In order for money to be successfully used as a medium of exchange, it must 1) be readily acceptable; 2) be easily divisible; 3) have a high value-weight ratio. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 1, 2, and 3

E) 1, 2, and 3

7) A common measure of a country's level of productivity is A) the average efficiency of capital. B) the capital-output ratio. C) output per capita. D) output per unit of labour input. E) per capita GDP.

D) output per unit of labour input.

61) Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank). This fraction is known as A) the required reserve. B) the excess reserve ratio. C) the fractional reserve. D) the reserve ratio. E) the target reserve.

D) the reserve ratio.

18) Refer to Figure 26-1. The area marked Area 1 represents A) the value of consumption from Year 0 to Year X in Economy A. B) the value of the investment in capital goods undertaken by Economy B. C) the value of the investment in capital goods undertaken by Economy A. D) the sacrifice of current consumption by Economy B, as compared to Economy A. E) the sacrifice of current consumption by Economy A, as compared to Economy B.

D) the sacrifice of current consumption by Economy B, as compared to Economy A.

96) The aggregate production function shows the ________ for given levels of labour and capital inputs. A) marginal product of labour B) marginal product of capital C) returns to scale D) total output for society (real GDP) E) the production possibilities boundary

D) total output for society (real GDP)

63) In the long run, an increase in the demand for investment pushes ________ the real interest rate, encourages ________ saving by households, and leads to a ________ future growth rate of potential output. A) down; less; lower B) up; less; lower C) down; less; higher D) up; more; higher E) up; more; lower

D) up; more; higher

31) Economic growth is often associated with structural change in the economy, and this change can present difficult policy challenges to governments. Which of the following government policies would be most useful at addressing the social costs of economic growth? A) expansionary monetary policy B) the imposition of trade restrictions to protect Canadian jobs C) subsidies directed at Canadian manufacturing firms D) worker re-training and education programs E) reducing income taxes

D) worker re-training and education programs

89) If all the banks in the banking system collectively have $500 million in cash reserves, and have a target reserve ratio of 5%, the maximum amount of deposits the banking system can support is A) $10 million. B) $100 million. C) $25 billion. D) $100 billion. E) $10 billion.

E) $10 billion.

108) If the target reserve ratio in the banking system is 1%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an expansion of the money supply of A) $0.01. B) $1.10. C) $1.00. D) $10.00. E) $100.00.

E) $100.00.

40) Suppose the government has a budget surplus of $2 billion. If the country's level of private saving is $1.2 billion, then national saving must be A) - $1.2 billion. B) - $800 million. C) $0. D) $800 million E) $3.2 billion

E) $3.2 billion

88) If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%, the maximum amount of deposits the banking system can support is A) $4 million. B) $40 million. C) $80 million. D) $100 million. E) $400 million.

E) $400 million.

92) Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a target reserve ratio of 1.0% and no cash drain, the maximum change in deposits for the entire banking system would be A) $682.50. B) $700.00. C) $17 500.00. D) $28 000.00. E) $70 000.00.

E) $70 000.00.

102) Consider a new deposit of $100 000 to the Canadian banking system. The commercial bank that initially receives this deposit will find itself with A) no excess reserves if there is no reserve requirement. B) $1000 of excess cash reserves if its target reserve ratio is 10%. C) $2000 of excess cash reserves if its target reserve ratio is 2%. D) $10 000 of excess cash reserves if its target reserve ratio is 10%. E) $98 000 of excess cash reserves if its target reserve ratio is 2%.

E) $98 000 of excess cash reserves if its target reserve ratio is 2%.

96) Refer to Table 27-5. Owners of Northern Bank contributed money to start the bank. Under which category of it's balance sheet do these funds fall? A) Reserves B) Loans C) Assets D) Deposits E) Capital

E) Capital

97) Refer to Table 27-5. Assume that Northern Bank's target reserve ratio is 10%. What is its current level of excess reserves? A) -$320 B) -$200 C) $0 D) $320 E) $400

B) -$200

14) Which of the following is the best example of the acquisition of human capital? A) A worker takes a training course that increases his/her productivity. B) A worker receives new machinery enabling him/her to do the amount of work that was formerly done by two workers. C) A worker communicates more quickly and accurately with suppliers because of upgrades to communications software. D) A government-sponsored program increases the amount of investment available per worker. E) A computer chip manufacturer introduces a faster processor for micro-computing.

A) A worker takes a training course that increases his/her productivity.

46) Which of the following entries would appear on the assets side of a commercial bank's balance sheet? A) Government of Canada securities B) chequable deposits C) Government of Canada deposits D) savings deposits E) shareholders' equity

A) Government of Canada securities

35) The largest component of the assets of the Bank of Canada is A) Government of Canada securities. B) Government of Canada deposits. C) notes and coins in circulation. D) loans to commercial banks. E) loans to private individuals.

A) Government of Canada securities.

32) Which of the equations is a correct expression for national saving in the long run when real GDP equals potential output? A) NS = Y* - C - G B) NS = Y* - C + T - G C) NS = Y* - T - C D) NS = T - G E) NS = T - G - C

A) NS = Y* - C - G

56) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. Now suppose there is a reduction in government purchases. What is the effect on investment demand? A) National saving shifts to NS1, causing an increase in the quantity of investment demanded from I* to I2. B) There is no effect on NS or ID, and the quantity of investment demanded remains at I*. C) Investment demand shifts to I1D, causing an increase in the quantity of investment demanded from I* to I1. D) Investment demand shifts to I1D, causing an increase in the quantity of investment demanded from I* to I3. E) National saving shifts to NS1, and investment demand shifts to I1D, causing an increase in the quantity of investment demanded from I* to I3.

A) National saving shifts to NS1, causing an increase in the quantity of investment demanded from I* to I2.

125) Economic growth allows increasing numbers of people around the world to enjoy higher incomes and to escape (material) poverty. Which of the following statements best describes the current limits to this growth? A) Rising consumption due to higher incomes puts increasing pressure on the world's natural ecosystems and its ability to cope with further pollution and environmental degradation. B) The supply of financial capital is insufficient to maintain this level of economic growth. C) The inability of developing countries to increase their human capital will prevent further economic growth. D) Increasing prices of natural resources will limit further economic growth. E) Innovation and technological change with respect to resource development have been exhausted.

A) Rising consumption due to higher incomes puts increasing pressure on the world's natural ecosystems and its ability to cope with further pollution and environmental degradation.

47) For a given level of national income, a decrease in government tax revenues will cause A) a decrease in national saving. B) an increase in national saving. C) an increase in the growth rate. D) no effect on national saving. E) a decrease in consumption.

A) a decrease in national saving.

2) Money is commonly defined as A) a generally accepted medium of exchange. B) gold. C) foreign-exchange reserves. D) paper currency. E) the Canadian dollar.

A) a generally accepted medium of exchange.

54) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. If the real interest rate is i4, there is ________, which will drive the real interest rate up to i*. A) an excess demand for financial capital B) an excess supply of financial capital C) an excess supply of saving D) an excess demand for public saving

A) an excess demand for financial capital

108) The "new" theories of economic growth emphasize that technological change ________ to price and profit signals. A) and product development are both directly related B) is directly related and product development is inversely related C) is unaffected by but product development is directly related D) is directly related and population growth is inversely related E) and product development are both unrelated

A) and product development are both directly related

53) Canadian commercial banks maintain their reserves in the form of A) cash in their bank vaults and deposits at the Bank of Canada. B) cash in their bank vaults. C) gold in their bank vaults. D) deposits at other commercial banks that are immediately accessible. E) cash and foreign currency at the Bank of Canada.

A) cash in their bank vaults and deposits at the Bank of Canada.

116) Until recently, and for many years, the common definition of the money supply used by the Bank of Canada was M1, which included currency in circulation plus A) chequable deposits at the chartered banks. B) chequable deposits and savings accounts at the chartered banks. C) savings accounts and demand loans. D) term deposits and money market funds. E) chequable deposits at all financial institutions.

A) chequable deposits at the chartered banks.

84) Refer to Table 27-4. As a result of this withdrawal from the banking system, the Canadian banking system would eventually A) decrease its loans by $100 million. B) decrease its loans by $90 million. C) decrease its loans by $10 million. D) increase loans by $90 million. E) increase loans by $100 million.

A) decrease its loans by $100 million.

104) If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply if commercial banks lend out all excess reserves and they have a 2.5% target reserve ratio? A) decrease of $40 000 B) decrease of $4000 C) increase of $40 000 D) increase of $4000 E) decrease of $25 000

A) decrease of $40 000

97) Neoclassical growth theory is based on the assumption of ________ marginal returns to a single factor and ________ returns to scale exhibited by the aggregate production function. A) decreasing; constant B) decreasing; decreasing C) constant; decreasing D) increasing; increasing E) increasing; constant

A) decreasing; constant

102) Consider an aggregate production function Y = F(K, L) that displays diminishing marginal returns to labour. If the amount of capital is held constant and the amount of labour used in production is increasing, then A) each additional unit of labour will add less to total output than the previous unit of labour. B) each additional unit of labour will add more to total output than the previous unit of labour. C) total output increases in proportion to the increases in labour. D) there are increasing returns to scale. E) there are constant returns to scale.

A) each additional unit of labour will add less to total output than the previous unit of labour.

9) Over the long term, by far the most potent force for raising average material living standards is A) economic growth. B) reducing inefficiencies. C) redistributing income. D) increasing the money supply. E) appropriate fiscal policies.

A) economic growth.

28) Which of the following illustrates the use of fiat money? A) exchanging Canadian dollars for a T-shirt B) exchanging money-market funds for gold C) exchanging money-market funds for insurance D) keeping gold as a hedge against inflation E) bartering goods for services

A) exchanging Canadian dollars for a T-shirt

12) If a majority of Canadian households and businesses refused to accept Canadian dollars in exchange for goods and services, the value of the Canadian dollar would A) fall. B) rise since less would be in circulation. C) stay constant since the value does not depend on its acceptability by people. D) stay constant since its value is determined only by the Bank of Canada. E) stay constant since its value is determined only by the Government of Canada.

A) fall.

54) A commercial bank's actual reserve ratio is the A) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada. B) fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own vaults. C) fraction of its deposit liabilities that are backed by gold. D) ratio of Canadian dollars to foreign currencies that it holds on its books. E) ratio of chequable deposits to term deposits that it holds on its books.

A) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada.

57) A commercial bank's target reserve ratio is the A) fraction of its deposit liabilities that it wishes to holds as reserves, either as cash or as deposits with the Bank of Canada. B) fraction of its deposit liabilities that it actually holds as cash in its own vaults. C) fraction of its deposit liabilities that are backed by gold. D) ratio of Canadian dollars to foreign currencies that the bank holds on its books. E) ratio of chequable deposits to term deposits that the bank holds on its books.

A) fraction of its deposit liabilities that it wishes to holds as reserves, either as cash or as deposits with the Bank of Canada.

50) A bank run is unlikely to occur in Canada today because A) if necessary, the central bank can provide all the reserves that are necessary to avoid this situation. B) the commercial banks are required by law to maintain 100% of their deposits in cash. C) there is relatively little demand for cash at present. D) banking is done mostly electronically. E) the commercial banks hold enough government securities that are convertible into cash.

A) if necessary, the central bank can provide all the reserves that are necessary to avoid this situation.

80) Refer to Table 27-3. Suppose the public decides to hold 5% of their deposits in cash - that is, there is now a cash drain of 5%. As a result of the new deposit, the money supply would eventually A) increase by $16.67 million. B) increase by $20 million. C) decrease by $20 million. D) decrease by $16.67 million. E) decrease by $ 8.33 million.

A) increase by $16.67 million.

123) Suppose that most of the world's population would like to achieve a standard of living equal to that of the average Canadian family. Such a rise in global living standards is A) not possible given the world's current resources and the current state of technology. B) possible with better political and economic cooperation around the world. C) possible given the world's current resources and current state of technology. D) not possible under any circumstances. E) possible with no adverse effects on pollution and environmental degradation.

A) not possible given the world's current resources and the current state of technology.

88) "Embodied technical change" is said to occur when A) older capital equipment is replaced with different, more productive, capital. B) the capital-labour ratio is increasing. C) innovations in the organization of production take place which do not involve changes in the form of capital used. D) techniques of managerial control are improved. E) the labour force acquires new skills that can be used across a wide range of industries.

A) older capital equipment is replaced with different, more productive, capital.

28) Consuming fewer goods today in order to invest resources in capital goods can be considered the ________ of economic growth. A) opportunity cost B) social cost C) investment cost D) external cost E) total cost

A) opportunity cost

21) If a country transfers resources from the production of consumption goods to the production of capital goods, the result will be to A) raise future consumption. B) raise current living standards. C) decrease the long-run growth rate. D) lower future living standards. E) raise current consumption.

A) raise future consumption.

99) Refer to Table 27-5. Northern Bank holds cash in its vault and has some deposits in its account at the central bank. Under which category on its balance sheet are these funds included? A) reserves B) loans C) liabilities D) deposits E) capital

A) reserves

41) Consider the long-run theory of investment, saving, and growth. For a given level of private saving, an increase in government purchases will likely ________ the economy's long-run growth rate. A) slow down B) accelerate C) not affect D) increase E) Not enough information to know

A) slow down

61) Refer to Figure 26-3. Suppose the interest rate in this market for financial capital is 4%. In this case there is an excess ________ financial capital of ________ billion dollars. A) supply of; 30 B) demand for; -60 C) supply of; 90 D) demand for; 30 E) demand for; 60

A) supply of; 30

124) The M2++ and M3 definitions of the money supply include financial assets A) that serve the store-of-value function and are convertible into a medium of exchange. B) such as deposits at credit unions and caisses populaires. C) such as deposits at non-bank financial institutions. D) such as a credit card. E) such as a government Treasury bill.

A) that serve the store-of-value function and are convertible into a medium of exchange.

111) Suppose that the cash drain in the banking system increases during holiday periods. As a result, A) the capacity of the banking system to create deposit money is dampened during holiday periods. B) the capacity of the banking system to create deposit money is increased during holiday periods. C) commercial banks decrease their target reserve ratios. D) changes in reserves will result in no change in deposits during holiday periods. E) the money supply will automatically increase.

A) the capacity of the banking system to create deposit money is dampened during holiday periods.

5) If per capita GDP in a richer country grows at a faster annual rate than in a poorer country, A) the gap between their standards of living will widen over time. B) the gap between their standards of living will close over time. C) the gap between their standards of living will close over time as long as the rate of population growth is higher in the poorer country. D) whether the gap in living standards widens or closes over time depends on the absolute size of the relative growth rates. E) the difference in their living standards will not change over time.

A) the gap between their standards of living will widen over time.

20) Refer to Figure 26-1. Which of the following costs of economic growth are reflected in this diagram? A) the sacrifice of current consumption B) lower real interest rate C) environmental degradation D) resource exhaustion E) national saving

A) the sacrifice of current consumption

78) In Neoclassical growth theory, increasing the amount of capital employed in production ________ the average standard of living as long as the marginal product of capital exceeds zero. A) unambiguously raises B) unambiguously reduces C) has no effect on D) at first raises but eventually reduces E) at first reduces but eventually raises

A) unambiguously raises

23) Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have confidence that the dollar A) will be accepted in the future. B) is fully convertible into gold. C) is accepted by foreigners as more stable than their own currency. D) is fully convertible into American dollars at a set exchange rate. E) is fully backed by the British pound sterling.

A) will be accepted in the future.

35) Consider a closed economy with real GDP in the long run of $400, consumption expenditures of $250, government purchases of $75, and net tax revenue of $20. What is the level of national saving? A) $55 B) $75 C) $95 D) $225 E) $230

B) $75

36) Refer to Table 26-1. What is the level of private saving for this economy? A) $50 B) $100 C) $150 D) $200 E) $300

B) $100

77) Refer to Table 27-3. Bank XYZ is immediately in a position to expand its loans by A) $1.25 million. B) $3.75 million. C) $5 million. D) $15 million. E) $20 million.

B) $3.75 million.

109) Suppose Bank ABC has a target reserve ratio of 10%, no excess reserves, and it receives a new deposit of $500 000. This bank will initially expand its loans by A) $50 000. B) $450 000. C) $500 000. D) $4.5 million. E) $5 million.

B) $450 000.

37) Refer to Table 26-1. What is the level of public saving for this economy? A) -$200 B) -$150 C) -$50 D) $150 E) $200

B) -$150

23) The costs of long-run economic growth include: 1) declining future average living standards; 2) that current consumption must be sacrificed to increase investment in capital goods; 3) current increases in investment may only generate greater consumption in the distant future. A) 1 and 2 B) 2 and 3 C) 1 only D) 2 only E) 3 only

B) 2 and 3

76) Refer to Table 27-2. Assume that Bank North is operating at its target reserve ratio and has no excess reserves, and that all commercial banks have the same target reserve ratio. If a new deposit to the Canadian banking system of $400 is deposited at Bank North, the total new deposits created in the banking system can be calculated as follows: A) 300/.136 = $2205.88 B) 400/.15 = $2666.67 C) 400/.12 = $3333.33 D) 700/.12 = $5833.33 E) Not enough information to determine

B) 400/.15 = $2666.67

113) In reality, the reserve ratio for Canadian commercial banks is close to ________%, which means that the deposit creation process is ________. A) 0.1; extremely powerful B) 5; powerful C) 20; similar to that discussed in the text D) 50; weak E) 100; very weak

B) 5; powerful

51) What is a bank run? A) A situation where a commercial bank is holding zero reserves. B) A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash. C) A situation where all commercial banks in the system are simultaneously short of reserves. D) The collapse of a non-commercial bank as a result of non-payment of loans. E) The collapse of a commercial banks as a result of the devaluation of their assets.

B) A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash.

19) Refer to Figure 26-1. Suppose Economy A jumps to the path of Economy B at Year 0 by increasing the share of GDP that is saved. In that case, which of the following statements about Economy A is true? A) Economy A will not be able to regain the losses in consumption it incurs by jumping to the path of Economy B. B) By Year Y, the increase in consumption made possible by the economy's higher growth rate equals the consumption sacrificed in earlier years. C) By Year X, Economy A is better off in terms of material living standards for having jumped to the path of Economy B. D) By jumping to a new growth path at Year 0, Economy A has increased the share of national income that is consumed. E) By Year X, Economy A is saving and investing the same share of its national income as it would have been had it stayed on its original path.

B) By Year Y, the increase in consumption made possible by the economy's higher growth rate equals the consumption sacrificed in earlier years.

117) Which of the following statements is true of new growth theory, and not true of Neoclassical growth theory? A) It cannot explain improved living standards over the long term. B) It can explain improved living standards over the long term. C) Economic growth does not have an impact on resource exhaustion. D) Economic growth depends only on population growth. E) Economic growth is the result of innovation.

B) It can explain improved living standards over the long term.

73) Refer to Table 27-2. What are the income-earning assets for Bank North? A) Reserves B) Loans C) Deposits D) Capital E) Liabilities

B) Loans

95) Refer to Table 27-5. Northern Bank extends credit to its customers in the form of household mortgages and lines of credit. Under which category of the balance sheet do these fall? A) Reserves B) Loans C) Liabilities D) Deposits E) Capital

B) Loans

55) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. Now suppose there is a reduction in government purchases (G). What is the effect on the equilibrium real interest rate? A) There is no effect on NS or ID, and the interest rate remains at i*. B) National saving shifts to NS1 and the interest rate falls to i3. C) Investment demand shifts to I1D, and the interest rate rises to i2. D) The real interest rate rises because of the decrease in the budget surplus. E) The real interest rate falls because of the decrease in the budget surplus.

B) National saving shifts to NS1 and the interest rate falls to i3.

124) In the early 1970s, a group called the "Club of Rome" published a book entitled The Limits to Growth which concluded that industrialized countries faced an imminent absolute limit to growth. Did this prediction come true in the subsequent years? A) No, because as income levels rose, we could afford to purchase more resources and increase growth. B) No, because technology has changed, allowing for new discoveries, development, and more efficient use of resources. C) Yes, all growth in recent decades has been in the non-industrialized and developing economies. D) Yes, there has been no change in absolute levels of output of industrialized countries.

B) No, because technology has changed, allowing for new discoveries, development, and more efficient use of resources.

39) Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada? A) The Bank of Canada has the same status as the Department of Finance and is directly responsible to Parliament for its day-to-day operations of monetary policy. B) The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy. C) The Bank of Canada is a central-banking institution that is completely independent of the government and is fully autonomous in its conduct of monetary policy. D) The Bank of Canada is a privately owned banking institution that is overseen by a Board of Directors with a mandate to act in the best interests of the citizens of Canada. E) The governor of the Bank of Canada and the minister of finance have joint responsibility for both fiscal and monetary policy.

B) The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy.

62) Refer to Figure 26-3. Suppose the interest rate in this market for financial capital is 2%. Which of the following statements correctly describes the adjustment that will occur in this market? A) The excess supply of saving will push up the real interest rate, which will decrease the quantity demanded of investment and increase the quantity supplied of saving. B) The excess demand for investment will push up the real interest rate, which will decrease the quantity demanded of investment and increase the quantity supplied of saving. C) The excess supply of saving will push down the real interest rate, which will decrease the quantity demanded of investment and increase the quantity supplied of saving. D) The excess demand for investment will push down the real interest rate, which will decrease the quantity demanded of investment and increase the quantity supplied of saving. E) The excess demand for investment will push up the real interest rate, which will increase the quantity demanded of investment and decrease the quantity supplied of saving.

B) The excess demand for investment will push up the real interest rate, which will decrease the quantity demanded of investment and increase the quantity supplied of saving.

45) Consider the market for financial capital for a closed economy in the long run. Other things being equal, a country with a high national saving rate will tend to have A) a high growth rate because aggregate expenditure will be high out of any given income. B) a high growth rate because sustained high investment is possible with high saving. C) an AS curve moving continually to the left. D) trouble achieving potential real national income in the short run. E) either a high or low growth rate depending on the investment demand schedule.

B) a high growth rate because sustained high investment is possible with high saving.

4) Doug is saving money in order to purchase a new snowboard next winter. This represents using money as A) a medium of exchange. B) a store of value. C) a unit of account. D) a medium of deferred payment. E) method of barter.

B) a store of value.

33) The functions of the Bank of Canada include A) acting as the lender of last resort for the largest private corporations. B) acting as banker for the commercial banks. C) regulating both the money market and stock market. D) setting the exchange rate for the Canadian dollar on world markets. E) providing deposit insurance at Canadian commercial banks.

B) acting as banker for the commercial banks.

77) In Neoclassical growth theory, average material living standards in an economy could fall when A) additional units of capital are added to the other factors. B) additional units of labour are added to the other factors. C) there is equal percentage growth in capital and labour inputs. D) technology improves. E) there is a decline in the population.

B) additional units of labour are added to the other factors.

52) Consider the market for financial capital in the long run. The investment demand curve is downward sloping because A) an increase in the real interest rate leads to an increase in investment demand. B) all components of desired investment are negatively related to the real interest rate. C) all components of desired investment are positively related to the real interest rate. D) a decrease in the real interest rate reflects a higher opportunity cost to firms of using financial capital. E) an increase in the real interest rate reflects a lower opportunity cost to firms of using financial capital.

B) all components of desired investment are negatively related to the real interest rate.

29) Debit cards that are issued by commercial banks can be characterized as A) an example of near money. B) an electronic version of a cheque. C) deposit money. D) fiat money. E) a store of value.

B) an electronic version of a cheque.

16) Historically, when gold and silver coins were used as money, their debasement resulted in A) deflation B) an increase in the supply of money. C) an increase in the amount of gold bullion. D) an increase in the desire to store wealth by holding coins. E) a decrease in the money supply.

B) an increase in the supply of money.

69) Which of the following examples constitutes a new deposit to the Canadian commercial banking system? A) an individual transfers money from ShipShape Credit Union to Scotiabank B) an individual immigrates to Canada and deposits money from abroad C) an individual puts cash in a safety-deposit box D) the Bank of Canada sells government securities to an individual or a firm E) the Bank of Canada buys foreign currency from abroad

B) an individual immigrates to Canada and deposits money from abroad

43) An example of "interbank activities" in the Canadian banking system is A) banks pooling their money together to fund the operations of the Bank of Canada. B) banks lending money to each other in order to meet daily cash requirements. C) the joint regulation of financial markets. D) the joint regulation of the money supply. E) lender of last resort to the banking system.

B) banks lending money to each other in order to meet daily cash requirements.

100) Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5% each and total output (Y) increases by 5% as a result, then this production function is displaying A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) diminishing marginal returns. E) a change in technology.

B) constant returns to scale.

67) The main properties of a Neoclassical aggregate production function are ________ when all factors are increased proportionally and ________ when any one factor is increased on its own. A) increasing returns to scale; diminishing marginal returns B) constant returns to scale; diminishing marginal returns C) constant returns to scale; constant marginal returns D) decreasing returns to scale; diminishing marginal returns E) increasing returns to scale; increasing marginal returns

B) constant returns to scale; diminishing marginal returns

64) Suppose a commercial bank has a target reserve ratio of 1%, but has an actual reserve ratio of 0.8%. This bank will likely A) expand its portfolio of loans. B) contract its portfolio of loans. C) maintain its new, higher reserve ratio because it is more profitable. D) buy government securities from the Bank of Canada. E) allow fewer cash withdrawals by the bank's customers.

B) contract its portfolio of loans.

105) If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system and a 10% cash drain? A) decrease of $1000 B) decrease of $5000 C) decrease of $10 000 D) increase of $5000 E) increase of $10 000

B) decrease of $5000

68) The Neoclassical growth model assumes that, with a given state of technology, increases in the use of a single factor will eventually A) increase the average product of the factor. B) decrease the average product of the factor. C) lead to an increase in the marginal output of the factor. D) lead to a decrease in total output by the factor. E) lead to an increase in the material standard of living.

B) decrease the average product of the factor.

5) Other things being equal, a rise in the price level will A) increase the value of money. B) decrease the purchasing power of money. C) stabilize the value of money. D) increase the purchasing power of money. E) have no effect on the value of money.

B) decrease the purchasing power of money.

83) Refer to Table 27-4. Assume that Bank XYZ has decreased its loans and re-established its target reserve ratio. The second-generation banks in this scenario will A) decrease their loans by $9.0 million. B) decrease their loans by $8.1 million. C) not have to change their loan positions. D) increase their loans by $8.1 million. E) increase their loans by $9.0 million.

B) decrease their loans by $8.1 million.

72) In the Neoclassical growth model, decreases in the population, other things being equal, would eventually result in A) decreasing GDP and falling living standards. B) decreasing GDP and increasing living standards. C) increasing GDP and falling living standards. D) increasing GDP and increasing living standards. E) increasing savings and increasing living standards.

B) decreasing GDP and increasing living standards.

112) When discussing the banking system, a cash drain of 5% means that A) 5% of an initial new deposit to the banking system is paid in banking fees and is therefore not available for the creation of new deposit money. B) depositors wish to hold 5% of the value of their deposits in cash. C) 5% of an initial new deposit to the banking system is payable as a financial services tax. D) 95% of an initial new deposit is maintained as cash reserves by the commercial bank. E) depositors wish to hold 95% of the value of their deposits in cash.

B) depositors wish to hold 5% of the value of their deposits in cash.

45) Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet? A) Government of Canada securities B) deposits of commercial banks C) advances to commercial banks D) savings deposits E) shareholders' equity

B) deposits of commercial banks

33) Consider the long-run theory of investment, saving and growth. In the long-run version of our macro model (with real GDP equal to Y*), the equilibrium interest rate is determined where A) aggregate demand equals aggregate expenditure. B) desired national saving equals desired investment. C) the nominal price level equals the real price level. D) desired consumption equals desired investment. E) desired saving equals desired consumption.

B) desired national saving equals desired investment.

115) The money supply in Canada is measured using M1, M2, M2+, and M3. The reason there are so many measures of the money supply is that A) the Bank of Canada wants to confuse the general public. B) different kinds of bank accounts represent different functions of money, and so the various measures are used to reflect these different functions. C) the money supply is too large to have only one measurement. D) only the newer and broader measurements are correct but the older measurements are still used so that historical comparisons are possible. E) it is a convenient way for provincial and federal governments to hide their budgetary surpluses.

B) different kinds of bank accounts represent different functions of money, and so the various measures are used to reflect these different functions.

62) The Canadian banking system is a A) gold-reserve system. B) fractional-reserve system. C) target-reserve system. D) asset-backed reserve system. E) treasury-bill reserve system.

B) fractional-reserve system.

26) Long-run economic growth can help alleviate the problems of poverty by A) creating new low-paying jobs for the unemployed. B) generating more resources that can be used to reduce income inequality. C) reallocating income away from low-value production to increase the incentives for high-value production. D) requiring increased saving on the part of most of the population. E) increasing future consumption for the middle class.

B) generating more resources that can be used to reduce income inequality.

34) If government policies are to be successful in enhancing a country's long-run growth rate, they likely work through generating A) higher levels of current consumption. B) greater private investment in physical and human capital. C) an increase in current consumption and a reduction in saving. D) a leftward shift in the AS curve. E) fiscal policies that shift the AD curve to the right.

B) greater private investment in physical and human capital.

82) A person who returns to school to improve her computer skills is an example of an increase in A) the labour force. B) human capital. C) physical capital. D) technological capital. E) financial capital.

B) human capital.

81) Refer to Table 27-3. Suppose the public decides to hold 15% of their deposits in cash - that is, there is now a cash drain of 15%. As a result of the new deposit, the money supply would eventually A) increase by $ 3.75 million. B) increase by $12.50 million. C) decrease by $12.50 million. D) decrease by $20.00 million. E) not change.

B) increase by $12.50 million.

43) An increase in the government budget surplus, everything else constant, will cause a(n) A) decrease in national saving. B) increase in national saving. C) decrease in the growth rate. D) equal increase in private consumption. E) equal decrease in private investment.

B) increase in national saving.

115) Given the rapid growth of world population in recent decades, the present needs and aspirations of the world's population can likely only be met through A) enormous increases in financial capital. B) increasing knowledge and technological improvements. C) reductions in the world's capital stock, as a means of controlling the exhaustion of natural resources. D) coordination of fiscal and monetary policies. E) relatively small increases in the saving rates of the developing economies.

B) increasing knowledge and technological improvements.

112) According to some modern theories of long-run economic growth, successive increments of investment have ________ returns since some fixed costs are ________ for subsequent firms. A) constant; identical B) increasing; lower C) increasing; higher D) decreasing; higher E) decreasing; lower

B) increasing; lower

6) Other things being equal, the purchasing power of money is A) inversely related to the level of aggregate demand. B) inversely related to the price level. C) directly related to the price level. D) directly related with the cost of living. E) directly related to the level of aggregate demand.

B) inversely related to the price level.

41) Commercial banks in Canada are prohibited by law from A) accepting demand deposits. B) issuing paper currency. C) lending money to households and firms. D) accepting term deposits. E) settling inter-bank debts through a clearinghouse.

B) issuing paper currency.

116) Modern growth theories are more optimistic than Neoclassical growth theories because the former emphasize the unlimited potential of A) modern capital. B) knowledge-driven technological change. C) more educated government policy making. D) modern labour. E) economic theory.

B) knowledge-driven technological change.

37) In the event of a sudden loss in confidence in the ability of the commercial banks to redeem deposits, the Bank of Canada would probably A) take over the operation of any banks in severe difficulties. B) lend reserves to the commercial banks. C) offer to sell government bonds to the chartered banks. D) suspend operation of the banking system until the panic subsided. E) impose severe financial penalties on the commercial banks by charging them interest at higher than the Bank rate.

B) lend reserves to the commercial banks.

69) The Neoclassical growth model assumes that, with a given state of technology, increases in the use of a single factor eventually cause the A) average product of the factor to increase. B) marginal product of the factor to fall. C) marginal product of the factor to increase at an increasing rate. D) marginal product of the factor to increase but at a decreasing rate. E) material standard of living to increase.

B) marginal product of the factor to fall.

114) Suppose a student deposits into a downtown bank a $200 cheque that she received from her parents in the suburbs. This transaction alone would A) decrease the money supply. B) not change the money supply. C) increase the money supply by an indeterminate amount. D) increase the money supply by $1000 if the target reserve ratio was 20%. E) decrease the money supply by $1000 if the target reserve ratio was 20%.

B) not change the money supply.

117) As a measure of the Canadian money supply, M2+ is defined as currency in circulation plus A) all chequable deposits. B) notice deposits at all financial institutions. C) savings deposits at the chartered banks and non-bank financial institutions. D) term deposits and money market funds at all financial institutions. E) term deposits, money market funds and personal savings accounts.

B) notice deposits at all financial institutions.

109) According to the "new" theories of economic growth, increasing marginal returns to capital investment is A) possible, but only in the early stages of innovation before imitators rush in to drive prices down. B) possible after initial fixed costs of innovation have been borne. C) possible only if the capital is government-owned infrastructure. D) impossible, and is thus a weak source of growth. E) impossible because diminishing returns are unavoidable.

B) possible after initial fixed costs of innovation have been borne.

107) The "new" theories of economic growth emphasize that the pace of technological change is ________ to economic signals, and that it is ________ to the economic system. A) responsive; exogenous B) responsive; endogenous C) unresponsive; exogenous D) unresponsive; endogenous E) unresponsive; unrelated

B) responsive; endogenous

74) In the Neoclassical growth model, if capital and labour grow at the same rate, we will observe A) rising GDP but falling living standards. B) rising GDP but no change in living standards. C) rising GDP and increasing living standards. D) increasing living standards but only for workers using labour-intensive production. E) increasing living standards but only for workers using capital-intensive production.

B) rising GDP but no change in living standards.

24) For a given level of technology, a more rapid rate of economic growth can probably be achieved only if a country's citizens are prepared to A) redistribute income. B) sacrifice some present consumption. C) increase their demand for goods and services. D) increase exports. E) decrease interest rates.

B) sacrifice some present consumption.

4) The compounding of economic growth rates means that A) a large increase in investment today has little effect on national income over the long run. B) small changes in sustained growth rates can have a significant impact on national income over several decades. C) consumers should not save, given the low real returns that compounding produces. D) a 10% annual rate of return will double an investment in less than 6 years. E) a 2% annual growth rate of GDP will double national income in 27 years.

B) small changes in sustained growth rates can have a significant impact on national income over several decades.

20) Which of the following was the most important initial step in the evolution of paper currency? A) the acceptance of bank notes B) the acceptance of goldsmiths' receipts C) the acceptance of metallic coins D) the issuance of currency by governments E) the use of the Gold Standard

B) the acceptance of goldsmiths' receipts

48) For a given level of private saving, a decrease in the government's budget deficit ________ the long-run rate of economic growth. A) will reduce B) will leave unchanged C) will increase D) will diminish E) none of the above

B) will leave unchanged

86) Balanced growth of labour and capital in the Neoclassical growth model A) leads to rising material living standards. B) will not increase the level of per capita GDP. C) will result in a constant level of GDP. D) is a natural outcome of long-run equilibrium. E) explains current rising per capita incomes in many countries.

B) will not increase the level of per capita GDP.

72) Refer to Table 27-2. Assume that Bank North is operating with no excess reserves. What is their actual reserve ratio? A) 12% B) 13.67% C) 15% D) 20% E) 25%

C) 15%

11) If real income grows at approximately 4% per year, the number of years it will take for real income to double is approximately A) 5. B) 12. C) 18. D) 36. E) 72.

C) 18.

105) Note: This question requires a calculator with an exponent function. Refer to Table 26-2. If this economy is growing at an annual rate of 2%, then real GDP in Year 50 will be ________; if it is growing at an annual rate of 4%, then real GDP in Year 50 will be ________. A) 1645; 2000 B) 1126; 1268 C) 2692; 7107 D) 500; 2000 E) 51 000; 52 000

C) 2692; 7107

121) Which of the following is an example of "near money"? A) Scotiabank credit card B) American Express card C) 30-day Treasury bill D) mortgage on a house E) car loan

C) 30-day Treasury bill

59) Refer to Figure 26-3. The equilibrium interest rate in this market is ________% and the equilibrium flow of investment and saving is ________ billion dollars. A) 1; 50 B) 2; 60 C) 3; 70 D) 4; 80 E) 5; 90

C) 3; 70

101) Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5% each, and the production function displays constant returns to scale, then total output will increase by ________%.

C) 5

94) Refer to Table 27-5. Assume that Northern Bank's target reserve ratio is 10%. What is it's actual reserve ratio? A) 6.67% B) 7.1% C) 8.0% D) 9.1% E) 10.0%

C) 8.0%

36) The largest component of the liabilities of the Bank of Canada is A) Government of Canada securities. B) Government of Canada deposits. C) Canadian dollars in circulation. D) deposits of commercial banks and other financial institutions. E) loans to private individuals.

C) Canadian dollars in circulation.

17) Refer to Figure 26-1. Which of the following statements about Economies A and B is correct? A) Economy A will sustain higher material living standards than Economy B in the long run. B) Economies A and B will have equal material living standards beginning at Year 0. C) Economy B will sustain higher material living standards than Economy A in the long run. D) Economies A and B will have equal material living standards beginning at Year X. E) Economies A and B will have equal material living standards beginning at Year Y.

C) Economy B will sustain higher material living standards than Economy A in the long run.

58) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. Now suppose the government implements a revenue-neutral tax policy that encourages investment. What is the effect on the quantity of national saving? A) There is no effect on NS or ID and the quantity of national saving supplied remains at I*. B) National saving shifts to , and the quantity of national saving supplied rises to I2. C) Investment demand shifts to I1D and the quantity of national saving supplied rises to I1. D) Investment demand shifts to I1D, national saving shifts to NS1, and the quantity of national saving rises to I3. E) National saving shifts to , investment demand shifts to I1D, and the quantity of national saving rises to .

C) Investment demand shifts to I1D and the quantity of national saving supplied rises to I1.

52) Why is the possibility of a bank run extremely small in Canada today? A) The Bank of Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals. B) The Department of Finance guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals. C) The Canadian Deposit Insurance Corporation provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic. D) The Office of the Superintendent of Financial Institutions provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic. E) Industry Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals.

C) The Canadian Deposit Insurance Corporation provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic.

65) Consider the Neoclassical growth model. The effect of an increase in population (or the labour force) in an economy, with everything else held constant, is A) an increase in per capita national income. B) an increasingly aging population. C) a decrease in per capita output. D) a decrease in the capital-output ratio. E) an inward shift of the production possibilities boundary.

C) a decrease in per capita output.

22) One of the benefits of long-run economic growth is A) growth in nominal GDP greater than real GDP. B) decreased productive capacity. C) a greater ability to reduce inequality. D) increased future interest rates. E) decreased current saving and increased current consumption.

C) a greater ability to reduce inequality.

7) When you are estimating your monthly income and expenses, money is being used as A) a medium of exchange. B) a store of value. C) a unit of account. D) a standard unit of deferred payment. E) a money substitute.

C) a unit of account.

8) Doug compares the unit price of chocolate bars in order to get the "best buy." This represents using money as A) a medium of exchange. B) a store of value. C) a unit of account. D) a unit of deferred payment. E) a money substitute.

C) a unit of account.

98) An aggregate production function exhibits constant returns to scale when a 1% increase in labour input A) produces a 1% increase in output. B) along with a 1% increase in capital produces the same amount of output. C) along with a 1% increase in capital produces one percent more output. D) along with a 1% decrease in capital produces the same amount of output. E) induces a 1% increase in capital input.

C) along with a 1% increase in capital produces one percent more output.

53) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. If the real interest rate is i1, there is ________ which will drive the interest rate down until it reaches i*. A) an excess demand for financial capital B) an excess demand for investment C) an excess supply of financial capital D) an excess supply of public saving

C) an excess supply of financial capital

84) According to the Neoclassical growth model, which of the following scenarios (other things being equal) explains progressively smaller increases in per capita GDP? A) an increase in population B) a decrease in unemployment rates C) an increase in the capital stock D) an equal increase in both population and the stock of capital E) an equal increase in population and output

C) an increase in the capital stock

83) According to the Neoclassical growth model, which of the following scenarios explains improvements in long-run material living standards? A) an increase in population B) a decrease in unemployment rates C) an increase in the stock of physical capital D) an equal increase in both population and the stock of capital E) an equal increase in both population and output

C) an increase in the stock of physical capital

75) According to the Neoclassical growth model, it is most likely that GDP would increase, but that average material living standards would fall, as a result of A) a fast-growing capital stock. B) a better educated labour force. C) an increase in the working population. D) a growing capacity to develop and incorporate new innovations. E) an increase in the availability of natural resources.

C) an increase in the working population.

55) "Excess reserves" for a commercial bank refer to A) any surplus in the bank's supply of gold. B) any surplus of chequable deposits. C) any reserves (cash or deposits with the Bank of Canada) that the bank holds over and above its desired reserves. D) reserves (cash or deposits with the Bank of Canada) that the Bank of Canada requires the bank to hold. E) excess demand for money from that bank.

C) any reserves (cash or deposits with the Bank of Canada) that the bank holds over and above its desired reserves.

32) The largest element of the Canadian money supply today is A) coins. B) paper money. C) bank deposits. D) gold. E) the debt of the federal government.

C) bank deposits.

27) Long-term economic growth A) is achieved only by changes in factor-utilization rates. B) alleviates all poverty. C) can improve average material living standards. D) is the result of expansionary fiscal policy. E) leads to equal income distribution.

C) can improve average material living standards.

82) Refer to Table 27-4. Bank XYZ is immediately in a position to A) decrease its loans by $100 million. B) decrease its loans by $10 million. C) decrease its loans by $9 million. D) increase loans by $9 million. E) increase loans by $10 million

C) decrease its loans by $9 million.

44) The Canada Deposit Insurance Corporation (CDIC) was set up to protect A) member financial institutions in case of non-payment of loans from borrowers. B) member financial institutions in case of non payment of loans from the government. C) depositors with Canadian dollar accounts in member institutions for up to a maximum of $100 000 per eligible deposit. D) depositors with Canadian dollar accounts in any Canadian financial institution for up to a maximum of $100 000 per institution. E) depositors of any currency in any Canadian financial institution for up to a maximum of $100 000 per institution.

C) depositors with Canadian dollar accounts in member institutions for up to a maximum of $100 000 per eligible deposit.

65) Suppose Bank ABC has a target reserve ratio of 10%. If Bank ABC receives a new deposit of $100 000 it will immediately find itself with A) no excess cash reserves. B) excess cash reserves of $10 000. C) excess cash reserves of $90 000. D) excess cash reserves of $100 000. E) excess cash reserves equal to 10% of its deposits.

C) excess cash reserves of $90 000.

63) Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million. This bank's ________ is/are $75 million. A) profits B) fractional reserves C) excess reserves D) reserve ratio E) cash drain

C) excess reserves

6) If GDP in a richer country grows at the same annual rate as in a poorer country, the A) gap between their standards of living will widen over time. B) gap between their standards of living will close over time. C) gap between their standards of living will close over time as long as the rate of population growth is lower in the poorer country. D) gap between their standards of living will close over time as long as the rate of population growth is lower in the richer country. E) difference in their living standards will not change over time.

C) gap between their standards of living will close over time as long as the rate of population growth is lower in the poorer country.

3) In the long run, changes in average material living standards are best shown by A) growth in real GDP. B) population growth. C) growth in real per capita GDP. D) improvements in fiscal policy. E) improvements in monetary policy.

C) growth in real per capita GDP.

66) One important assumption of the Neoclassical growth model is that, with a given state of technology, A) increases in the use of a single factor bring increasing returns. B) increases in the use of a single factor result in constant returns. C) increases in the use of single factor bring diminishing returns. D) the return from successive units of a single factor increases over time. E) increases in GDP are possible only if all factors are increased at an equal rate.

C) increases in the use of single factor bring diminishing returns.

76) In Neoclassical growth theory, an increase in the labour force ________ total output and ________ total output per person. A) increases; increases B) increases; leaves constant C) increases; reduces D) leaves constant; leaves constant E) leaves constant; reduces

C) increases; reduces

71) In the Neoclassical growth model, whenever diminishing returns applies, increases in the population, other things being equal, are accompanied by A) decreasing GDP and falling living standards. B) decreasing GDP and increasing living standards. C) increasing GDP and falling living standards. D) increasing GDP and constant living standards. E) increasing GDP and increasing living standards.

C) increasing GDP and falling living standards.

120) In new theories of economic growth, "learning by doing" contributes to endogenous technological change because A) knowledge can be considered a private good. B) knowledge can be considered a public good. C) information at all stages of the design and production processes is fed upstream and contributes to further innovation. D) "learning by doing" increases the marginal product of physical capital. E) new technical knowledge can be transferred at zero cost.

C) information at all stages of the design and production processes is fed upstream and contributes to further innovation.

95) The so-called "Solow residual" A) refers to the amount of GDP growth that cannot be explained by the growth in technological change. B) takes embodied technological change into consideration. C) is an underestimate of the amount of technological change when embodied technological progress occurs. D) is an alternative to a measure of "total factor productivity." E) is an overestimate of the amount of technological change when embodied technological progress occurs.

C) is an underestimate of the amount of technological change when embodied technological progress occurs.

85) Real GDP is not a good measure of average material living standards because A) it is biased by the changes in the inflation rate. B) it excludes the role of imported goods. C) it does not take into account the size of the population. D) it is sensitive to the base year chosen in its calculation. E) the price level may be changing, which affects what people can afford to buy.

C) it does not take into account the size of the population.

22) The major problem of a currency that is fractionally backed and convertible into a precious metal is that of A) clipping, which debases the metal coins. B) counterfeiting. C) maintaining its convertability into the metal. D) paper money being less durable than gold. E) perennial shortages of paper currency.

C) maintaining its convertability into the metal.

123) The M2 and M2+ definitions of the money supply concentrate on the ________ function of money. A) store of value B) unit of account C) medium-of-exchange D) accounting E) deposit-creation

C) medium-of-exchange

15) When metal coins, such as gold and silver, were used as money, a technique which helped to prevent the reduction of their value through clipping was A) basing. B) re-minting. C) milling. D) debasement. E) sweating.

C) milling.

60) Without a central bank, commercial banks in Canada would probably hold ________ reserves than they do now, resulting in a ________ money supply than at present. A) the same; the same B) more; larger C) more; smaller D) less; smaller E) less; larger

C) more; smaller

12) Of the variables listed below, the best measure of a nation's average material standard of living is A) nominal GDP. B) percent change in nominal GDP. C) per capita real GDP. D) per capita nominal GDP. E) real GDP.

C) per capita real GDP.

81) In the Neoclassical growth model, the law of diminishing marginal returns implies that capital accumulation leads to ever A) larger decreases in GDP and large decreases in living standards. B) larger increases in GDP but smaller decreases in living standards. C) smaller increases in GDP and living standards. D) larger levels of unemployment but small increases in the standard of living. E) larger levels of unemployment but larger increases in the standard of living.

C) smaller increases in GDP and living standards.

89) Consider the Neoclassical growth model. Sustained economic growth in the long run could best be fostered by A) expansionary fiscal policy. B) decreasing excise taxes on consumer goods. C) technological improvements embodied in physical or human capital. D) elimination of an output gap. E) expansionary monetary policy.

C) technological improvements embodied in physical or human capital.

92) The growth of "total factor productivity," or the "Solow residual," is equal to the growth in real GDP A) accounted for by changes in all factors of production but excluding technological changes. B) accounted for by changes in all factors of production and including technological changes. C) that cannot be accounted for by changes in the quantities of labour and capital. D) that cannot be accounted for by changes in technology. E) that cannot be accounted for by changes in the labour force.

C) that cannot be accounted for by changes in the quantities of labour and capital.

111) With respect to long-run economic growth, one rationale for the idea that there may be increasing marginal returns to investment is that A) as further investment takes place the economy moves down to the right along the marginal product schedule. B) as further investment takes place the economy moves upward to the left along the marginal product schedule. C) the investment costs to "followers" are lower than those for "pioneers." D) initial investment shifts the the investment demand schedule to the left, making further investment less costly. E) initial investment shifts the the aggregate demand schedule to the left, making further investment less costly.

C) the investment costs to "followers" are lower than those for "pioneers."

42) The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies. A crucial function that ceased to work smoothly during this time, and contributed to the global recession that began in 2008, was A) the acceptance of deposits from firms and households. B) the joint regulation of financial markets. C) the provision of credit to firms and households. D) cheque clearing and collection. E) the clearing of electronic transfers.

C) the provision of credit to firms and households.

122) In 1950, when the world's population was 2.5 billion, it was unimaginable that the world could ever produce enough food to feed the present world population of 7 billion. Such a belief was likely based on the following erroneous assumptions: A) food production increases geometrically and population increases arithmetically. B) the potential GDP of all countries is constant, and food production would comprise a declining share of GDP. C) the state of technology is constant and the stock of resources is fixed. D) global political and economic cooperation would be a necessary condition to feed such a growing population.

C) the state of technology is constant and the stock of resources is fixed.

70) A central assumption of the Neoclassical growth model is that A) long-run growth arises from correcting market failures. B) long-run growth arises only from technological innovation. C) there are diminishing marginal returns to a single factor. D) there are constant marginal returns to investment. E) there are increasing marginal returns to capital investment.

C) there are diminishing marginal returns to a single factor.

91) If a country experiences growth in "total factor productivity" (i.e., the "Solow residual"), then A) all growth in real GDP can be explained by growth in the labour force. B) all growth in real GDP can be explained by growth in the capital stock. C) there is some growth in real GDP that cannot be accounted for by growth in capital or the labour force. D) none of the growth in real GDP can be accounted for by growth in capital and the labour force. E) material standards of living are falling.

C) there is some growth in real GDP that cannot be accounted for by growth in capital or the labour force.

17) Gresham's law predicts that A) good money drives out bad money. B) debased money will circulate with undebased money. C) undebased money will be driven from circulation. D) debased money will be driven from circulation. E) money is neutral in the long run.

C) undebased money will be driven from circulation.

64) Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries A) with the highest levels of per capita GDP. B) with the highest levels of GDP. C) with high rates of economic growth. D) with the lowest rate of national saving. E) with a negative relationship between investment and the rate of economic growth.

C) with high rates of economic growth.

106) If the target reserve ratio in the banking system is 20%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of A) $0.20. B) $1.20. C) $2.00. D) $5.00. E) $20.00.

D) $5.00.

87) Suppose you found a $100 bill that was lost for many years under your grandmother's mattress. If the banking system has a cash drain of 5%, its target reserve ratio is 20%, and all excess reserves were lent out, your new deposit of the $100 bill would lead to an eventual expansion of the money supply of A) $20. B) $25. C) $200. D) $400. E) $500.

D) $400.

39) Suppose the government has a budget deficit of $400. If the country's level of national saving is $200, then private saving must be A) -$400. B) $200. C) $400. D) $600. E) $800.

D) $600.

107) If the target reserve ratio in the banking system is 10%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of A) $0.01. B) $0.10. C) $1.00. D) $10.00. E) $100.00.

D) $10.00.

67) Suppose the Canadian banking system jointly has $20 million in reserves (cash and deposits at the Bank of Canada), all banks have a target reserve ratio of 20%, and there are no excess reserves. What is the amount of deposits in the banking system? A) $4 million B) $40 million C) $80 million D) $100 million E) $120 million

D) $100 million

58) If all the commercial banks in the banking system collectively have $300 million in cash reserves and are satisfying their target reserve ratio of 20%, what is the amount of deposits they have? A) $0 B) $60 million C) $600 million D) $1500 million E) $2000 million

D) $1500 million

78) Refer to Table 27-3. If Bank XYZ increases its loans to the maximum extent possible with its new excess reserves, the second-generation banks will be able to expand their loans by A) $0.94 million. B) $1.00 million. C) $1.50 million. D) $2.81 million. E) $3.75 million.

D) $2.81 million.

91) Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a desired reserve ratio of 2.5% and no cash drain, the maximum change in deposits for the entire banking system would be A) $682.50. B) $700.00. C) $17 500.00. D) $28 000.00. E) $70 000.00.

D) $28 000.00.

56) Consider a new deposit of $10 000 to the Canadian banking system. The bank that initially receives this deposit will find itself with A) no excess reserves if there is no reserve requirement. B) $1000 of excess cash reserves if its target reserve ratio is 10%. C) $2000 of excess cash reserves if its target reserve ratio is 10%. D) $8000 of excess cash reserves if its target reserve ratio is 20%. E) $10 000 of excess cash reserves if its target reserve ratio is 100%.

D) $8000 of excess cash reserves if its target reserve ratio is 20%.

100) Consider a new deposit of $10 000 to the Canadian banking system. The commercial bank that initially receives this deposit will find itself with A) no excess reserves if there is no reserve requirement. B) $1000 of excess cash reserves if its target reserve ratio is 10%. C) $2000 of excess cash reserves if its target reserve ratio is 2%. D) $9000 of excess cash reserves if its target reserve ratio is 10%. E) $98 000 of excess cash reserves if its target reserve ratio is 2%.

D) $9000 of excess cash reserves if its target reserve ratio is 10%.

1) The function of money in an economy is to serve as 1) a unit of account; 2) a store of value; 3) a medium of exchange. A) 1 and 2 B) 2 and 3 C) 1 and 3 D) 1, 2, and 3 E) 3 only

D) 1, 2, and 3

34) Basic functions of the Bank of Canada include 1) acting as lender of last resort to private non-financial corporations; 2) acting as banker for the chartered banks. 3) regulating the money supply. A) 1 only B) 2 only C) 3 only D) 2 and 3 E) 1, 2, and 3

D) 2 and 3

74) Refer to Table 27-2. If Bank North receives a new deposit of $400, its actual reserve ratio immediately becomes A) 7% B) 15% C) 25% D) 29% E) 35%

D) 29%

48) Refer to Table 27-1. What are the total assets on the balance sheet of this commercial bank? A) 2410 B) 2520 C) 2810 D) 2960 E) 3160

D) 2960

49) Refer to Table 27-1. What are the total liabilities on the balance sheet of this commercial bank? A) 2410 B) 2520 C) 2810 D) 2960 E) 3160

D) 2960

2) Between the years 1960 and 2011, the Canadian economy experienced growth in real GDP at an average annual rate of ________%. A) 0.7 B) 1.2 C) 1.9 D) 3.3 E) 6.3

D) 3.3

10) If real income grows at approximately 2% per year, the number of years it will take for real income to double is approximately A) 5. B) 12. C) 24. D) 36. E) 72.

D) 36.

11) An example of the use of money as a medium of exchange is: A) Dave keeps $250 in his drawer for a "rainy day." B) Mike gets a friend to give him a beer today in return for promising to give the friend two beer when Mike gets paid at the end of the month. C) Judy lends her car to a friend who signs a promissory note that she will pay Judy $10 a day for the use of the car after she returns the car to Judy. D) Barry pays $275 with his bank debit card for tickets for an NHL play-off game. E) ABC Investments Inc. enters in its account books that it owes Nallai $20 for his last month's investment income.

D) Barry pays $275 with his bank debit card for tickets for an NHL play-off game.

90) When a new personal computer is purchased to replace an old one, and the new PC is much better and faster than the old one, there has been A) a disembodied technical change. B) a rise in the capital-output ratio. C) a fall in the output per unit of capital. D) an embodied technical change. E) capital "deepening."

D) an embodied technical change.

119) The concept of "near money" refers to A) money substitutes such as credit cards. B) cheques on demand deposits. C) financial assets whose capital values are too unstable for them to be classified as money. D) assets that fulfill the temporary store-of-value function but not the medium-of-exchange function. E) assets that fulfill the medium-of-exchange function but not the store of value function.

D) assets that fulfill the temporary store-of-value function but not the medium-of-exchange function.

30) In recent years, the use of debit cards issued by commercial banks has skyrocketed. When you pay for a purchase at a store using a debit card, you are A) authorizing the transfer of cash from your bank account to the merchant's bank account. B) creating an electronic debt to the merchant. C) authorizing an electronic transfer of a money substitute from you to the merchant. D) authorizing an electronic transfer of deposit money from you to the merchant. E) authorizing the transfer of bank notes from you to the merchant.

D) authorizing an electronic transfer of deposit money from you to the merchant.

1) Over a long period of time, perhaps many years, changes in real GDP come primarily from A) upward shifts of the AS curve. B) upward shifts of the AE curve. C) rightward shifts of the AD curve. D) continuous increases in potential GDP. E) leftward shifts of the AD curve.

D) continuous increases in potential GDP.

49) Consider the long-run theory of investment, saving, and growth. For a given level of national income, a decrease in private consumption or government purchases will cause the equilibrium interest rate to A) increase and the flow of national saving to decrease. B) increase and the flow of investment to increase. C) increase and the flow of investment to decrease. D) decrease and the flow of national saving to increase. E) decrease and the flow of national saving to decrease.

D) decrease and the flow of national saving to increase.

60) Refer to Figure 26-3. Suppose the interest rate in this market for financial capital is 2%. In this case there is an excess ________ financial capital of ________ billion dollars. A) supply of; 30 B) demand for; -30 C) supply of; 50 D) demand for; 30 E) demand for; 80

D) demand for; 30

10) The biggest disadvantage of a barter system compared to one that uses money is that A) it is difficult to find goods to trade in a barter system that satisfy the needs of society. B) a standardized unit of account cannot exist in a barter system. C) commodities are difficult to transport and therefore inefficient for exchange. D) each trade requires a double coincidence of wants. E) commodities are difficult to use as a store of value.

D) each trade requires a double coincidence of wants.

122) When you pay for your $74 purchase at the grocery store with a debit card, you are A) transferring $74 of currency from your bank account to the grocery store's bank account. B) withdrawing $74 from your bank account with which you pay for your groceries. C) transferring your claim on $74 worth of gold to the grocery store. D) electronically transferring $74 of deposit money from your bank account to the grocery store's bank account. E) essentially promising the grocery store that your bank will pay them $74 at the end of the month when debts are settled.

D) electronically transferring $74 of deposit money from your bank account to the grocery store's bank account.

119) Consider the competing products made by Apple (iPhone) and Samsung, for example. The innovation generated by these firms as a result of their intense rivalry is an example of A) covert collusion. B) constant returns to scale. C) exogenous technological change. D) endogenous technological change. E) decreasing marginal returns.

D) endogenous technological change.

66) Suppose Bank ABC has a target reserve ratio of 2%. If Bank ABC receives a new deposit of $50 million it will immediately find itself with A) no excess cash reserves. B) excess cash reserves of $1 million. C) excess cash reserves of $10 million. D) excess cash reserves of $49 million. E) excess cash reserves of $49.5 million.

D) excess cash reserves of $49 million.

15) The four major determinants of economic growth include all of the following EXCEPT A) technological improvement. B) growth in physical capital. C) growth in human capital. D) growth in financial capital. E) growth in the labour force.

D) growth in financial capital.

59) Which of the following statements about reserve ratios at Canadian commercial banks is true? Commercial banks in Canada A) are required by the Bank Act to hold required reserves. B) have a reserve ratio of zero. C) have a reserve ratio of 100%. D) have a positive reserve ratio. E) never have excess reserves.

D) have a positive reserve ratio.

98) Refer to Table 27-5. Assume that Northern Bank's target reserve ratio is 10%. In order to achieve its target reserve ratio, Northern Bank must ________ and ________. A) increase its reserves by $200; decrease its deposits by $200 B) increase its reserves by $400; decrease its deposits by $400 C) not change its reserves; not change its deposits D) increase its reserves by $200; decrease its loans by $200 E) increase its reserves by $400; increase its loans by $800

D) increase its reserves by $200; decrease its loans by $200

73) In the Neoclassical growth model, increases in the stock of physical capital, other things being equal, will lead to A) decreasing GDP and falling living standards. B) decreasing GDP and increasing living standards. C) increasing GDP and falling living standards. D) increasing GDP and increasing living standards. E) increasing GDP and decreased national wealth.

D) increasing GDP and increasing living standards.

19) Suppose you come into possession of two "silver" dollars, one minted in the 1950s which contains a lot of silver, the other minted in the 1990s which contains no silver at all. The legal exchange rate between the coins is fixed at one for one. According to Gresham's law, the 1950s silver dollar A) is considered "bad" money. B) will drive out of circulation the 1990s silver dollar. C) is more likely to be used as a medium of exchange. D) is less likely to be used as a medium of exchange. E) is less likely to be used as a store of value because it will appear old fashioned.

D) is less likely to be used as a medium of exchange.

51) Consider the market for financial capital in the long run. The national saving curve is upward sloping because an increase in the real interest rate A) leads households to increase their current consumption. B) leads to an increase in investment demand. C) decreases the supply of public saving. D) leads households to reduce their current consumption. E) decreases the supply of private saving.

D) leads households to reduce their current consumption.

25) For a country to be on a "gold standard," it must A) use gold coins as money. B) use gold coins as money and promise never to debase its coins. C) use gold as money, but not necessarily in the form of gold coins. D) make its currency convertible into gold at a fixed rate of exchange. E) use gold as fiat money.

D) make its currency convertible into gold at a fixed rate of exchange.

125) Developments in the financial industry in recent years have resulted in a multitude of types of deposits. For the purposes of studying the money supply, the most important distinction is between chequing and savings deposits which are ________ and term deposits and other financial assets which are ________. A) a store of value; not a store a value B) a unit of account; not a unit of account C) a component of the money supply; not a component of the money supply D) media of exchange; not media of exchange E) money substitutes; near money

D) media of exchange; not media of exchange

120) Credit cards are considered to be "money substitutes" instead of money because A) they are not acceptable to pay for purchases. B) they cannot serve as a temporary medium of exchange. C) the only function of money they can perform is to serve as a store of value. D) money must eventually be used to pay for the transaction. E) credit card accounts are not chequable.

D) money must eventually be used to pay for the transaction.

29) Alleviation of poverty is more achievable in a growing economy mainly because A) individuals are more likely to object to the redistribution of income when they earn more. B) everyone, including the poor, benefits equally from growth. C) poor individuals are relatively easier to be identified in a growing economy. D) nobody has to be made worse off when the increment to income caused by growth is redistributed. E) wage rates for low-income people are naturally rising.

D) nobody has to be made worse off when the increment to income caused by growth is redistributed.

118) Investment in innovation is often considered to have increasing marginal returns because A) new products increase firms' profits. B) R&D costs are negligible relative to firms' total costs. C) innovation is mostly through "leaning by doing." D) of market development costs and the "public good" nature of knowledge. E) after the initial investment is made, subsequent investors face more difficult and expensive production problems.

D) of market development costs and the "public good" nature of knowledge.

40) Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet? A) deposit money held in accounts at Canada's commercial banks B) Government of Canada securities C) foreign currency reserves D) paper notes in circulation E) Canadian corporate securities

D) paper notes in circulation

14) The use of money in an economy does which of the following? A) creates the necessity for a double coincidence of wants B) solves the problem of inflation C) creates a problem of trading a portion of indivisible commodities such as a ship D) promote specialization and the division of labour E) promotes the use of barter

D) promote specialization and the division of labour

121) Resource exhaustion is not considered to be among the main factors that limit economic growth because A) the population growth rate is decreasing over time and projected to be negative in the future. B) different types of inputs are used in production over time. C) resources can be obtained from other planets as technology advances. D) technological advances change the nature of production over time and also make more resources available for extraction. E) there are limitless supplies of resources, at high enough prices.

D) technological advances change the nature of production over time and also make more resources available for extraction.

71) Which of the following examples constitutes a new deposit to the Canadian commercial banking system? A) an individual transfers money from Ship Shape Credit Union to Scotiabank B) an individual immigrates to Canada and maintains his existing deposits in a foreign bank C) an individual puts cash in a safety-deposit box D) the Bank of Canada buys government securities from a Canadian commercial bank E) the Bank of Canada buys foreign currency from abroad

D) the Bank of Canada buys government securities from a Canadian commercial bank

8) A common measure of a country's rate of economic growth is A) the marginal efficiency of capital. B) the capital-output ratio. C) the level of output per capita. D) the change in output per capita. E) the level of real gross domestic product.

D) the change in output per capita.

110) The expansion of deposits resulting from an injection of new cash to the banking system can be calculated as follows. The change in deposits is equal to A) the change in loans divided by the sum of the target reserve ratio. B) the change in reserves divided by the cash-deposit ratio. C) the change in reserves divided by the target reserve ratio. D) the change in reserves divided by the sum of the target reserve ratio and the cash-deposit ratio. E) the change in reserves divided by the sum of excess reserves and cash drain.

D) the change in reserves divided by the sum of the target reserve ratio and the cash-deposit ratio.

25) The costs of economic growth include A) declining future living standards. B) current saving must be sacrificed to increase investment in capital goods. C) improvements in technology. D) the effects on workers whose skills are made obsolete by technical change. E) reduced interest rates.

D) the effects on workers whose skills are made obsolete by technical change.

93) A desire by ________ has no effect on the ability of the banking system to create bank deposits, for a given amount of reserves in the banking system. A) banks to delay making loans in expectation of higher future interest rates B) households to increase the fraction of their money held in the form of currency C) households to hold more money in safety-deposit boxes D) the government to increase its level of spending E) firms to reduce their desired level of borrowing from banks

D) the government to increase its level of spending

21) Suppose an economy has two types of money — gold and silver coins — that are both legal tender but have different non-monetary values. Gresham's law has come into effect when A) people refuse to use the coins of lesser value. B) the value of the coins is in the same ratio as their non-monetary values. C) the lower-valued coin is taken out of circulation. D) the higher-valued coin is taken out of circulation. E) people use the higher-valued coins for exchange and the lower-valued for savings.

D) the higher-valued coin is taken out of circulation.

46) Which of the following statements concerning national saving is true? A) A country's saving rate is unrelated to its growth rate. B) An increase in the rate of saving will lead to a reduction in consumption and therefore to both a short-run and a long-run decrease in national income. C) An increase in the rate of saving will cause an immediate increase in national income, but may cause a drop in national income in the long-run. D) An increase in the rate of saving will always be offset by a reduction in private investment. E) An increase in the rate of saving will lead to a short-run reduction in national income, but to higher economic growth in the long run.

E) An increase in the rate of saving will lead to a short-run reduction in national income, but to higher economic growth in the long run.

16) Refer to Figure 26-1. Which of the following statements best describes what we know about the difference between the two economies at Year 0? A) Economy A has a higher level of real GDP at Year 0 than Economy B. B) Economy B's households are consuming a larger percentage of GDP than Economy A's households. C) There is no opportunity cost for economic growth for Economy B at Year 0. D) There is no opportunity cost of economic growth for Economy A at Year 0. E) Economy A's households are consuming a larger percentage of GDP than Economy B's households.

E) Economy A's households are consuming a larger percentage of GDP than Economy B's households.

57) Refer to Figure 26-2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. Now suppose the government implements a revenue-neutral tax policy that encourages investment. What is the effect on the real interest rate? A) There is no effect on NS or ID, and the interest rate remains at i*. B) National saving shifts to NS1, and the real interest rate falls to i3. C) The real interest rate rises because of the decrease in the budget surplus. D) The real interest rate falls because of the decrease in the budget surplus. E) Investment demand shifts to I1D, and the real interest rate rises to i2.

E) Investment demand shifts to I1D, and the real interest rate rises to i2.

99) An aggregate production function exhibits increasing returns to capital when A) no change in capital produces a one percent increase in output. B) a 1% decrease in capital produces an increase in the marginal product of capital. C) a 1% increase in capital produces no change in output. D) each additional unit of capital increases the number of jobs by more than 1%. E) each additional unit of capital has a higher marginal product than the previous unit.

E) each additional unit of capital has a higher marginal product than the previous unit.

18) Which of the following is consistent with the predictions of Gresham's law? A) An increase in the money supply will be followed by inflation. B) The increased circulation of U.S. coins in Canada during periods when the Canadian dollar is worth significantly less than the U.S. dollar. C) Debasement of a metallic money will be followed by inflation. D) Increases in the money supply led to the hyperinflation of the 1920s in Germany. E) The disappearance of U.S. coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S. dollar.

E) The disappearance of U.S. coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S. dollar.

31) Which of the following statements about deposit money is true? A) The quantity of fiat money in the Canadian economy far exceeds the quantity of deposit money. B) Deposit money can legally be created solely by the Bank of Canada. C) Deposit money is the paper money or coinage that is decreed by the government to be accepted as legal tender. D) Deposit money is recorded as an asset on the balance sheet of a commercial bank. E) The quantity of deposit money in the Canadian economy far exceeds the quantity of fiat money in circulation.

E) The quantity of deposit money in the Canadian economy far exceeds the quantity of fiat money in circulation.

44) Consider a closed economy in the long run. A country with a low national saving rate (as a fraction of real GDP) is likely to have A) a high growth rate because aggregate expenditure will be high out of any given income. B) either a high or low growth rate depending on the investment schedule. C) an AS curve moving continually to the right. D) trouble achieving potential real national income in the short run. E) a low growth rate because sustained high investment is not possible with low saving.

E) a low growth rate because sustained high investment is not possible with low saving.

85) Consider the creation of deposit money in the banking system. One implication of an increase in the cash drain to the public is that the A) banking system cannot create any additional money following a new deposit. B) amount of new money that can be created from a new source of reserves is increased. C) desired ratio is reduced. D) desired reserve ratio is increased. E) banking system's ability to create new money following a new deposit is reduced.

E) banking system's ability to create new money following a new deposit is reduced.

50) For a given level of national income, a decrease in private consumption or government purchases will cause the equilibrium interest rate to A) increase and the flow of national saving to fall. B) increase and the flow of investment to increase. C) increase and the flow of investment to decrease. D) decrease and the flow of investment to decrease. E) decrease and the flow of investment to increase.

E) decrease and the flow of investment to increase.

42) For a given level of national income, an increase in private consumption or government purchases will cause national saving to A) increase. B) grow at a constant rate. C) remain unchanged from its initial level. D) exceed investment. E) decrease.

E) decrease.

47) Which of the following entries would appear on the liabilities side of a commercial bank's balance sheet? A) mortgage loans B) Government of Canada securities C) cash reserves D) foreign currency reserves E) demand deposits

E) demand deposits

118) The main distinction between M2 and M2+ is that M2+ also includes A) deposits at trust companies, caisse populaires and foreign-currency accounts. B) coins in circulation. C) money market mutual funds held by the Bank of Canada. D) paper currency. E) deposits at financial institutions other than the chartered banks.

E) deposits at financial institutions other than the chartered banks.

79) The Neoclassical theory of economic growth led economics to be referred to as the "dismal science." The explanation for this reference lies in the theory's emphasis on A) growing inequality of income. B) increasing government intervention in the economy. C) increasing damage to the environment. D) the immoral behaviour of firms. E) diminishing returns in production.

E) diminishing returns in production.

113) In new theories of "endogenous growth," increasing marginal returns to investment can occur because A) investment costs for followers can be higher than for pioneers. B) knowledge provides the input that allows investment to be profitable. C) many investments require large fixed costs, the benefits of which are not available to subsequent firms. D) little risk is associated with the process of innovation for technological followers. E) early investors create an infrastructure favorable to followers.

E) early investors create an infrastructure favorable to followers.

106) Modern or "new" theories of long-run economic growth are based on the assumptions that technological change is mainly ________ to an economy and that investment yields ________ marginal returns. A) exogenous; diminishing B) exogenous; constant C) exogenous; increasing D) endogenous; decreasing E) endogenous, increasing

E) endogenous, increasing

87) According to the Neoclassical growth theory, sustained rising material living standards can only be explained by A) growth in human capital. B) growth in physical capital. C) growth in the labour force. D) balanced growth of labour and capital. E) exogenous technological change.

E) exogenous technological change.

3) In order to be considered "money," paper currency must be A) convertible into a precious metal. B) impossible to counterfeit. C) issued by a chartered bank. D) issued by a government agency. E) generally acceptable as a medium of exchange.

E) generally acceptable as a medium of exchange.

13) The theory of economic growth concentrates on the ________ over the long run, not on ________. A) growth of investment in capital goods; short-run fluctuations of investment B) growth of real GDP; growth of potential GDP C) factor utilization rates; growth of the supplies of factors D) factor utilization rates; growth of real GDP E) growth of potential output; fluctuations of output around potential

E) growth of potential output; fluctuations of output around potential

103) If the Bank of Canada enters the open market and purchases $1000 of government securities, what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system? A) decrease of $1000 B) decrease of $5000 C) decrease of $10 000 D) increase of $5000 E) increase of $10 000

E) increase of $10 000

24) Fiat money has value because it A) can be manufactured at will by the issuing government. B) has intrinsic value equal to its face value. C) is fully backed by gold at a fixed ratio. D) is only fractionally backed by gold. E) is generally accepted.

E) is generally accepted.

27) The currency that is in circulation in Canada today is A) fully backed by gold held at the central bank. B) backed by the U.S. dollar. C) backed by the euro. D) fractionally backed by gold. E) not officially backed by anything.

E) not officially backed by anything.

114) Compared to Neoclassical growth theory, newer "endogenous growth" theories are more ________ regarding the prospect of continuous increases in the standard of living, due in part to its emphasis on the ________. A) pessimistic; endogeneity of technological change B) pessimistic; accelerating depletion of natural resources C) pessimistic; increasing birth rates as a result of higher real income per capita D) optimistic; accelerating depletion of natural resources E) optimistic; endogeneity of technological change

E) optimistic; endogeneity of technological change

68) A central bank can "create" money by A) selling some of its foreign-currency reserves for domestic currency. B) selling government Treasury bills to the commercial banks. C) increasing the rate of inflation. D) issuing its own Central Bank bonds. E) purchasing government securities on the open market.

E) purchasing government securities on the open market.

110) New theories of economic growth based on the idea that growth is endogenous A) assume that the rate of growth of the economy is equal to the rate of population growth. B) assume that the growth rate of technology is exogenous. C) incorporate factors such as central-bank behaviour. D) ignore the role of technology. E) stress the role of knowledge and learning in the economy's rate of growth.

E) stress the role of knowledge and learning in the economy's rate of growth.

94) The Solow residual is an estimate of changes in A) economic growth. B) human capital. C) physical capital. D) labour. E) technology.

E) technology.

70) A new deposit to the banking system can result when A) an individual stashes cash in a mattress. B) a new immigrant to Canada sends cash to his or her home country. C) the Bank of Canada sells a government security to a firm which then maintains the asset in a bank. D) the Bank of Canada buys a government security from a firm, which keeps the proceeds from the sale in a company vault. E) the Bank of Canada buys a government security from a firm, which then deposits the proceeds from the sale in its account at a commercial bank.

E) the Bank of Canada buys a government security from a firm, which then deposits the proceeds from the sale in its account at a commercial bank.

30) An important social cost of economic growth is A) the increasing inequality of income that usually accompanies sustained growth. B) the sacrifice of current consumption required for a higher level of future consumption. C) the associated inflation. D) the associated frictional unemployment. E) the destruction of jobs due to labour skills of certain workers becoming obsolete.

E) the destruction of jobs due to labour skills of certain workers becoming obsolete.

38) Suppose the rare event occurs that a major Canadian commercial bank is on the verge of insolvency and collapse due to volatile world credit markets. The likely initial response is A) a bankruptcy filing overseen by the Superintendent of Financial Institutions. B) the adoption of all of the bank's liabilities by the Bank of Canada as the "lender of last resort." C) the sale of the bank's assets to the remaining commercial banks. D) the provision of funds by the World Bank as the "lender of last resort." E) the provision of funds by the Bank of Canada as the "lender of last resort."

E) the provision of funds by the Bank of Canada as the "lender of last resort."

93) An example of "embodied technical change" is A) education that teaches a wider portion of the labour force basic numeracy. B) the strengthening of social infrastructure, such as delivery of basic health-care services. C) better methods of inventory control. D) the development of better intellectual property law. E) the replacement of old computer chips with new ones designed for faster processing.

E) the replacement of old computer chips with new ones designed for faster processing.

80) The Neoclassical growth model assumes that with a given state of technology, A) increases in the use of a single factor bring increasing returns. B) increases in the use of a single factor result in constant returns. C) increases in GDP are possible only if all factors are increased at an equal rate. D) growth in GDP happens only if the labour force grows more quickly than the amount of physical capital. E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital.

E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital.

9) The major advantage of using money rather than barter is that A) in the barter system there is no way to express values of commodities. B) money is the only convenient way to store one's wealth. C) money has more value than real goods. D) money stays where you put it, whereas a cow often has to be fenced in. E) the use of money significantly reduces transactions costs.

E) the use of money significantly reduces transactions costs.

STARTING CH. 27

STARTING CH. 27