Question

11. When the Bank of Canada buys bonds from a chartered bank, chartered bank reserves

A) decrease and chartered banks make additional loans.

B) increase and chartered banks reduce loans.

C) decrease and chartered banks reduce loans.

D) decrease and interest rates fall.

E) increase and chartered banks make additional loans.

12. If Canadian interest rates rise, the value of the Canadian dollar ________ and net exports ________.

A) appreciates; increase

B) appreciates; decrease

C) depreciates; increase

D) depreciates; decrease

E) appreciates only if U.S. interest rates also fall; decrease

13. Which government fiscal policy is a negative demand shock?

A) decreasing taxes

B) increasing transfer payments

C) increasing government spending

D) all of the above

E) none of the above

14. Which government fiscal policy is a positive supply shock?

A) increasing taxes

B) decreasing transfer payments

C) decreasing government spending

D) increasing government spending

E) none of the above

Answer 1

Answer 11) E) increase and chartered bank make additional loans

Explanation- The reserve of the chartered bank increase as Bank of Canada buys bond from them due to inflow of the money and hence as the reserve increases the chartered bank is able to loan more funds to the people of the country and hence answer is E) increase and chartered bank make additional loans.

Answer 12) B) appreciates; decrease

Explanation- The increase in the interest rate leads to appreciation of the domestic currency and as the domestic currency appreciates the price of the domestic goods increases in the market and this leads to decrease in the export of the country.

Answer 13) B) increasing transfer payments

Explanation - When the demand decreases due to sudden changes then it is known as negative demand shock; the increasing transfer payments will reduce the amount of transactions and hence the demand will increase.

Answer 14) D) Increasing government spendings

Explanation- When the demand increases due to sudden changes then it is known as positive demand shock; The increase in government spending will stimulate the demand and hence it is a positive demand shock.