If the exchange rate rises from 1.25 euros per Canadian dollar to 1.40 euros per
ID: 1220491 • Letter: I
Question
If the exchange rate rises from 1.25 euros per Canadian dollar to 1.40 euros per Canadian dollar, then the Canadian dollar has appreciated and buys more European goods and services depreciated and buys fewer European goods and services appreciated and buys fewer European goods and services depreciated and buyers more European goods and services What action might the Bank of Canada take if the actual overnight rate was below its target for the overnight rate? sell treasury bills on the open market buy treasury bills on the open market reduce the bank rate none of the above would be appropriate actions Which of the following is an appropriate monetary policy if unemployment exceeds its natural rate? Bank of Canada sells government securities in the open market Government raising income tax rates Bank of Canada buys government securities in the open market Government increasing its spending on repairing highways Suppose that Bank A's total deposits = $150 000 and it is currently holding $25 000 in reserves. The remaining deposits of $125 000 have been loaned out, and the desired reserve ratio is 10%. If you deposit $50 000 into Bank A, the bank will now have $65 000 in excess reserves have $55 000 in excess reserves need to increase its reserves by $5 000 have just the right amount of desired reserves For a given interest rate, when money demand exceeds money supply, interest rates will fall interest rates will rise and the price of bonds will fall people will sell non-monetary assets such as bonds both (b) and (c) are correct Which of the following could cause the aggregate price level to rise AND real GDP to fall? Expectations of higher future profits by firms The government increases taxes paid by households Increase in the money supply Increase in input pricesExplanation / Answer
1. a. Appreciated and buys more European goods and services. As now 1 canadian dollar = 1.40 euro, people can buy the same good in lesser price.
2. d. None of these. The banks uses its reserves to lend or borrow in the overnight market to ensure that overnight rate stays same as the target.
3. d. Goverment increasing its spending on repaiing highways. It is a kind of exapnsionary monetary policy which is used in the times of increased rate of unemployment.
4. b. $55,000 in excess reserve.
5. a. Interest rate will fall.
6.a. Expectations of higher future profits by firms cause the agrregate price level to rise and real GDP to fall.