Deck 14: Central Banks and the Bank of Canada

Question 1

Describe the structure of the Bank of Canada.

Answer 1

The overall responsibility for the operation of the Bank of Canada rests with the Board of Directors which consists of fifteen members. The governor, the senior deputy governor, the deputy minister of finance and twelve outside directors. The board appoints the governor and the senior deputy governor with the governments approval for a term of seven years. The outside directors are appointed by the minister of finance for a three-year term and they are required to come from all regions of Canada and a variety of occupations with the exception of banking.

Question 2

The Great Depression ________.

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

Answer 2

B

Question 3

Which of the following is a responsibility of the Bank of Canada?

A)Funds management
B)Fiscal policy
C)Equalization payments
D)Foreign policy

Answer 3

A

Question 4

The main motivation for the formation of the Bank of Canada in 1934 was ________.

A)financial
B)the need for Canada to reflect its growing political independence from Britain
C)the need for Canada to coordinate its international trade policy
D)government debt

Question 5

All of the following have served as Bank of Canada governors except for ________.

A)Roy Romanow
B)David Dodge
C)Gordon Thiessen
D)John Crow

Question 6

The Board of Directors appoints the governor of the Bank of Canada for a renewable term of ________ years.

A)seven
B)five
C)eight
D)six

Question 7

The overall responsibility for the operation of the bank of Canada is held by the ________.

A)Board of Directors
B)Federal Government
C)Ministry of Finance
D)Provincial governments

Question 8

The Great Depression contributed to significant changes in Canadian ________.

A)deficits
B)monetary policy
C)foreign affairs policy
D)immigration policy

Question 9

Which of the following are entities of the Bank of Canada?

A)The Office of the Superintendent of Financial Institutions (OSFI)
B)The Governing Council
C)The Canada Deposit Insurance Corporation (CDIC)
D)The Federal Reserve

Question 10

The Bank of Canada has regional offices in the following cities, except ________.

A)Toronto
B)Vancouver
C)Edmonton
D)Halifax

Question 11

Which of the following is an element of the Bank of Canada?

A)The Office of the Superintendent of Financial Institutions (OSFI)
B)The Governing Council
C)The Board of Directors
D)B and C only

Question 12

The oldest central bank, having been founded in 1656, is the ________.

A)Riksbank, the central bank of Sweden
B)Deutsche Bundesbank
C)Bank of Japan
D)Federal Reserve System

Question 13

The Bank of Canada quarterly Monetary Policy Report is published every ________, ________, ________ and ________.

A)January; April; July; October
B)February; May; August; November
C)March; June; September; December
D)January; February; August; December

Question 14

Which of the following are entities of the Bank of Canada?

A)The Office of the Superintendent of Financial Institutions (OSFI)
B)The Board of Directors
C)The Canada Deposit Insurance Corporation (CDIC)
D)The Department of Finance

Question 15

Which of the following functions does the Bank of Canada perform?

A)Bank note issue
B)Municipal government fiscal policy management
C)Provincial government fiscal policy management
D)Advise the Federal Reserve

Question 16

The Great Depression contributed to significant changes in Canadian ________.

A)monetary policy
B)nationalization
C)growth policy
D)immigration

Question 17

Bank of Canada started operations in ________.

A)1935
B)1925
C)1915
D)1945

Question 18

Unemployment rates in Canada after the Great Depression rose close to ________.

A)20 percent
B)25 percent
C)30 percent
D)10 percent

Question 19

From 1929 to 1933 the Canadian real GDP fell by almost ________.

A)30 percent
B)40 percent
C)50 percent
D)20 percent

Question 20

The Bank of Canada has regional offices in which of the following cities?

A)Saskatoon
B)Edmonton
C)Montreal
D)Winnipeg

Question 21

In its role as provider of central banking services, the Bank of Canada ________.

A)serves as a lender of last resort if a deposit-taking institution faces a liquidity crisis
B)plays a central role in Canada's national mortgage system
C)is responsible for the government's operating accounts and for managing the government's foreign exchange reserves
D)A and C only.

Question 22

The Bank of Canada's goal of low inflation is closely tied to ________.

A)economic growth
B)price volatility
C)low interest rates
D)growth in the money supply

Question 23

The Bank of Canada assumed the monopoly of issuing bank notes in ________.

A)1945
B)1939
C)1940
D)1949

Question 24

Foreign exchange reserves are held by ________.

A)the federal government
B)the department of finance
C)the Ministry of Central Banking
D)individual provinces and territories

Question 25

Base money is also know as ________.

A)monetary base
B)power money
C)monetary liability
D)fund accounts

Question 26

Canada's national payments system currently clears and settles payments and transactions, at a volume that is currently ________ times our annual GDP.

A)15
B)10
C)5
D)2

Question 27

Which of the following functions are not performed by the Bank of Canada?

A)Cheque clearing
B)Conducting economic research
C)Setting interest rates payable on time deposits
D)Issuing new currency

Question 28

In its role as the federal government's fiscal agent, the Bank of Canada provides debt management services for the federal government such as ________.

A)advising on provincial government borrowings
B)managing new debt offerings by the federal government
C)servicing the federal government's outstanding debt
D)B and C only.

Question 29

The Bank of Canada's lender-of-last resort lending is coordinated with ________ and ________.

A)Office of the Superintendent of Financial Institutions Canada; Canada Deposit Insurance Corporation
B)Office of the Superintendent of Financial Institutions Canada; the Department of Finance
C)the Department of Finance; Canada Deposit Insurance Corporation
D)Office of the Superintendent of Financial Institutions Canada; Canada Investment and Savings

Question 30

In its role as provider of paper money, the Bank of Canada ________.

A)works closely with private sector partnerships and note-issuing authorities in other countries in order to improve cost-effectiveness, increase the durability of Canadian bank notes, and reduce counterfeiting
B)tries to preserve the integrity and safety of Canadian currency in the most economical and efficient manner possible
C)None of the above.
D)A and B only.

Question 31

In its role as provider of central banking services, the Bank of Canada holds deposit accounts of the ________.

A)provincial governments
B)directly clearing members of the Canadian Payments Association
C)international organizations, such as the International Monetary Fund
D)B and C only.

Question 32

The benefit of the Ban k of Canada's role as the lender-of-last-resort include ________.

A)easing liquidity problems of any financial institution
B)deterring bank runs and panics
C)reducing the monetary base to increase liquidity
D)A and B only

Question 33

In its responsibility for the government's operating accounts, the Bank of Canada ________.

A)shifts balances between accounts at the Bank of Canada and the banks
B)shifts balances between chartered banks
C)sells Canada Savings Bonds on behalf of the federal government
D)manages foreign exchange transactions

Question 34

As the federal government's fiscal agent the Bank of Canada provides ________ management services for the federal government.

A)debt
B)cost
C)financial
D)economic

Question 35

Because of its unique power to ________ base money, the Bank of Canada can ease the liquidity problems of ________.

A)create; financial institutions
B)create; provincial governments
C)save; financial institutions
D)save; provincial governments

Question 36

The purchase and sale of government securities by the Bank of Canada is known as ________.

A)open market buyback operations
B)repurchase agreements
C)interbank borrowing
D)monetary base transactions

Question 37

Treasury bills are a responsibility of ________.

A)the Bank of Canada
B)Canada Investment and Savings
C)Ministry of the Treasury
D)the federal government

Question 38

Changes in the ________ lead to ________ changes in the money supply.

A)monetary base; multiple
B)monetary base; equal
C)inflation rate; multiple
D)inflation rate; equal

Question 39

The Bank of Canada serves as a lender of last ________ when a deposit-taking financial institution faces a ________ crisis.

A)resort; liquidity
B)minute; liquidity
C)resort; profitability
D)minute; profitability

Question 40

Which of the following functions are not performed by the Bank of Canada in its role as the federal government's fiscal agent?

A)Advising on federal government borrowings
B)Managing new debt offerings by the federal government
C)Setting interest rates payable on time deposits
D)Servicing the federal government's outstanding debt

Question 41

Under the current "joint responsibility system," ________.

A)in the event of a serious policy conflict the minister of finance can issue a directive that the Bank of Canada must follow
B)the government accepts full responsibility for monetary policy
C)the Bank of Canada does not have considerable autonomy in the conduct of day-to-day monetary policy
D)A and B only.

Question 42

Instrument independence is the ability of ________ to set monetary policy ________.

A)the central bank; goals
B)Parliament; goals
C)Parliament; instruments
D)the central bank; instruments

Question 43

Goal independence is ________.

A)the ability of the central bank to set monetary policy goals
B)the ability of the government to set monetary policy goals
C)the ability of the prime minister to set monetary policy instruments
D)the ability of the government to set monetary policy instruments

Question 44

Which goal has been set jointly by the Bank and the Department of Finance?

A)Currency stability
B)GDP growth
C)Price stability
D)Employment growth

Question 45

The Bank of Canada ultimate objective is ________.

A)price stability
B)to keep interest rates low
C)economic growth
D)low unemployment

Question 46

Under the current "joint responsibility system," ________.

A)the Bank of Canada and the minister of finance consult regularly
B)in the event of a serious policy conflict the minister of finance can issue a directive that the Bank of Canada must follow
C)the Bank of Canada has full responsibility for monetary policy
D)A and B only.

Question 47

Increased operational independence by the Bank of Canada has also raised the standards for ________.

A)accountability
B)secrecy
C)misconduct
D)confusion

Question 48

The ability of a central bank to set monetary policy instruments is ________.

A)political independence
B)goal independence
C)policy independence
D)instrument independence

Question 49

According to the performance of the Canadian economy, and the evolution of economic theory, what is the most important goal of monetary policy?

A)Currency stability
B)Price stability
C)GDP growth
D)Employment growth

Question 50

Goal independence is the ability of ________ to set monetary policy ________.

A)the central bank; goals
B)Congress; goals
C)Congress; instruments
D)the central bank; instruments

Question 51

The Bank of Canada enjoys ________.

A)instrument independence
B)political independence
C)goal independence
D)A and B only.

Question 52

Economist Stanley Fisher defined two types of independence of central banks: ________ and ________ independence.

A)instrument; goal
B)policy; goal
C)instrument; political
D)parliamentary; decision

Question 53

Instrument independence is ________.

A)the ability of the central bank to set monetary policy goals
B)the ability of the government to set monetary policy goals
C)the ability of the government to set monetary policy instruments
D)the ability of the central bank to set monetary policy instruments

Question 54

The ability of a central bank to set monetary policy goals is ________.

A)political independence
B)goal independence
C)policy independence
D)instrument independence

Question 55

Under the current "joint responsibility system," ________.

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

Question 56

The responsibility of monetary policy in Canada was given by the 1967 Bank of Canada Act to the ________.

A)government
B)Bank of Canada
C)provincial governments
D)parliament

Question 57

What are the main functions of the Bank of Canada? Describe them briefly.

Question 58

What contributed to the move towards accountability and transparency of the Bank of Canada?

Question 59

The Bank of Canada enjoys ________.

A)instrument independence
B)political dependence
C)goal independence
D)A and C only.

Question 60

Explain the joint responsibility system.

Question 61

The case for Bank of Canada independence includes the idea that ________.

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

Question 62

The strongest argument for an independent Bank of Canada rests on the view that subjecting the Bank to more political pressures would impart ________.

A)an inflationary bias to monetary policy
B)a deflationary bias to monetary policy
C)a disinflationary bias to monetary policy
D)a countercyclical bias to monetary policy

Question 63

The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example, ________ )have to be counteracted with ________ policies.

A)expansionary; higher unemployment; contractionary
B)expansionary; a higher inflation rate; contractionary
C)contractionary; higher unemployment; expansionary
D)contractionary; a higher inflation rate; expansionary

Question 64

Putting the Bank of Canada under control of the government ________.

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

Question 65

Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process can ________.

A)impart an inflationary bias to monetary policy
B)impart a deflationary bias to monetary policy
C)generate a political business cycle, in which just before an election expansionary policies are pursued to lower unemployment and interest rates
D)cause A and C only

Question 66

Recent research indicates that inflation performance (low inflation)has been found to be best in countries with ________.

A)the most independent central banks
B)political control of monetary policy
C)money financing of budget deficits
D)a policy of always keeping interest rates low

Question 67

Countries with the most independent central banks have low inflation ________.

A)but have higher unemployment than countries with less independent central banks
B)but have higher output fluctuations than countries with less independent central banks
C)and have lower rates of unemployment than countries with less independent central banks
D)but have no higher unemployment or output fluctuations than countries with less independent central banks

Question 68

Explain two concepts of central bank independence. Is the Bank of Canada politically independent? Why do economists think central bank independence is important?

Question 69

Critics of the current system of Bank of Canada independence contend that ________.

A)the current system is undemocratic
B)voters have too much say about monetary policy
C)the governor has too much control over monetary policy on a day-today basis
D)B and C only.

Question 70

Supporters of the current system of Bank of Canada independence believe that a less autonomous Bank would ________.

A)adopt a short-run bias toward policymaking
B)pursue overly expansionary monetary policies
C)be more likely to create a political business cycle
D)do each of the above

Question 71

The case for Bank of Canada independence does not include the idea that ________.

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

Question 72

Recent research has found that countries with the most independent central banks have experienced ________.

A)the lowest average rates of inflation
B)rates of inflation no different from countries with less independent central banks
C)the highest average rates of inflation
D)high inflation from financing deficits

Question 73

The strongest argument for an independent Bank of Canada rests on the view that subjecting the Bank to more political pressures would impart ________.

A)an inflationary bias to monetary policy
B)a deflationary bias to monetary policy
C)a disinflationary bias to monetary policy
D)a countercyclical bias to monetary policy

Question 74

Critics of Bank of Canada independence argue ________.

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

Question 75

Which of the following statements concerning an independent central bank are true?

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

Question 76

How do political cycles influence aggregate economic activity?

Question 77

Which of the following statements concerning an independent central bank are true?

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

Question 78

Recent research indicates that inflation performance (low inflation)has been found to be best in countries with ________.

A)the most independent central banks
B)the least independent central banks
C)political control of monetary policy
D)a policy of always keeping interest rates low

Question 79

Advocates of Bank of Canada independence fear that subjecting the Bank to direct government control would ________.

A)impart an anti-inflationary bias to monetary policy
B)force monetary authorities to sacrifice the long-run objective of price stability
C)make the so-called political business cycle even more pronounced
D)B and C only.

Question 80

The systematic and permanent differences in macroeconomic outcomes that differ by political party are known as ________ business cycles.

A)partisan
B)electoral
C)real
D)nominal