Question 1

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply.

Accepted Answer

The Federal Reserve's quantitative easing operations resulted in large increases in the monetary base, as they purchased large amounts of securities from banks, increasing banks' reserves and the monetary base. However, the increase in the money supply was smaller than the increase in the monetary base, as banks did not lend out all of their increased reserves. Therefore, the increase in the money supply was smaller than the increase in the monetary base.

Question 2

Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the Federal Reserve between 2007 and 2011, Federal Reserve purchases tended to be _____ securities.

Accepted Answer

During quantitative easing, the Federal Reserve purchased longer-term and riskier securities, such as long-term Treasury bonds and mortgage-backed securities, to lower long-term interest rates and stimulate the economy.

Question 3

When the Bank of Canada increases the interest rate paid on reserves, it:

Accepted Answer

When the Bank of Canada increases the interest rate paid on reserves, banks are incentivized to hold more reserves, leading to an increase in the reserve-deposit ratio (rr).

Question 4

If the Bank of Canada conducts a Sale and Repurchase Agreement (SRA), the money supply will:

Accepted Answer

A Sale and Repurchase Agreement (SRA) involves the central bank selling securities with an agreement to repurchase them later, which temporarily reduces the money supply.

Question 5

The Bank of Canada can influence the money supply using:

Accepted Answer

The Bank of Canada can influence the money supply through open-market operations, which involve buying or selling government securities, and deposit switching, which involves transferring government deposits between the Bank of Canada and commercial banks.

Question 6

When the Bank of Canada conducts an open-market purchase, it buys bonds from the:

Accepted Answer

The Bank of Canada conducts open-market purchases by buying bonds from the public, which increases the money supply in the economy.

Question 7

If the Bank of Canada decides to switch some of the Government of Canada's deposits held at the Bank to chartered banks, the money supply will:

Accepted Answer

When the Bank of Canada moves government deposits to chartered banks, it increases the reserves of these banks, allowing them to lend more, thus increasing the money supply.

Question 8

If you hear in the news that the Bank of Canada conducted open-market purchases, then you should expect _____ to increase.

Accepted Answer

Open-market purchases by the Bank of Canada involve buying government securities, which increases the reserves of commercial banks, leading to an increase in the money supply.

Question 9

When the Bank of Canada decreases the interest rate paid on reserves, it:

Accepted Answer

When the Bank of Canada decreases the interest rate paid on reserves, banks are less incentivized to hold excess reserves, leading to a decrease in the reserve-deposit ratio as they lend out more of their reserves.

Question 10

Minimum reserve requirements:

Accepted Answer

Canada does not have minimum reserve requirements for its banks.

Question 11

The most frequently used tool of monetary policy in Canada to influence the money supply is:

Accepted Answer

The answer of The most frequently used tool of monetary...

Question 12

To increase the money supply, the Bank of Canada can:

Accepted Answer

Switching government deposits to chartered banks increases the reserves of these banks, allowing them to lend more, thus increasing the money supply.

Question 13

When the Bank of Canada makes an open-market sale, it:

Accepted Answer

An open-market sale by the Bank of Canada decreases the monetary base (B) because it involves selling government securities, which reduces the reserves in the banking system.

Question 14

The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by:

Accepted Answer

The quantitative easing policy led to a significant increase in bank reserves held at the Federal Reserve. Banks, uncertain about the economic outlook and facing stricter regulations, held onto these reserves rather than lending them out, which increased the reserve-deposit ratio. This was a partial offset to the increase in the monetary base, as it meant that the additional reserves did not translate directly into a proportional increase in the money supply circulating in the broader economy.

Question 15

An increase in the bank rate will result in _____.

Accepted Answer

An increase in the bank rate typically leads to higher borrowing costs for banks, which can reduce the monetary base as banks may borrow less from the central bank.

Question 16

When the Bank of Canada increases the overnight rate, it:

Accepted Answer

When the Bank of Canada increases the overnight rate, it typically leads to a decrease in the monetary base (B) as it becomes more expensive for banks to borrow money, leading to a contraction in the money supply.

Question 17

If the Bank of Canada wishes to increase the money supply, it should:

Accepted Answer

Decreasing the overnight rate encourages banks to borrow more, increasing the money supply.

Question 18

If the Bank of Canada increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.

Accepted Answer

The answer of If the Bank of Canada increases the...

Question 19

If the Bank of Canada conducts a Special Purchase and Resale Agreement (SPRA), the money supply will:

Accepted Answer

A Special Purchase and Resale Agreement (SPRA) is a monetary policy tool used by the Bank of Canada to inject liquidity into the financial system, thereby increasing the money supply.

Question 20

To increase the monetary base, the Bank of Canada can:

Accepted Answer

Conducting open-market purchases increases the monetary base by adding reserves to the banking system, as the central bank buys government securities from the market.

Quiz 4: The Monetary System: What It Is and How It Works

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _ increases in the monetary base and _ increases in money supply.