1. What would happen to each of these components of the liquidity-preference model if the Bank of...
Question:
1. What would happen to each of these components of the liquidity-preference model if the Bank of Canada decides to raise the reserve requirement?
a. The money supply would: (decrease / increase).
b. The interest rates would: (decrease / increase).
c. The quantity of money in the economy would: (decrease / increase).
d. Money demand curve: (a movement upward / a movement downward).
2. For each of the following situations, identify whether the Bank of Canada is likely to pursue an expansionary or a contractionary monetary policy.
a. The unemployment rate is at 0.5 percent: (Contractionary / Expansionary)
b. The economy is experiencing record growth in GDP: (Expansionary/ Contractionary)
c. The unemployment rate is at 15 percent: (Expansionary / Contractionary)
d. Inflation has reached 10 percent, a recent high: (Contractionary / Expansionary)
e. An earthquake recently demolished a major city, causing a major recession: (Expansionary / Contractionary)
Principles of Money Banking and Financial Markets
ISBN: 978-0321339195
12th edition
Authors: Lawrence S. Ritter, William L. Silber, Gregory F. Udell