500 $
© 2014 Pearson Canada Inc.$- How changes in the nonborrowed monetary base affect the money supply?
Answer: The Bank of Canada's open market purchases increase the nonborrowed monetary
base, and its open market sales decrease it. Holding all other variables constant, an increase in
MBn arising from an open market purchase increases the amount of the monetary base that is
available to support currency and deposits, so the money supply will increase. The opposite
happens in the case of an open market sale that decreases MBn. The result is that the money
supply is positively related to the nonborrowed monetary base MBn.
Diff: 2 Type: SA Page Ref: 394
Skill: Recall
Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
central bank can control the level of deposits by setting the level of reserves
16.8 Appendix 16.1: The Bank of Canada's Balance Sheet and the Monetary Base
Which is the largest category of Bank of Canada assets?
A) Securities
B) Advances to banks
C) Gold
D) Coins
Answer: A
Diff: 1 Type: MC Page Ref: 16.1A- 2
Skill: Recall
Objective List: Appendix: The Bank of Canada's Balance Sheet and the Monetary Base
The two most important categories of assets on the Bank's balance sheet are ____ and
____ because they earn interest.
A) advances to banks; coins
B) securities; advances to banks
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts
Answer: B
Diff: 1 Type: MC Page Ref: 16.1A- 2
Skill: Recall
Objective List: Appendix: The Bank of Canada's Balance Sheet and the Monetary Base
The volume of loans that the Bank of Canada makes to banks is affected by the Bank's setting
of the interest rate on these loans, called the ____.
A) overnight rate
B) prime rate
C) bank rate
D) interbank rate
Answer: C
Diff: 1 Type: MC Page Ref: 16.1A- 1
Skill: Recall
Objective List: Appendix: The Bank of Canada's Balance Sheet and the Monetary Base