the economics of money, banking, and financial markets

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© 2014 Pearson Canada Inc.#

27. 
    

    Weighting monetary components in a simple-sum aggregate index ____.
    A) has never been attempted because it is too complex
    B) might be attempted with rigourous use of microeconomic, aggregation and index number
    theory
    C) might not perform as well as the simple-sum index
    D) might not predict inflation and business cycles better than conventional measures
    Answer: B
    Diff: 2 Type: MC Page Ref: 57
    Skill: Recall
    Objective List: 3.4 Explain money measurement matters

    
    


28. 
    

    Why are most of the U.S. dollars held outside of the United States?
    Answer: Concern about high inflation eroding the value of their own currency causes many
    people in foreign countries to hold U.S. dollars as a hedge against inflation risk.
    Diff: 1 Type: SA Page Ref: 56
    Skill: Recall
    Objective List: 3.4 Explain money measurement matters

    
    


29. 
    

    Data show that an average Canadian and American citizens hold CA$1500 and US$2000 of
    their currency respectively. Since money is bulky, it can be stolen, pays no interest and in
    general we do not see our fellow Canadians holding $1500 in their pockets, where are these
    dollars and who is holding them?
    Answer: One group that hold big amounts of currency are the criminals since currency is not
    traceable as cheques that can be used as evidence against them. Also, some businesses that are
    evading taxes operate as cash businesses which makes their transactions less traceable and they
    can avoid declaring income on which they would have to pay taxes. Finally, one group that holds
    Canadian and American (to a larger extent) dollars are foreigners in countries where they do not
    trust their own currency as they frequently experience high inflation that erodes the value of their
    currency.
    Diff: 2 Type: SA Page Ref: 52
    Skill: Recall
    Objective List: 3.4 Explain money measurement matters

    
    


30. 
    

    Explain the relationship between currency and the M1+ monetary aggregate. What does the
    "plus" sign represent?
    Answer: Currency includes paper money and coins in circulation M1+ includes all chequeable
    deposits at chartered banks, trust and mortgage loans companies, credit unions and caisses
    populaires. The "plus" sign represents TMLS, credit unions and caisses populaires.
    Diff: 2 Type: SA Page Ref: 63
    Skill: Applied
    Objective List: 3.4 Explain money measurement matters