Question

Supply shocks move unemployment and inflation in

A) the same directions, as the Phillips Curve suggests.

B) opposite directions, as the Phillips Curve suggests.

C) the same directions, which is not what the Phillips Curve suggests.

D) opposite directions, which is not what the Phillips Curve suggests.

E) circles.

When Navdeep transfers $1,000 from her savings account to her chequing account,

A) M1+ increases and M2+ decreases.

B) M1+ increases and M2+ is unchanged.

C) M1+ increases and M2+ increases.

D) M1+ is unchanged and M2+ decreases.

E) M1+ is unchanged and M2+ is unchanged.

By making loans to banks that are short of funds because borrowers went bankrupt, the Bank of Canada is

A) issuing currency.

B) serving as a lender of last resort.

C) acting as banker to the government.

D) managing the money supply.

E) conducting monetary policy.

Answer 1

1. The correct answer is B. opposite directions, as the Philip's curve suggests.

Because Philips curve says that there is inverse relation between unemployment and inflation, as one quantity increases the other decrease and vice versa.

2. The correct answer is B) M1 increase and M2 unchanged

Because M1 = currency and coins with public + Demand deposits of commercial banks + other deposits with RBI

M2 = M1 + savings deposits with post office saving banks.

When money transfer from savings account to checking account then the Demand deposit increase due to which M1 increases but M2 is unchanged because M1 is a component of M2.

3. The correct answer is B) serving as lender of the last resort.

Because when commercial bank fail to meet their financial requirement from other sources, they approach the central bank to give loan and advances as lender of the last resort.