WorksheetsCSC 1
Total questions: 31
Worksheet time: 17mins
When the government runs a deficit, who must it borrow from to finance the national debt?
Capital markets
IMF
What is the most important numbers in the national budget?
surplus/deficit
How is the Bank Rate determined?
.
Average of the last 12 months of interest rates.
Upper limit of the operating band for overnight financing by the Bank of Canada.
Fixed rate set by the Prime Minister.
Lower limit of the operating band for overnight financing by the Bank of Canada.
The Bank of Canada increases the target rate for the overnight rate of interest by 0.5%. By how many basis points will the rate change?
50 basis points.
Overnight money is currently trading above the target of the operating band and the Bank of Canada wants to implement a strategy to offset
the impact this may have on the economy. What type of open market operation is most appropriate?
Special Purchase and Resale Agreement
Term Deposit Facility
Currency Swap Agreement
Overnight Lending Facility
Overnight money is currently trading below the target of the operating band and the Bank of Canada implements a Sale and Repurchase
Agreement to offset the impact this may have on the economy. Why would the Bank of Canada implement this strategy?
Belief that interest rates need to be lowered.
Belief that inflationary pressures could rise.
Belief that the economy is in a recession.
Belief that consumer spending is decreasing.
What action would the Bank of Canada take to relieve upward pressure on interest rates?
Increase interest rates.
Buy government bonds.
Special Purchase and Resale Agreement.
Implement a currency swap.
What fiscal policy challenge could affect the success of a government9s decision to immediately reduce inflationary pressures in the
economy by reducing spending on infrastructure projects?
Timing lag
Impact of international economies.
Future expectations..
What action will Bank XYZ take if it finds that its balance in the Large Value Transfer System (LVTS) is a $25 million deficit?
Wait for the deficit to resolve itself.
Close the account immediately.
Transfer funds from a personal account.
What actions could a central bank take to improve the state of the economy in a country that is currently in a recession?
1. Reduce the money supply.
2. Increase the money supply.
3. Raise interest rates.
4. Lower interest rates.
What is occurring if the government has borrowed a large amount in the capital markets and, as a result, corporate borrowers are having
difficulties in finding capital to borrow?
The policy pursued by the federal government to influence economic growth through the use of taxation and government spending.
(a)
The minimum rate at which the Bank of Canada makes short-term advances to the chartered banks, other members of Payments Canada and investment dealers who trade in the money market.
(a)
The accumulation of total government borrowing over time; the sum of past deficits minus the sum of past surpluses.
A Payments Canada electronic system for the transfer of large dollar payments between participating financial institutions.
Lynx system
An open-market operation used by the Bank of Canada to relieve undesired upward pressure on overnight financing rates.
Overnight repos
This association operates a highly automated national clearing system for interbank payments. Members include chartered banks, trust and loan companies and some credit unions and caisses.
(a)
An open-market operation by the Bank of Canada to offset undesired downward pressure on overnight financing costs.
interest rate
overnight reverse repo
overnight rate
Occurs when government revenue for the year exceeds expenditures.
An investment dealer appointed by a company or government to advise it in financial matters and to manage the underwriting of its securities.
fiscal agent
The policy designed to improve the performance of the economy by regulating credit.
Identify a function that the Bank of Canada performs as a fiscal agent to the federal government.
A.
Advising the federal government on tax policies.
Managing the government’s foreign currency reserves.
Managing the government’s foreign currency reserves.
The government has announced it intends to lower personal income tax rates by 2%. Identify the economic situation the government is trying to influence.
The budgetary deficit is too high.
The economy is in a recession.
The economy is in danger of increased inflation and there is a need for decreased spending.
The economy is showing strong economic growth
The economy is in a recession.
The budgetary deficit is too high.
The economy is in danger of increased inflation and there is a need for decreased spending.
Identify the correct government action to stimulate the economy if growth is slowing.
Increase taxation
Run a surplus.
Pay down outstanding debt.
The government determines that it needs to slow down the economy using fiscal policy tools in order to control inflation. Identify the impact this policy will have on the various components of gross domestic product (GDP).
All components of GDP will increase in an effort to match demand in the economy with spending in the economy.
Business spending (I) and consumer spending (C) will increase due to the lower taxation and implementation of new infrastructure projects.
Government spending (G) and business spending (I) will decrease and taxation will increase, causing consumption (C) to fall.
Government spending (G) will increase due to the increased taxation of businesses.
Identify the impact on the economy if the current government runs a deficit for several years in a row.
Annual interest payments on the federal debt will increase but the national debt will decrease.
Interest payments on the federal debt will increase but businesses will benefit from the increased activity in the capital markets.
The economy will grow faster as the government is using increased leverage to stimulate growth.
The national debt will increase and businesses may be crowded out of the capital markets.
Over the past three months, Canada has reported inflation rates of 2.7%, 2.9%, and 3.3% (in months 1, 2 and 3 respectively). Identify the policy action the Bank of Canada will likely take.
Raise short-term interest rates.
Lower short-term interest rates.
Fix the exchange rate at 2%, the same as inflation.
Easing monetary conditions.
Identify the interest rate the Bank of Canada uses to conduct monetary policy.
overnight rate
Identify the monetary policy tool the Bank of Canada will take if it wants to reduce the supply of cash balances in the banking system.
Drawdown.
Lynx
Lower the overnight rate
increase overnight repo
what is monetary policy
Monetary policy is policy designed to improve the economy’s performance through the regulation interest rates. The elected government sets monetary policy, and the Bank of Canada administers it.
what is fiscal policy
