One Reason That the Bank of Canada Does Not Try

question 61

Multiple Choice

One reason that the Bank of Canada does not try to influence the money supply directly is that

• A)the Bank of Canada has many other policy tools with which it can influence aggregate demand.
• B)the Bank of Canada does not have the mandate to change the money supply.
• C)because the money demand curve is almost horizontal,changes in the money supply would have little or no effect on the interest rate.
• D)because the investment demand curve is almost vertical,any change in the interest rate resulting from a change in money supply would have little or no effect on desired investment expenditure.
• E)the slope of the money demand curve is not precisely known,and so the effect on the interest rate of a change in money supply is uncertain.

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Definitions:

ROE

Return on equity, a financial ratio that measures the profitability of a company by indicating how much profit a company generates with the money shareholders have invested.

Market-To-Book Value

A ratio used to compare a company's current market value to its book value, indicating how investors value the company relative to its actual assets.

Quick Ratio

A measure of liquidity similar to the current ratio except for exclusion of inventories. It equals cash plus receivables divided by current liabilities.

Industry Average

A statistical measure that represents the central tendency or typical value of a set of figures in a particular industry, often used for benchmarking.