Question 1

When interest rates rise in Canada (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.

Accepted Answer

A)  falls; less; fall 
B)  falls; more; rise 
C)  rises; more; fall 
D)  rises; less; fall 
A)  falls; less; fall 
B)  falls; more; rise 
C)  rises; more; fall 
D)  rises; less; fall

Question 2

Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation.

Accepted Answer

A)  aggregate output; wages 
B)  aggregate output; employment 
C)  wage rates; wages 
D)  wage rates; employment 
A)  aggregate output; wages 
B)  aggregate output; employment 
C)  wage rates; wages 
D)  wage rates; employment

Question 3

The IS curve shifts to the left when ________.

Accepted Answer

A)  taxes increase 
B)  government spending increases 
C)  the money supply increases 
D)  autonomous planned investment spending increases 
A)  taxes increase 
B)  government spending increases 
C)  the money supply increases 
D)  autonomous planned investment spending increases

Question 4

Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess supply of goods which will cause aggregate output to ________.

Accepted Answer

A)  right; fall 
B)  right; rise 
C)  left; fall 
D)  left; rise 
A)  right; fall 
B)  right; rise 
C)  left; fall 
D)  left; rise

Question 5

A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left 
A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left

Question 6

Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is ________.

Accepted Answer

A)  0 
B)  0.15 
C)  0.5 
D)  0.75 
A)  0 
B)  0.15 
C)  0.5 
D)  0.75

Question 7

Describe how the economy heads towards equilibrium and why it has a tendency to settle there.

Accepted Answer

When production is above the equilibrium

Question 8

If unplanned investment is negative, firms will ________ production and output will ________.

Accepted Answer

A)  cut; rise 
B)  cut; fall 
C)  increase; rise 
D)  increase; fall 
A)  cut; rise 
B)  cut; fall 
C)  increase; rise 
D)  increase; fall

Question 9

Everything else held constant, a shift in tastes in Canada toward Mexican goods will ________ net exports in Canada and cause the quantity of aggregate output demanded to ________ in Mexico.

Accepted Answer

A)  decrease; rise 
B)  decrease; fall 
C)  increase; rise 
D)  increase; fall 
A)  decrease; rise 
B)  decrease; fall 
C)  increase; rise 
D)  increase; fall

Question 10

In an open economy, aggregate demand is the sum of ________.

Accepted Answer

A)  consumer expenditure, actual investment spending, and government spending 
B)  consumer expenditure, planned investment spending, and government spending 
C)  consumer expenditure, actual investment spending, government spending, and net exports 
D)  consumer expenditure, planned investment spending, government spending, and net exports 
A)  consumer expenditure, actual investment spending, and government spending 
B)  consumer expenditure, planned investment spending, and government spending 
C)  consumer expenditure, actual investment spending, government spending, and net exports 
D)  consumer expenditure, planned investment spending, government spending, and net exports

Question 11

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left 
A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left

Question 12

Everything else held constant, if consumption expenditure increases by 65 for a 100 increase in disposable income, the mpc is ________.

Accepted Answer

A)  0 
B)  0.5 
C)  0.65 
D)  1 
A)  0 
B)  0.5 
C)  0.65 
D)  1

Question 13

Everything else held constant, a shift in tastes in Canada towards Canadian goods will ________ net exports in Canada and cause the quantity of aggregate output demanded to ________ in Mexico.

Accepted Answer

A)  decrease; rise 
B)  decrease; fall 
C)  increase; rise 
D)  increase; fall 
A)  decrease; rise 
B)  decrease; fall 
C)  increase; rise 
D)  increase; fall

Question 14

Planned investment spending is higher ________.

Accepted Answer

A)  when real interest rate is higher 
B)  during financial frictions 
C)  when businesses are optimistic 
D)  A and C only 
A)  when real interest rate is higher 
B)  during financial frictions 
C)  when businesses are optimistic 
D)  A and C only

Question 15

Situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information in Situation 20-1, the equilibrium level of aggregate output is ________.

Accepted Answer

A)  $900 
B)  $8000 
C)  $9000 
D)  $10000 
A)  $900 
B)  $8000 
C)  $9000 
D)  $10000

Question 16

Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to ________.

Accepted Answer

A)  $0 
B)  $200 
C)  $800 
D)  $1000 
A)  $0 
B)  $200 
C)  $800 
D)  $1000

Question 17

Situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information in Situation 20-1, if aggregate output equals $8000, the unplanned inventory investment equals ________.

Accepted Answer

A)  -$100 
B)  $0 
C)  $100 
D)  $500 
A)  -$100 
B)  $0 
C)  $100 
D)  $500

Question 18

Everything else held constant, if consumption expenditure falls by 160 when disposable income falls by 200, the mpc is ________.

Accepted Answer

A)  0 
B)  0.2 
C)  0.4 
D)  0.8 
A)  0 
B)  0.2 
C)  0.4 
D)  0.8

Question 19

Situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information contained in Situation 20-1, if autonomous consumption increases by $100, then equilibrium aggregate output will change by ________.

Accepted Answer

A)  -$1000 
B)  -$100 
C)  $100 
D)  $1000 
A)  -$1000 
B)  -$100 
C)  $100 
D)  $1000

Question 20

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall 
A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall

Exam 21: The Is Curve

When interest rates rise in Canada (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.

Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation.

The IS curve shifts to the left when ________.

Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess supply of goods which will cause aggregate output to ________.

A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is ________.

Describe how the economy heads towards equilibrium and why it has a tendency to settle there.

If unplanned investment is negative, firms will ________ production and output will ________.

Everything else held constant, a shift in tastes in Canada toward Mexican goods will ________ net exports in Canada and cause the quantity of aggregate output demanded to ________ in Mexico.

In an open economy, aggregate demand is the sum of ________.

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Everything else held constant, if consumption expenditure increases by 65 for a 100 increase in disposable income, the mpc is ________.

Everything else held constant, a shift in tastes in Canada towards Canadian goods will ________ net exports in Canada and cause the quantity of aggregate output demanded to ________ in Mexico.

Planned investment spending is higher ________.

Situation 20-1 Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9. -Using the information in Situation 20-1, the equilibrium level of aggregate output is ________.

Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to ________.

Situation 20-1 Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9. -Using the information in Situation 20-1, if aggregate output equals $8000, the unplanned inventory investment equals ________.

Everything else held constant, if consumption expenditure falls by 160 when disposable income falls by 200, the mpc is ________.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

When interest rates rise in Canada (with the price level fixed), the value of the dollar , domestic goods become expensive, and net exports .

Keynes was especially interested in explaining movements of because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase in a similar economic situation.

Everything else held constant, if aggregate output is to the of the IS curve, then there is an excess supply of goods which will cause aggregate output to .

A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to and shifts the curve to the , everything else held constant.

If unplanned investment is negative, firms will production and output will .

Everything else held constant, a shift in tastes in Canada toward Mexican goods will net exports in Canada and cause the quantity of aggregate output demanded to in Mexico.

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to and shifts the curve to the , everything else held constant.

Everything else held constant, a shift in tastes in Canada towards Canadian goods will net exports in Canada and cause the quantity of aggregate output demanded to in Mexico.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.