Question 1

What are the factors that can shift the aggregate demand curve to the right?

Accepted Answer

These factors are:
a. An increase in the money supply
b. An increase in government spending
c. A decrease in taxes
d. An increase in net exports
e. An increase in consumer optimism
f. An increase in business optimism

Question 2

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run, everything else held constant.

Accepted Answer

A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease 
A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease D

Question 3

What was the theoretical flaw in the original Phillips curve observes by Friedman and Phelps?

Accepted Answer

Friedmand and Phelps pointed out that workers care about real, not nominal wages and that rising inflation would lower their real wages causing them to demand nominal wage increases. While lower real wages in the short-run would encourage more output, this effect would be lost as nominal wages adjusted to reflect higher inflation.

Question 4

Everything else held constant, an increase in the cost of production ________ aggregate ________.

Accepted Answer

A) increases; demand 
B) decreases; demand 
C) increases; supply 
D) decreases; supply 
A) increases; demand 
B) decreases; demand 
C) increases; supply 
D) decreases; supply

Question 5

Suppose the Canadian economy is producing at the natural rate of output. A depreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the inflation rate in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.)

Accepted Answer

A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease 
A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease

Question 6

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP the short run and ________ in the inflation rate in the short run, everything else held constant.

Accepted Answer

A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease 
A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease

Question 7

Suppose the Canadian economy is producing at the natural rate of output. A depreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.)

Accepted Answer

A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease 
A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease

Question 8

The Lehman Brothers bankruptcy caused a ________ ________ shock.

Accepted Answer

A) negative; demand 
B) negative; supply 
C) positive; demand 
D) positive; supply 
A) negative; demand 
B) negative; supply 
C) positive; demand 
D) positive; supply

Question 9

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run, everything else held constant.

Accepted Answer

A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease 
A) an increase; an increase 
B) a decrease; a decrease 
C) no change; an increase 
D) no change; a decrease

Question 10

The Phillips curve from the 1960s suggested to the policy makers of the time that they could lower ________ by using policies that would ________ inflation.

Accepted Answer

A) aggregate output; lower 
B) aggregate output; higher 
C) unemployment; lower 
D) unemployment; higher 
A) aggregate output; lower 
B) aggregate output; higher 
C) unemployment; lower 
D) unemployment; higher

Question 11

Everything else held constant, an increase in financial frictions ________ aggregate ________.

Accepted Answer

A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply 
A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply

Question 12

Suppose the Canadian economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.

Accepted Answer

A) no change; an increase 
B) no change; a decrease 
C) an increase; an increase 
D) a decrease; a decrease 
A) no change; an increase 
B) no change; a decrease 
C) an increase; an increase 
D) a decrease; a decrease

Question 13

Everything else held constant, an autonomous monetary policy easing ________ aggregate ________.

Accepted Answer

A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply 
A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply

Question 14

Why is the aggregate demand curve downward sloping?

Accepted Answer

The aggregate demand function AD is down

Question 15

The aggregate demand curve has the usual downward slope, since a ________ price level ________ the real money supply, raises interest rates, and lowers the equilibrium level of aggregate output, everything else held constant.

Accepted Answer

A) lower; reduces 
B) lower; increases 
C) higher; reduces 
D) higher; increases 
A) lower; reduces 
B) lower; increases 
C) higher; reduces 
D) higher; increases

Question 16

Everything else held constant, a decrease in government spending ________ aggregate ________.

Accepted Answer

A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply 
A) increases; demand 
B) decreases; demand 
C) decreases; supply 
D) increases; supply

Question 17

During the 2007-2008 financial crisis, China's economic growth slowed from over ________ percent in the first half of 2008 to under ________ percent in the second half.

Accepted Answer

A) 11; 5 
B) 10; 6 
C) 11; 2 
D) 11;10 
A) 11; 5 
B) 10; 6 
C) 11; 2 
D) 11;10

Question 18

The aggregate supply curve shows the relationship between ________.

Accepted Answer

A) the level of inputs and aggregate output 
B) the price level and the level of inputs 
C) the wage rate and the level of employment 
D) the price level and the level of aggregate output supplied 
A) the level of inputs and aggregate output 
B) the price level and the level of inputs 
C) the wage rate and the level of employment 
D) the price level and the level of aggregate output supplied

Question 19

A ________supply shock ________ prices will cause the real interest rate to ________ in the short run.

Accepted Answer

A) temporary; raises; rise 
B) temporary; lowers; fall 
C) permanent; raises; fall 
D) permanent; lowers; rise 
A) temporary; raises; rise 
B) temporary; lowers; fall 
C) permanent; raises; fall 
D) permanent; lowers; rise

Question 20

The downward slope of the aggregate demand curve is due to ________ and ________.

Accepted Answer

A) planned investment spending; net exports 
B) planned investment spending; financial frictions 
C) net exports; financial frictions 
D) financial frictions; net transfers 
A) planned investment spending; net exports 
B) planned investment spending; financial frictions 
C) net exports; financial frictions 
D) financial frictions; net transfers

Exam 23: Aggregate Demand and Supply Analysis

What are the factors that can shift the aggregate demand curve to the right?

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run, everything else held constant.

What was the theoretical flaw in the original Phillips curve observes by Friedman and Phelps?

Everything else held constant, an increase in the cost of production ________ aggregate ________.

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP the short run and ________ in the inflation rate in the short run, everything else held constant.

The Lehman Brothers bankruptcy caused a ________ ________ shock.

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the long run and ________ in the inflation rate in the long run, everything else held constant.

The Phillips curve from the 1960s suggested to the policy makers of the time that they could lower ________ by using policies that would ________ inflation.

Everything else held constant, an increase in financial frictions ________ aggregate ________.

Suppose the Canadian economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Bank of Canada will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run, everything else held constant.

Everything else held constant, an autonomous monetary policy easing ________ aggregate ________.

Why is the aggregate demand curve downward sloping?

The aggregate demand curve has the usual downward slope, since a ________ price level ________ the real money supply, raises interest rates, and lowers the equilibrium level of aggregate output, everything else held constant.

Everything else held constant, a decrease in government spending ________ aggregate ________.

During the 2007-2008 financial crisis, China's economic growth slowed from over ________ percent in the first half of 2008 to under ________ percent in the second half.

The aggregate supply curve shows the relationship between ________.

A ________supply shock ________ prices will cause the real interest rate to ________ in the short run.

The downward slope of the aggregate demand curve is due to ________ and ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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 Is Curve

The Monetary Policy and Aggregate Demand Curves

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Bank of Canada will cause in real GDP in the long run and in the inflation rate in the long run, everything else held constant.

Everything else held constant, an increase in the cost of production aggregate .

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Bank of Canada will cause in real GDP the short run and in the inflation rate in the short run, everything else held constant.

The Lehman Brothers bankruptcy caused a shock.

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause in real GDP in the long run and in the inflation rate in the long run, everything else held constant.

The Phillips curve from the 1960s suggested to the policy makers of the time that they could lower by using policies that would inflation.

Everything else held constant, an increase in financial frictions aggregate .

Suppose the Canadian economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Bank of Canada will cause in real GDP in the long run and in the aggregate price level in the long run, everything else held constant.

Everything else held constant, an autonomous monetary policy easing aggregate .

The aggregate demand curve has the usual downward slope, since a price level the real money supply, raises interest rates, and lowers the equilibrium level of aggregate output, everything else held constant.

Everything else held constant, a decrease in government spending aggregate .

During the 2007-2008 financial crisis, China's economic growth slowed from over percent in the first half of 2008 to under percent in the second half.

A supply shock prices will cause the real interest rate to in the short run.

The downward slope of the aggregate demand curve is due to and .