Exam 11: Monetary Policy

The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.

Expansionary monetary policy refers to the ________ to increase real GDP.

If the Bank of Canada buys Canada bonds, this will

Contractionary monetary policy on the part of the Bank of Canada results in

The Bank of Canada uses the rate of change in the CPI rather than the GDP deflator to measure inflation because

When the Bank of Canada increases the money supply, people spend more because interest rates fall.

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Bank of Canada listed in the textbook.

Monetary policy could be procyclical if the Bank of Canada

The Bank of Canada can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

A monetary growth rule means that

In the Taylor rule, does the target for the overnight interest rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the overnight interest rate changes.

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Bank of Canada's open market purchase of government securities.

Figure 11.8 Alt text for Figure 11.8: In figure 11.8, a graph comparing real GDP and price level. Long description for Figure 11.8: The x-axis is labelled, real GDP (trillions of 2000 dollars), and the y-axis is labelled, price level (GDP deflator, 2000 = 100).3 lines are shown; AD, LRAS, SRAS.Line AD begins in the top left corner and slopes down to the bottom center.Line SRAS begins in the bottom left corner and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and intersects the lines AD and SRAS.The point of intersection of the lines AD and SRAS is marked as A. -Refer to Figure 11.8.In the figure above, if the economy is at point A, the appropriate monetary policy by the Bank of Canada would be to

Figure 11.4 Alt text for Figure 11.4: In figure 11.4, a graph shows shift in money demand curve. Long description for 11.4: The x-axis is labelled, quantity of money, M (billions of dollars).The y-axis is labelled, interest rate, i.2 lines are shown; Money demand 1 and Money demand 2.Line Money, demand 1, begins in the top left corner and slopes down to the end of the x-axis.Line Money, demand 2, follows the same slope as line Money, demand 1, but is plotted to the right.The area between the lines Money, demand 1, and Money, demand 2, is indicated by a right pointing arrow. -Refer to Figure 11.4.In the figure above, the money demand curve would move from Money demand₁ to Money demand₂ if

If the Bank of Canada targets the interest rate and the money demand curve shifts to the left, then the Bank of Canada

Over the past decade, many economists have proposed that the United States should adopt inflation targeting, following the leads of many other central banks, including the Bank of Canada.

Table 11.8 -Refer to Table 11.8.Suppose the table above illustrates the values of real and potential GDP and the price level if the Bank of Canada does not change its current policy to be more contractionary or expansionary.If the Bank of Canada wants to keep real GDP at its potential level in 2015, should the Bank of Canada use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?

An increase in real GDP can shift

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as