Question 1

When the money supply declines by 10%, in the long run, output ________ and the price level ________.

Accepted Answer

A)  is unchanged: is unchanged 
B)  declines: falls 
C)  is unchanged; falls 
D)  declines; is unchanged 
A)  is unchanged: is unchanged 
B)  declines: falls 
C)  is unchanged; falls 
D)  declines; is unchanged

Question 2

An increase in money demand causes the real interest rate to ________ and output to ________ in the short run, before prices adjust to restore equilibrium.

Accepted Answer

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

Question 3

Describe the effects, in both the short run and the long run, of a decline in the money supply. Explain what happens to real output and the price level.

Accepted Answer

In the short run, a decline in the money

Question 4

A decline in wealth that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.

Accepted Answer

A)  down; is unchanged 
B)  down; left 
C)  up; is unchanged 
D)  up; left 
A)  down; is unchanged 
B)  down; left 
C)  up; is unchanged 
D)  up; left

Question 5

A contractionary monetary policy combined with an expansionary fiscal policy will lead to

Accepted Answer

A)  an increase in output and an ambiguous effect on the interest rate. 
B)  an increase in output and an increase in the interest rate. 
C)  an ambiguous effect on output and an increase in the interest rate. 
D)  an ambiguous effect on output and an ambiguous effect on the interest rate. 
A)  an increase in output and an ambiguous effect on the interest rate. 
B)  an increase in output and an increase in the interest rate. 
C)  an ambiguous effect on output and an increase in the interest rate. 
D)  an ambiguous effect on output and an ambiguous effect on the interest rate.

Question 6

The probable effect of introducing automatic teller machines is to

Accepted Answer

A)  increase money demand, shifting the LM curve up. 
B)  increase money demand, shifting the LM curve down. 
C)  decrease money demand, shifting the LM curve up. 
D)  decrease money demand, shifting the LM curve down. 
A)  increase money demand, shifting the LM curve up. 
B)  increase money demand, shifting the LM curve down. 
C)  decrease money demand, shifting the LM curve up. 
D)  decrease money demand, shifting the LM curve down.

Question 7

A fall in the price of a bond causes the yield of the bond to

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise if it's a short-term bond and fall if it's a long-term bond. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise if it's a short-term bond and fall if it's a long-term bond.

Question 8

Suppose the economy is initially in long-run equilibrium. For each of the shocks listed below, explain the long-run effects on output and the price level.
a. Labour supply decreases.
b. Productivity increases.

Accepted Answer

a. Output declines a

Question 9

Looking only at the asset market, an increase in output would cause

Accepted Answer

A)  the LM curve to shift down. 
B)  the LM curve to shift up. 
C)  an increase in real interest rates along the LM curve. 
D)  a decrease in real interest rates along the LM curve. 
A)  the LM curve to shift down. 
B)  the LM curve to shift up. 
C)  an increase in real interest rates along the LM curve. 
D)  a decrease in real interest rates along the LM curve.

Question 10

The short-run aggregate supply curve (in the absence of misperceptions)

Accepted Answer

A)  is vertical. 
B)  slopes upward. 
C)  is horizontal. 
D)  slopes downward. 
A)  is vertical. 
B)  slopes upward. 
C)  is horizontal. 
D)  slopes downward.

Question 11

The aggregate demand-aggregate supply (AD-AS) model is

Accepted Answer

A)  different from the IS-LM model because it does not show the long-run equilibrium. 
B)  equivalent to the IS-LM model but focuses on the relationship between price and output rather than the interest rate and output. 
C)  different from the IS-LM model because it does not show the short-run equilibrium. 
D)  equivalent to the IS-LM model but focuses on the relationship between the interest rate and output rather than price and output. 
A)  different from the IS-LM model because it does not show the long-run equilibrium. 
B)  equivalent to the IS-LM model but focuses on the relationship between price and output rather than the interest rate and output. 
C)  different from the IS-LM model because it does not show the short-run equilibrium. 
D)  equivalent to the IS-LM model but focuses on the relationship between the interest rate and output rather than price and output.

Question 12

The aggregate demand curve

Accepted Answer

A)  is vertical. 
B)  slopes upward. 
C)  is horizontal. 
D)  slopes downward. 
A)  is vertical. 
B)  slopes upward. 
C)  is horizontal. 
D)  slopes downward.

Question 13

Suppose Bank of Canada sells government bonds to the banks and public. This will cause

Accepted Answer

A)  the LM curve to shift up. 
B)  the IS curve to shift up. 
C)  the LM curve to shift down. 
D)  the IS curve to shift down. 
A)  the LM curve to shift up. 
B)  the IS curve to shift up. 
C)  the LM curve to shift down. 
D)  the IS curve to shift down.

Question 14

After a temporary adverse supply shock hits the economy, general equilibrium is restored by

Accepted Answer

A)  a downward shift of the IS curve. 
B)  a shift to the left of the FE line. 
C)  an upward shift of the LM curve. 
D)  a downward shift of the LM curve. 
A)  a downward shift of the IS curve. 
B)  a shift to the left of the FE line. 
C)  an upward shift of the LM curve. 
D)  a downward shift of the LM curve.

Question 15

Which of the following would shift the LM curve up?

Accepted Answer

A)  an increase in consumer spending 
B)  an increases in taxes 
C)  a decrease in supply of money 
D)  a decrease in taxes 
A)  an increase in consumer spending 
B)  an increases in taxes 
C)  a decrease in supply of money 
D)  a decrease in taxes

Question 16

The aggregate supply curve shows the relation between

Accepted Answer

A)  the real interest rate and the aggregate amount of output that firms supply. 
B)  the price level and the aggregate amount of output that firms supply. 
C)  the supply of goods by firms and the price of goods relative to the price of nonmonetary assets. 
D)  the inflation rate and the unemployment rate. 
A)  the real interest rate and the aggregate amount of output that firms supply. 
B)  the price level and the aggregate amount of output that firms supply. 
C)  the supply of goods by firms and the price of goods relative to the price of nonmonetary assets. 
D)  the inflation rate and the unemployment rate.

Question 17

You have just read that the Bank of Canada has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to

Accepted Answer

A)  shift up as the real money supply falls. 
B)  shift up as the real money supply rises. 
C)  shift down as the real money supply falls. 
D)  shift down as the real money supply rises. 
A)  shift up as the real money supply falls. 
B)  shift up as the real money supply rises. 
C)  shift down as the real money supply falls. 
D)  shift down as the real money supply rises.

Question 18

The IS-LM model predicts that a temporary adverse supply shock

Accepted Answer

A)  reduces output, national saving, and investment, but not the real interest rate. 
B)  reduces output, national saving, and the real interest rate, but not investment. 
C)  reduces the real interest rate, investment, and output, but not national saving. 
D)  reduces output, national saving, investment, and the real interest rate. 
A)  reduces output, national saving, and investment, but not the real interest rate. 
B)  reduces output, national saving, and the real interest rate, but not investment. 
C)  reduces the real interest rate, investment, and output, but not national saving. 
D)  reduces output, national saving, investment, and the real interest rate.

Question 19

Suppose you were a forecaster of the real wage rate, employment, output, the real interest rate, consumption, investment, and the price level. A shock hits the economy, which you think is a temporary adverse supply shock.
a. What are your forecasts for each of the variables listed above (rise, fall, no change)?
b. What if the shock was really due to people's reduced expectations about their future income? Which variables did you forecast correctly, and which did you forecast incorrectly?

Accepted Answer

a. The real wage rate, employment, outpu

Question 20

Because of a widespread fraud, people have decided not to use their debit card for their purchases anymore. This will cause

Accepted Answer

A)  the LM curve to shift down and to the right. 
B)  the LM curve to shift up and to the left. 
C)  the IS curve to shift down and to the right. 
D)  the IS curve to shift up and to the left. 
A)  the LM curve to shift down and to the right. 
B)  the LM curve to shift up and to the left. 
C)  the IS curve to shift down and to the right. 
D)  the IS curve to shift up and to the left.

When the money supply declines by 10%, in the long run, output and the price level .

An increase in money demand causes the real interest rate to and output to in the short run, before prices adjust to restore equilibrium.

Describe the effects, in both the short run and the long run, of a decline in the money supply. Explain what happens to real output and the price level.

A decline in wealth that doesn't affect labour supply would shift the IS curve and the FE line .

A contractionary monetary policy combined with an expansionary fiscal policy will lead to

The probable effect of introducing automatic teller machines is to

A fall in the price of a bond causes the yield of the bond to

Suppose the economy is initially in long-run equilibrium. For each of the shocks listed below, explain the long-run effects on output and the price level. a. Labour supply decreases. b. Productivity increases.

Looking only at the asset market, an increase in output would cause

The short-run aggregate supply curve (in the absence of misperceptions)

The aggregate demand-aggregate supply (AD-AS) model is

The aggregate demand curve

Suppose Bank of Canada sells government bonds to the banks and public. This will cause

After a temporary adverse supply shock hits the economy, general equilibrium is restored by

Which of the following would shift the LM curve up?

The aggregate supply curve shows the relation between

You have just read that the Bank of Canada has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to

The IS-LM model predicts that a temporary adverse supply shock

Because of a widespread fraud, people have decided not to use their debit card for their purchases anymore. This will cause

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 9: The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

When the money supply declines by 10%, in the long run, output ________ and the price level ________.

An increase in money demand causes the real interest rate to ________ and output to ________ in the short run, before prices adjust to restore equilibrium.

Describe the effects, in both the short run and the long run, of a decline in the money supply. Explain what happens to real output and the price level.

A decline in wealth that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.

A contractionary monetary policy combined with an expansionary fiscal policy will lead to

The probable effect of introducing automatic teller machines is to

A fall in the price of a bond causes the yield of the bond to

Suppose the economy is initially in long-run equilibrium. For each of the shocks listed below, explain the long-run effects on output and the price level. a. Labour supply decreases. b. Productivity increases.

Looking only at the asset market, an increase in output would cause

The short-run aggregate supply curve (in the absence of misperceptions)

The aggregate demand-aggregate supply (AD-AS) model is

The aggregate demand curve

Suppose Bank of Canada sells government bonds to the banks and public. This will cause

After a temporary adverse supply shock hits the economy, general equilibrium is restored by

Which of the following would shift the LM curve up?

The aggregate supply curve shows the relation between

You have just read that the Bank of Canada has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to

The IS-LM model predicts that a temporary adverse supply shock

Because of a widespread fraud, people have decided not to use their debit card for their purchases anymore. This will cause

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

When the money supply declines by 10%, in the long run, output and the price level .

An increase in money demand causes the real interest rate to and output to in the short run, before prices adjust to restore equilibrium.

A decline in wealth that doesn't affect labour supply would shift the IS curve and the FE line .