Question 1

What is characteristic of aggregate demand in Canada?

Accepted Answer

A)  The real exchange-rate effect is nonexistent. 
B)  The interest-rate effect is relatively small. 
C)  The wealth effect is the most important. 
D)  The interest-rate effect is relatively large. 
A)  The real exchange-rate effect is nonexistent. 
B)  The interest-rate effect is relatively small. 
C)  The wealth effect is the most important. 
D)  The interest-rate effect is relatively large.

Question 2

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 3

According to liquidity preference theory,when do people demand fewer goods and services?

Accepted Answer

A)  when the price level or interest rate increase 
B)  when the price level or interest rate decrease 
C)  when the price level increases or the interest rate decreases 
D)  when the price level decreases or the interest rate increases 
A)  when the price level or interest rate increase 
B)  when the price level or interest rate decrease 
C)  when the price level increases or the interest rate decreases 
D)  when the price level decreases or the interest rate increases

Question 4

In a small open economy with a flexible exchange rate,what does a monetary injection by the Bank of Canada cause?

Accepted Answer

A)  It causes the dollar to appreciate. 
B)  It causes net exports to fall. 
C)  It causes an additional decrease in demand for Canadian-produced goods and services that is not realized in a closed economy. 
D)  It causes a shift of the aggregate-demand curve farther to the right than it would in a closed economy. 
A)  It causes the dollar to appreciate. 
B)  It causes net exports to fall. 
C)  It causes an additional decrease in demand for Canadian-produced goods and services that is not realized in a closed economy. 
D)  It causes a shift of the aggregate-demand curve farther to the right than it would in a closed economy.

Question 5

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply 
A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply

Question 6

Which policy would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve to the right away from long-run equilibrium?

Accepted Answer

A)  decreasing taxes 
B)  decreasing the interest rate 
C)  increasing the money supply 
D)  increasing taxes 
A)  decreasing taxes 
B)  decreasing the interest rate 
C)  increasing the money supply 
D)  increasing taxes

Question 7

If the Bank of Canada conducts open-market purchases,how do the money supply and the aggregate demand change?

Accepted Answer

A)  The money supply increases,and aggregate demand shifts right. 
B)  The money supply increases,and aggregate demand shifts left. 
C)  The money supply decreases,and aggregate demand shifts right. 
D)  The money supply decreases,and aggregate demand shifts left. 
A)  The money supply increases,and aggregate demand shifts right. 
B)  The money supply increases,and aggregate demand shifts left. 
C)  The money supply decreases,and aggregate demand shifts right. 
D)  The money supply decreases,and aggregate demand shifts left.

Question 8

Figure 15-1  
-Refer to the Figure 15-1.What is most likely to happen if the interest rate is equal to 4?

Accepted Answer

A)  There is excess demand for money,and the interest rate will fall. 
B)  There is excess supply of money,and the interest rate will rise. 
C)  There is excess demand for money,and the interest rate will rise. 
D)  There is an excess supply of money,and the interest rate will fall. 
A)  There is excess demand for money,and the interest rate will fall. 
B)  There is excess supply of money,and the interest rate will rise. 
C)  There is excess demand for money,and the interest rate will rise. 
D)  There is an excess supply of money,and the interest rate will fall.

Question 9

Why do people primarily own or hold money?

Accepted Answer

A)  because it has a guaranteed nominal return 
B)  because it can be invested for a guaranteed real return 
C)  because it can be used directly to buy goods and services 
D)  because it functions as a unit of account 
A)  because it has a guaranteed nominal return 
B)  because it can be invested for a guaranteed real return 
C)  because it can be used directly to buy goods and services 
D)  because it functions as a unit of account

Question 10

How do tax cuts and government expenditure affect aggregate demand?

Accepted Answer

A)  Both shift aggregate demand right. 
B)  Both shift aggregate demand left. 
C)  Tax cuts shift aggregate demand right; government expenditure shifts aggregate demand left. 
D)  Tax cuts shift aggregate demand left; government expenditure shifts aggregate demand right. 
A)  Both shift aggregate demand right. 
B)  Both shift aggregate demand left. 
C)  Tax cuts shift aggregate demand right; government expenditure shifts aggregate demand left. 
D)  Tax cuts shift aggregate demand left; government expenditure shifts aggregate demand right.

Question 11

How does the interest rate change when the price level falls and when the money supply falls?

Accepted Answer

A)  The interest rate rises both when the price level falls and when the money supply falls. 
B)  The interest rate rises when the price level falls and falls when the money supply falls. 
C)  The interest rate falls when the price level falls and rises when the money supply falls. 
D)  The interest rate falls both when the price level falls and when the money supply falls. 
A)  The interest rate rises both when the price level falls and when the money supply falls. 
B)  The interest rate rises when the price level falls and falls when the money supply falls. 
C)  The interest rate falls when the price level falls and rises when the money supply falls. 
D)  The interest rate falls both when the price level falls and when the money supply falls.

Question 12

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)  People put more money in their savings accounts. 
B)  Foreign citizens decide to buy fewer Canadian bonds. 
C)  Firms decide to purchase new machinery. 
D)  People decide to increase residential investment. 
A)  People put more money in their savings accounts. 
B)  Foreign citizens decide to buy fewer Canadian bonds. 
C)  Firms decide to purchase new machinery. 
D)  People decide to increase residential investment.

Question 13

An increase in the price level shifts the money-demand curve to the left,making interest rates rise.

Accepted Answer

A) True 
 B)False

Question 14

What do supply-side economists focus more on than other economists?

Accepted Answer

A)  how fiscal policy affects consumption 
B)  the multiplier effect of fiscal policy 
C)  how fiscal policy affects aggregate supply 
D)  the accelerator and exchange-rate effects 
A)  how fiscal policy affects consumption 
B)  the multiplier effect of fiscal policy 
C)  how fiscal policy affects aggregate supply 
D)  the accelerator and exchange-rate effects

Question 15

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

Accepted Answer

A)  The interest rate and the quantity demanded rise. 
B)  The interest rate rises and the quantity demanded falls. 
C)  The interest rate falls and the quantity demanded rises. 
D)  The interest rate and the quantity demanded fall. 
A)  The interest rate and the quantity demanded rise. 
B)  The interest rate rises and the quantity demanded falls. 
C)  The interest rate falls and the quantity demanded rises. 
D)  The interest rate and the quantity demanded fall.

Question 16

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the bank rate 
B)  a decrease in the price level 
C)  a decrease in the money supply 
D)  a decrease in interest rates 
A)  an increase in the bank rate 
B)  a decrease in the price level 
C)  a decrease in the money supply 
D)  a decrease in interest rates

Question 17

What is the most important automatic stabilizer?

Accepted Answer

A)  government spending 
B)  the tax system 
C)  unemployment compensation 
D)  welfare benefits 
A)  government spending 
B)  the tax system 
C)  unemployment compensation 
D)  welfare benefits

Question 18

In a small open economy with perfect capital mobility,if the exchange rate is flexible,what would be the effect of an expansionary monetary policy?

Accepted Answer

A)  It would cause the domestic interest rate to increase permanently. 
B)  It would cause the domestic interest rate to decrease permanently. 
C)  It would cause the domestic interest rate to increase temporarily. 
D)  It would cause the domestic interest rate to decrease temporarily. 
A)  It would cause the domestic interest rate to increase permanently. 
B)  It would cause the domestic interest rate to decrease permanently. 
C)  It would cause the domestic interest rate to increase temporarily. 
D)  It would cause the domestic interest rate to decrease temporarily.

Question 19

The most important lag for monetary policy is the time it takes to formulate policy,while the most important lag for fiscal policy is the time it takes for the economy to respond to changes in government spending.

Accepted Answer

A) True 
 B)False

Question 20

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Accepted Answer

A)  It increases interest rates and increases aggregate demand. 
B)  It increases interest rates and decreases aggregate demand. 
C)  It decreases interest rates and decreases aggregate demand. 
D)  It decreases interest rates and increases aggregate demand. 
A)  It increases interest rates and increases aggregate demand. 
B)  It increases interest rates and decreases aggregate demand. 
C)  It decreases interest rates and decreases aggregate demand. 
D)  It decreases interest rates and increases aggregate demand.

What is characteristic of aggregate demand in Canada?

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

According to liquidity preference theory,when do people demand fewer goods and services?

In a small open economy with a flexible exchange rate,what does a monetary injection by the Bank of Canada cause?

Which of the following shifts aggregate demand to the right?

Which policy would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve to the right away from long-run equilibrium?

If the Bank of Canada conducts open-market purchases,how do the money supply and the aggregate demand change?

Figure 15-1 -Refer to the Figure 15-1.What is most likely to happen if the interest rate is equal to 4?

Why do people primarily own or hold money?

How do tax cuts and government expenditure affect aggregate demand?

How does the interest rate change when the price level falls and when the money supply falls?

Which of the following is an effect of an increase in the interest rate?

An increase in the price level shifts the money-demand curve to the left,making interest rates rise.

What do supply-side economists focus more on than other economists?

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

Which of the following shifts aggregate demand to the right?

What is the most important automatic stabilizer?

In a small open economy with perfect capital mobility,if the exchange rate is flexible,what would be the effect of an expansionary monetary policy?

The most important lag for monetary policy is the time it takes to formulate policy,while the most important lag for fiscal policy is the time it takes for the economy to respond to changes in government spending.

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

What is characteristic of aggregate demand in Canada?

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

According to liquidity preference theory,when do people demand fewer goods and services?

In a small open economy with a flexible exchange rate,what does a monetary injection by the Bank of Canada cause?

Which of the following shifts aggregate demand to the right?

Which policy would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve to the right away from long-run equilibrium?

If the Bank of Canada conducts open-market purchases,how do the money supply and the aggregate demand change?

Figure 15-1 -Refer to the Figure 15-1.What is most likely to happen if the interest rate is equal to 4?

Why do people primarily own or hold money?

How do tax cuts and government expenditure affect aggregate demand?

How does the interest rate change when the price level falls and when the money supply falls?

Which of the following is an effect of an increase in the interest rate?

An increase in the price level shifts the money-demand curve to the left,making interest rates rise.

What do supply-side economists focus more on than other economists?

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

Which of the following shifts aggregate demand to the right?

What is the most important automatic stabilizer?

In a small open economy with perfect capital mobility,if the exchange rate is flexible,what would be the effect of an expansionary monetary policy?

The most important lag for monetary policy is the time it takes to formulate policy,while the most important lag for fiscal policy is the time it takes for the economy to respond to changes in government spending.

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters