Question 1

Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.

Accepted Answer

A)  right; increase 
B)  right; decrease 
C)  left; increase 
D)  left; decrease

Question 2

An autonomous easing of monetary policy ________.

Accepted Answer

A)  causes an upward movement along the monetary policy curve 
B)  causes a downward movement along the monetary policy curve 
C)  shifts the monetary policy curve upward 
D)  shifts the monetary policy curve downward

Question 3

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

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

Question 4

A decrease in taxes causes the IS curve to shift ________ and the aggregate demand curve to shift ________.

Accepted Answer

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

Question 5

A contractionary monetary policy shifts the MP curve to the ________, reducing ________, everything else held constant.

Accepted Answer

A)  left; output and increasing interest rates 
B)  left; both real output and interest rates 
C)  right; both interest rates and real output 
D)  right; interest rates and increasing real output

Question 6

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

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

Question 7

Explain the relationship between Bank of Canada's overnight rate and the real interest rate.

Accepted Answer

The answer of Explain the relationship between Bank of Canada's...

Question 8

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

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

Question 9

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

Question 10

Aggregate output and the interest rate are ________ related to government spending and are ________ related to taxes.

Accepted Answer

A)  positively; positively 
B)  positively; negatively 
C)  negatively; positively 
D)  negatively; negatively

Question 11

Higher interest rates lead to reductions in the aggregate output due to ________.

Accepted Answer

A)  reductions in autonomous consumer expenditure 
B)  reductions in planned investment expenditure 
C)  higher expected inflation 
D)  higher employment

Question 12

Describe monetary easing at the Bank of Canada during the 2007-2009 Financial Crisis.

Accepted Answer

The answer of Describe monetary easing at the Bank of...

Question 13

In the IS-MP framework a contractionary fiscal policy causes aggregate output to ________ and the interest rate to ________, everything else held constant.

Accepted Answer

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

Question 14

When the financial crisis started in August 2007, inflation was rising and the Bank of Canada began an aggressive easing lowering of the overnight rate, which indicated that ________.

Accepted Answer

A)  the Bank of Canada pursued an autonomous monetary policy tightening 
B)  the Bank of Canada pursued an autonomous monetary policy easing 
C)  the Bank of Canada had an automatic negative response to inflation based on the Taylor rule 
D)  the Bank of Canada had an automatic positive response to inflation based on the Taylor rule

Question 15

Despite an expansionary monetary policy, an economy experiences a recession. Everything else held constant, the recession could occur in spite of the rightward shift of the MP curve if ________.

Accepted Answer

A)  consumer confidence decreases sharply 
B)  there is an investment boom 
C)  the money supply increases 
D)  taxes are cut

Question 16

Suppose the aggregate demand curve is given by Y = 12 - r then, if inflation increases by 1 percent ________.

Accepted Answer

A)  aggregate output is unchanged 
B)  aggregate output increases 
C)  the nominal interest changes 
D)  the real interest rate falls

Question 17

An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

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

Question 18

A decline in the money supply shifts the MP curve to the left, causing the interest rate to ________ and output to ________, everything else held constant.

Accepted Answer

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

Question 19

Everything else held constant, an increase in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.

Accepted Answer

A)  right; increase 
B)  right; decrease 
C)  left; increase 
D)  left; decrease

Question 20

If the central bank did not follow the Taylor principle ________.

Accepted Answer

A)  inflation would spiral out of control 
B)  it could rely on autonomous monetary policy changes 
C)  it could rely on non-conventional monetary policy tools 
D)  B and C only

Exam 22: The Monetary Policy and Aggregate Demand Curves

Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the and aggregate demand will .

An autonomous easing of monetary policy ________.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

A decrease in taxes causes the IS curve to shift and the aggregate demand curve to shift .

A contractionary monetary policy shifts the MP curve to the , reducing , everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

Explain the relationship between Bank of Canada's overnight rate and the real interest rate.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

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.

Aggregate output and the interest rate are related to government spending and are related to taxes.

Higher interest rates lead to reductions in the aggregate output due to ________.

Describe monetary easing at the Bank of Canada during the 2007-2009 Financial Crisis.

In the IS-MP framework a contractionary fiscal policy causes aggregate output to and the interest rate to , everything else held constant.

When the financial crisis started in August 2007, inflation was rising and the Bank of Canada began an aggressive easing lowering of the overnight rate, which indicated that ________.

Despite an expansionary monetary policy, an economy experiences a recession. Everything else held constant, the recession could occur in spite of the rightward shift of the MP curve if ________.

Suppose the aggregate demand curve is given by Y = 12 - r then, if inflation increases by 1 percent ________.

An increase in government spending causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

A decline in the money supply shifts the MP curve to the left, causing the interest rate to and output to , everything else held constant.

Everything else held constant, an increase in net taxes will cause the IS curve to shift to the and aggregate demand will .

If the central bank did not follow the Taylor principle ________.