Question 1

List the six factors that cause both the IS and the aggregate demand curve to shift.

Accepted Answer

The answer of List the six factors that cause both...

Question 2

In the money market, a condition of excess demand for money can be eliminated by a ________ in aggregate output or a ________ in the interest rate, everything else held constant.

Accepted Answer

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

Question 3

An autonomous increase in money demand, other things equal, shifts the ________ curve to the ________.

Accepted Answer

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

Question 4

Everything else held constant, an increase in autonomous planned investment 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 5

In the IS-MP framework, an expansionary fiscal policy resulting from government purchases, 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 6

An autonomous rise in ________ shifts the MP curve to the ________, everything else held constant.

Accepted Answer

A)  net exports; right 
B)  net exports; left 
C)  money demand; right 
D)  money demand; left

Question 7

Higher inflation results from higher interest rates due to ________.

Accepted Answer

A)  the Taylor principle 
B)  the Taylor rule 
C)  the slope of the monetary policy curve 
D)  the Fisher equation

Question 8

As bonds become a riskier asset, the demand for money ________ and, all else constant, the equilibrium interest rate ________.

Accepted Answer

A)  rises; rises 
B)  rises; falls 
C)  falls; rises 
D)  falls; falls

Question 9

Describe the relationship between the IS and MP curves and the aggregate demand curve.

Accepted Answer

The answer of Describe the relationship between the IS and...

Question 10

If the Bank of Canada conducts open market sales, the money supply ________, shifting the MP curve to the ________, everything else held constant.

Accepted Answer

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

Question 11

If the central bank did not follow the Taylor principle so that the real interest rate fell when inflation rose, ________.

Accepted Answer

A)  inflation would increase 
B)  the nominal interest rate would not change 
C)  expected inflation would be equal to zero 
D)  output would remain unchanged

Question 12

Suppose the aggregate demand curve is given by Y = 12 - r then, if the nominal interest rate 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 13

Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls ________.

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 14

The Taylor Principle differs from the Taylor rule because ________.

Accepted Answer

A)  it does not provide a rule for how monetary policy should react to conditions in the economy 
B)  the Taylor principle relates to real interest rates and the Taylor rule pertains to nominal interest rates 
C)  the Taylor principle is exclusively used by the Bank of Canada while the Taylor rule is used by the U.S. Fed 
D)  the Taylor rule relates to inflation rates while the Taylor principle is applied to real interest rates

Question 15

An increase in autonomous consumer expenditure 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 16

Everything else held constant, an autonomous easing of monetary policy will cause ________.

Accepted Answer

A)  the quantity of aggregate demand to increase 
B)  the quantity of aggregate demand to decrease 
C)  aggregate demand to decrease 
D)  aggregate demand to increase

Question 17

An increase in the interest rate due to Taylor principle changes result in ________.

Accepted Answer

A)  a movement up the monetary policy curve 
B)  a movement down the monetary policy curve 
C)  an upward shift of the monetary policy curve 
D)  a downward shift of the monetary policy curve

Question 18

In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output.

Accepted Answer

A)  higher; raise; lowering 
B)  lower; raise; lowering 
C)  higher; lower; lowering 
D)  higher; lower; raising

Question 19

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.

Accepted Answer

A)  real; lowering 
B)  real; raising 
C)  nominal; lowering 
D)  nominal; raising

Question 20

The Bank of Canada conducts monetary policy by ________.

Accepted Answer

A)  setting the overnight interest rate 
B)  buying and selling bonds in open market operations 
C)  changing the tax rate to influence aggregate demand 
D)  changing the exchange rate to influence aggregate demand

Exam 22: The Monetary Policy and Aggregate Demand Curves

List the six factors that cause both the IS and the aggregate demand curve to shift.

In the money market, a condition of excess demand for money can be eliminated by a in aggregate output or a in the interest rate, everything else held constant.

An autonomous increase in money demand, other things equal, shifts the curve to the .

Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the and aggregate demand will .

In the IS-MP framework, an expansionary fiscal policy resulting from government purchases, causes aggregate output to and the interest rate to , everything else held constant.

An autonomous rise in shifts the MP curve to the , everything else held constant.

Higher inflation results from higher interest rates due to ________.

As bonds become a riskier asset, the demand for money and, all else constant, the equilibrium interest rate .

Describe the relationship between the IS and MP curves and the aggregate demand curve.

If the Bank of Canada conducts open market sales, the money supply , shifting the MP curve to the , everything else held constant.