Question 1

Lower interest rates

Accepted Answer

A) increase the quantity of goods and services demanded because they decrease the cost of borrowing money. 
B) increase the quantity of goods and services demanded because they increase the income of bankers and other creditors. 
C) decrease the quantity of goods and services demanded because they decrease the incomes of all people in the economy. 
D) decrease the quantity of goods and services demanded because they raise the costs of building new plants and equipment.

Question 2

The wealth effect is another name for

Accepted Answer

A) the substitution effect. 
B) the real balance effect. 
C) the indirect effect. 
D) the interest rate effect.

Question 3

A fall in the price level

Accepted Answer

A) increases the real value of money balances which causes borrowing to decrease,leading to a decrease in investment and the quantity demanded of aggregate output. 
B) causes exports to rise and imports to fall,leading to an increase in quantity demanded of aggregate output. 
C) leads to an increase in the quantity of aggregate output because of the indirect effect. 
D) causes the quantity demanded of aggregate output to increase as long as the fall is less than the fall in the price level in other countries.

Question 4

When the price level goes down,the aggregate demand curve

Accepted Answer

A) shifts to the right. 
B) remains unchanged but there is a movement along the curve. 
C) continues to slope downward. 
D) causes the long-run aggregate supply to shift to the left.

Question 5

The aggregate demand curve differs from an individual's demand curve in that

Accepted Answer

A) the aggregate demand curve may not slope down while an individual demand curve must always slope down. 
B) the aggregate demand curve looks at the entire circular flow of income and product,while an individual demand curve looks at one good,holding everything else constant. 
C) prices change along an individual demand curve but prices are held constant along an aggregate demand curve. 
D) the aggregate demand curve slopes up while an individual demand curve slopes down.

Question 6

The long-run aggregate supply curve

Accepted Answer

A) shows that at higher prices,potential output increases. 
B) slopes up and to the right. 
C) shows that long-run aggregate supply equals potential output. 
D) s very sensitive to changes in the price level.

Question 7

Another term for the real-balance effect is

Accepted Answer

A) the substitution effect. 
B) the wealth effect. 
C) the indirect effect. 
D) the interest rate effect.

Question 8

A significant problem with developing nations relative to their production of capital goods and consumption goods is

Accepted Answer

A) capital and consumption goods do not play a vital role in the role of determining real GDP. 
B) that producing fewer capital goods invests in the future and allows for future decreases in consumption goods,but sacrifices current consumption goods which may prove beneficial to citizens in the short run. 
C) that producing more capital goods invests in the future and allows for future increases in consumption goods,but sacrifices current consumption goods which may prove detrimental to citizens in the short run. 
D) it is not a real problem since developing nations are not our trading partners;only the united States plays a vital role in Canadian trade policy.

Question 9

At each price level,the aggregate demand curve indicates

Accepted Answer

A) the nominal domestic income that will be produced. 
B) the total amount of real domestic income that will be purchased. 
C) the nominal domestic output that will be produced. 
D) the total amount of real domestic output that will be produced.

Question 10

The long-run aggregate supply curve can be thought of as the

Accepted Answer

A) level of output that the nation is currently producing. 
B) full-employment level of real GDP. 
C) level of real GDP associated with a constant price level. 
D) level of output for which real GDP equals nominal GDP.

Question 11

Higher interest rates

Accepted Answer

A) reduce the quantity of goods and services demanded because they increase the cost of borrowing money. 
B) reduce the quantity of goods and services demanded because they reduce the income of bankers and other creditors. 
C) increase the quantity of goods and services demanded because they increase the incomes of all people in the economy. 
D) increase the quantity of goods and services demanded because they lower the costs of building new plants and equipment.

Question 12

An indirect effect of a decrease in the price level works through

Accepted Answer

A) people substituting out of domestic goods and into foreign goods as exchange rates rise. 
B) changes in trade balances as domestic goods become more expensive,causing interest rates to move in the opposite direction from the change in the exchange rate. 
C) interest rates as people save more as the higher prices make their money balances less attractive. 
D) interest rates,increasing the quantity demanded for goods and services.

Question 13

If the Bank of Canada were to raise the Bank rate,we would expect

Accepted Answer

A) the AD curve to remain unchanged since this has no effect on the money supply. 
B) the AD curve to shift to the right since this has the effect of increasing the money supply. 
C) the AD curve to shift to the left since this has the effect of decreasing the money supply. 
D) will see a marked effect from the interest rate effect.

Question 14

If the price level increases,then

Accepted Answer

A) the exchange rate will increase,causing Canadian goods to become cheaper and increasing the quantity demanded for domestic goods. 
B) imports increase but exports do not change.Therefore,there is no effect on the quantity demanded for goods and services. 
C) foreigners buy fewer Canadian goods,leaving more goods for Canadians and an increase in the quantity demanded for goods and services produced domestically. 
D) domestic goods are more expensive relative to foreign goods,which reduces quantity demanded for domestic goods.

Question 15

Other things equal,a higher price level is associated with

Accepted Answer

A) a higher real GDP. 
B) a lower real GDP. 
C) a lower nominal GDP. 
D) higher income levels.

Question 16

How does a recession in Europe affect Canada's aggregate demand and Canada's aggregate demand curve?

Accepted Answer

The answer of How does a recession in Europe affect...

Question 17

When a change in the price level causes a change in the purchasing power of currency,which then changes the desired rate of consumption at all income levels,it is called

Accepted Answer

A) the real-balance effect. 
B) the substitution effect. 
C) the open-economy effect. 
D) the interest rate effect.

Question 18

According to the interest rate effect,a fall in the price level will

Accepted Answer

A) decrease the real value of money balances which causes the quantity demanded of aggregate output to increase. 
B) increase lending which causes interest rates to fall,increasing investment spending and increasing the quantity demanded of aggregate output. 
C) lead to a decrease in net exports,which causes the quantity demanded of aggregate output to decrease. 
D) increase the real value of money balances which causes interest rates to increase,reducing the quantity demanded of aggregate output.

Question 19

Suppose a country has no trade with other countries and people can borrow as much money as they want at the current interest rate.An increase in the price level will generate

Accepted Answer

A) a decrease in quantity demanded because of the real-balance effect. 
B) a decrease in quantity demanded because of the open-economy effect and the indirect effect. 
C) a decrease in quantity demanded because the real-balance effect will be stronger than the indirect effect and the open-economy effect. 
D) a decrease in quantity demanded because the indirect effect will be stronger than the real-balance effect.

Question 20

If the Bank of Canada were issue Canada Savings bonds to the public,we would expect

Accepted Answer