ECON 1BB3 Lecture 11: Exam Review

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ECON 1BB3: Macroeconomics – Lecture 11: Exam Review
Chapter 15 – Aggregate Demand Effects of Changes
in the Money Supply pp. 383-389
1. In a small open economy with perfect capital mobility, if the Bank of Canada
chooses to fix the value of the Canadian dollar, an expansionary monetary policy:
a) Would cause the dollar to depreciate and thus require the Bank of Canada to
purchase Canadian dollars in the market for foreign currency exchange
b) Would cause the dollar to appreciate and thus require the Bank of Canada to
purchase Canadian dollars in the market for foreign currency exchange
c) Would cause the dollar to appreciate and thus require the Bank of Canada to sell
Canadian dollars in the market for foreign currency exchange
d) Would cause the dollar to depreciate and thus require the Bank of Canada to sell
Canadian dollars in the market for foreign currency exchange
Ch 14 – Aggregate Demand and Aggregate Supply
2. Which of the following best describes the effects of a fall in the price level?
a) The real exchange rate and interest rates rise
b) The real exchange rate and interest rates fall
c) The real exchange rate falls and interest rates rise
d) The real exchange rate rises, and interest rates fall
Ch 14 – Aggregate Demand and Aggregate Supply
3. What are the effects of an increase in the price level?
a) The interest rate increases, the dollar depreciates, and net exports increase
b) The interest rate increases, the dollar appreciates, and net exports decrease
c) The interest rate decreases, the dollar depreciates, and net exports increase
d) The interest rate decreases, the dollar appreciates, and net exports decrease
Ch 14 – Aggregate Demand and Aggregate Supply
4. Identify and briefly explain two economic factors which cause the aggregate
demand AD curve to shift when the Bank of Canada increases the money supply.
(Assume an open economy)
An increase in the money supply:
o Lowers interest rates in the money market
o Which increases investment expenditures
o Which causes the AD curve to shift to the right
o Lower interest rates also produce a capital outflow
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o A capital outflow causes a depreciation in the foreign exchange rate
o A depreciation in the foreign exchange rate increases exports and reduces imports
which causes the AD curve to shift to the right
Ch 14 – Aggregate Demand and Aggregate Supply
5. The following events have their initial impact on which of the following curves:
Aggregate Demand (AD) or Aggregate Supply (SRAS)? Indicate whether the curve
shifts to the right or left:
a) OPEC raises oil prices
b) Government increases taxes
c) A technological advance increases labour productivity
d) The Bank of Canada sells Treasury bills in the open market
a) SRAS shifts left
b) AD shifts left
c) SRAS/LRAS shifts right
d) AD curve shifts left
Ch 14 – Aggregate Demand and Aggregate Supply
6. In diagnosing the cause of a recession, a falling price level suggests that the
cause is a negative (demand/supply) shock.
A negative demand shock.
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Ch 14 – Aggregate Demand and Aggregate Supply
5. In which of the following situations would stagflation exist?
a) When prices and output rise
b) When prices rise and output falls
c) When prices fall and output rises
d) When prices and output fall
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Document Summary

Econ 1bb3: macroeconomics lecture 11: exam review. Chapter 15 aggregate demand effects of changes in the money supply pp. Canadian dollars in the market for foreign currency exchange: would cause the dollar to depreciate and thus require the bank of canada to sell. Canadian dollars in the market for foreign currency exchange. Ch 14 aggregate demand and aggregate supply. Identify and briefly explain two economic factors which cause the aggregate demand ad curve to shift when the bank of canada increases the money supply. (assume an open economy) Ch 14 aggregate demand and aggregate supply: the following events have their initial impact on which of the following curves: Ch 14 aggregate demand and aggregate supply: in diagnosing the cause of a recession, a falling price level suggests that the cause is a negative (demand/supply) shock. Identify two different types of transactions which give rise to an increased supply of foreign exchange.

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