ECON 1BB3 Final: Chapter 15

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8 Mar 2017

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ECON 1BB3 Full Course Notes

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Chapter 15: the influence of monetary and fiscal policy on aggregate demand review. Theory of liquidity preference: keynes"s theory that interest rate adjusts to bring money supply and money demanded into balance. When the bank of canada increases money supply, it lowers interest rate and increases the quantity of goods and services demanded for any given price level, shifting the aggregate demand curve t the right. When the bank of canada decreases money supply it raises the inters rate and decreases the quantity of goods and services demanded for any given price level, shifting the aggregate demand curve to the left. We have an equation that divides real output (gdp=y) into categories according to who purchases the goods. The ad curve has a negative slope for 3 reasons. 1. the wealth effect: the interest rate effect, the real exchange-rate effect. 1. buy the same quantity of goods as before but spend less : buy more goods and services then before.

Related Questions

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

a. price level

demand for money

equilibrium interest rate

quantity of goods and services demanded

b. price level

demand for money

equilibrium interest rate

quantity of goods and services demanded

c. price level

demand for money

equilibrium interest rate

quantity of goods and services demanded

d. price level

demand for money

equilibrium interest rate

quantity of goods and services demanded

crimsonreindeer712

In response to a negative supply shock, the government decreases taxes. The most likely result of the government's tax decrease is:

	a decrease in unemployment and a decrease in the aggregate price level.
	a decrease in unemployment and an increase in the aggregate price level.
	an increase in unemployment and an increase in the aggregate price level.
	an increase in unemployment and a decrease in the aggregate price level.

If the aggregate price level rises, holding everything constant, consumers will:

	demand less aggregate output at all price levels resulting in a shift right of the AD curve.
	find their purchasing power has increased and will purchase more goods and services leading to an increase in the aggregate output demanded.
	need more money to purchase the same basket of goods which will lead to an increase in the demand for money leading to interest rate increases, and a reduction in the quantity of aggregate output demanded via a drop in investment demand.
	need less money to purchase the same basket of goods which will lead to a decrease in the demand for money leading to interest rate decreases, and an increase in the quantity of aggregate output demanded via an increase in investment demand.

rosecrow410

The steps in the transmission of monetary policy are

A. Congress increases government expenditures on goods and services, leading to an increase in aggregate demand.
B. Congress increases the budget deficit, which increases the money supply, which increases aggregate supply.
C. Congress increases the money supply, which lowers the interest rate, and leads to an increase in aggregate demand.
D. The Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to an increase in aggregate demand.
E. The Federal Reserve increases government expenditures on goods and services, leading to an increase in aggregate demand.

erinmallard110

ECON 1BB3 Final: Chapter 15

ECON 1BB3 Full Course Notes

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