Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 1 of 10
|
|
- Isabel Porter
- 5 years ago
- Views:
Transcription
1 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 1 of If Canada was a closed economy, the reduction in government expenditures would reduce aggregate demand and thus shift the aggregate demand curve to the left. Canada, however, is a small open economy with perfect capital mobility. As a result, we must consider the choice of exchange rate policy. If the Bank of Canada has chosen to allow the exchange rate to be flexible, fiscal policy has no lasting influence on the position of the aggregate demand curve. If the Bank of Canada has chosen to fix the exchange rate, fiscal policy has a large and lasting influence on the position of the aggregate demand curve. In this case, the reduction in government expenditures causes the aggregate demand curve to shift to the left. 2. If Canada was a closed economy, the pessimism of consumers would reduce aggregate demand and reduce output in the short run. Canada, however, is a small open economy with perfect capital mobility. As a result, we must consider the choice of exchange rate policy. If the Bank of Canada has chosen to allow the exchange rate to be flexible, the change in consumption has no lasting influence on the position of the aggregate demand curve. If the Bank of Canada has chosen to fix the exchange rate, changes in consumption have a large and lasting influence on the position of the aggregate demand curve. In this case, the increase in consumer pessimism causes the aggregate demand curve to shift to the left. 3. A balanced budget law would remove automatic stabilizers. Suppose the economy goes into recession. Automatic stabilizers such as the income tax and social welfare programs ensure that spending does not fall too much. But they also give rise to a government deficit. Under a balanced budget law, the government would have to increase taxes or cut spending, which would make the recession worse. 4. There is no short-run difference. Both policies operate by changing aggregate demand, and so both kinds of policies have the same implications for output and prices. 5. By less than $2 billion because the crowding-out effect, which reduces the shift in aggregate demand, more than offsets the multiplier effect, which amplifies the shift. 6 A decrease in taxes with a fixed exchange rate, because fiscal policy has no crowding-out effect on investment or net exports. 7. (a) Multiplier = 1/(1-0.75) = 4. $10/4 = $2.5 billion. (b) (c) (d) (e) Multiplier = 1/( ) = 2 $10/2 = $5 billion. More, because as the government spends more, firms spend less on plant and equipment so aggregate demand won t increase by as much as the multiplier suggests. More of a problem. Government spending raises interest rates. The more sensitive investment is to the interest rate, the more it is reduced or crowded out by government spending. More likely to allow the economy to adjust on its own because if the economy adjusts on its own before the impact of the fiscal policy is felt, the fiscal policy will be destabilizing. 8. (a) They decreased the money supply (or lowered its growth rate). (b) Because monetary policy acts on the economy with a lag. If the Bank of Canada waits until inflation has arrived, the effect of its policy will arrive too late. Thus, the Bank of Canada responds to its forecast of inflation.
2 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 2 of (a) Closed Economy An expansion in the money supply reduces the interest rate, as shown in the figure below. Open Economy In an open economy with a flexible exchange rate, Canadian and foreign savers find Canadian assets less attractive than foreign assets because of the lower Canadian interest rates. As a result, they buy foreign assets and sell Canadian assets causing the real exchange rate to fall. This will increase net exports and, therefore, increase the demand for money until interest rates return to world interest rates. This is shown in the figure below.
3 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 3 of 10 In a small open economy with fixed exchange rates, the reduction in interest rates causes the dollar to depreciate. However, the central bank will purchase Canadian currency in the foreign exchange market in order to prevent this depreciation. As a result, the money supply will also decrease until interest rates return to world levels. This is illustrated in the figure below. (b) Closed Economy When an increase in credit card availability reduces the cash people hold, money demand decreases from MD 1 to MD 2, as shown in the figure below. As a result, the interest rate drops. Open Economy In an open economy with a flexible exchange rate, Canadian and foreign savers find Canadian assets less attractive than foreign assets because of the fall in Canadian interest rates. As a result, they buy foreign assets and sell Canadian assets causing the real exchange rate to fall. This will increase net exports and, therefore, increase the demand for money until interest rates return to world interest rates. This is shown in the figure below.
4 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 4 of 10 In a small open economy with fixed exchange rates, the reduction in interest rates causes the dollar to depreciate. However, the central bank will purchase Canadian currency in the foreign exchange market in order to prevent this depreciation. As a result, the money supply will also decrease until interest rates return to world levels. This is illustrated in the figure below.
5 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 5 of 10 (c) Closed Economy When households decide to hold more money to use for holiday shopping, the money demand curve shifts tot he right from MD 1 to MD 2, as shown in the figure below. The result is a rise in the interest rate. Open Economy In an open economy with a flexible exchange rate, the rise in interest rates attracts foreign savings, so the real exchange rate will rise. This will reduce net exports and, therefore, reduce the demand for money until interest rates return to world interest rates. This is shown in the figure below.
6 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 6 of 10 In a small open economy with fixed exchange rates, the rise in interest rates will tend to cause the dollar to appreciate. However, the central bank will purchase foreign currency in order to prevent this appreciation. As a result, the money supply will also increase until interest rates return to world levels. This is illustrated in the figure below. (d) Closed Economy When a wave of optimism boosts business investment, money demand increases from MD 1 to MD 2 in the figure below. The increase in money demand increases the interest rate.
7 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 7 of 10 Open Economy With a flexible exchange rate policy, the increase in interest rates will cause the real exchange rate to rise. Because of the rise in the exchange rate, there will be a reduction in next exports which will offset the rise in investment. This reduction in net exports will offset the increased demand for money created by the new investment. With perfect capital mobility, the demand for money will move back until interest rates return to the initial interest rate. This is illustrated in the figure below. With a fixed exchange rate policy, the Bank of Canada will cause the supply of money to expand as it purchases foreign currency. It must purchase this foreign currency in order to maintain the value of the Canadian dollar. This will cause the supply of money to expand until interest rates are restored to the initial interest rate. This is illustrated in the figure below.
8 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 8 of 10 (e) Closed Economy When an increase in oil prices shifts the short-run aggregate-supply curve upward, the increased price level increases money demand. The money demand curve shifts to the right from MD 1 to MD 2, as shown in the figure below. The result is a rise in the interest rate. Open Economy In an open economy with a flexible exchange rate, the rise in interest rates attracts foreign savings, so the real exchange rate will rise. This will reduce net exports and, therefore, reduce the demand for money until interest rates return to the world interest rate. This is shown in the figure below.
9 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 9 of 10 In a small open economy with fixed exchange rates, the rise in interest rates will tend to cause the dollar to appreciate. However, the central bank will purchase foreign currency in order to prevent this appreciation. As a result, the money supply will also increase until interest rates return to world levels. This is illustrated in the figure below. 10. (a) When more ATMs are available in a closed economy, so that people s money demand is reduced, the money demand curve shifts tot he left from MD 1 to MD 2, as shown in the figure below. If the Bank of Canada does not change the money supply, which is at MS 1, the interest rate will decline from r 1 to r 2. The decline in the interest rate shifts the aggregate-demand curve to the right, as consumption and investment increase. (b) If the Bank of Canada wants to stabilize aggregate demand, it should reduce the money supply to MS 2, so the interest rate will remain at r 1 and aggregate demand won t change.
10 Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 10 of (a) Tax revenue declines when the economy goes into a recession because taxes are closely related to economic activity. In a recession, people s incomes and wages fall, as do firms profits, and the volume of sales so taxes collected on all these things decline. (b) (c) Government spending rises when the economy goes into a recession because more people get Employment Insurance benefits, welfare benefits, and other forms of income support. If the government were to operate under a strict balance-budget rule, it would have to raise tax rates or cut government spending in a recession. Both would reduce aggregate demand, making the recession more severe.
THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
34 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND Questions for Review 1. The theory of liquidity preference is Keynes's theory of how the interest rate is determined. According to the
More informationCopyright 2017 by the UBC Real Estate Division
DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate
More informationLesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand
Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Economics N. Gregory Mankiw Introduction This chapter focuses on the short-run effects of fiscal
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
20 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationIn this chapter, look for the answers to these questions
In this chapter, look for the answers to these questions How does the interest-rate effect help explain the slope of the aggregate-demand curve? How can the central bank use monetary policy to shift the
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand 34 Aggregate Demand Many factors influence aggregate demand besides monetary and fiscal policy. In particular, desired spending by households
More informationEconomics 1012A Introduction to Macroeconomics Spring 2004 Dr. R. E. Mueller Second Midterm Examination March 19, 2004
Economics 1012A Introduction to Macroeconomics Spring 2004 Dr. R. E. Mueller Second Midterm Examination March 19, 2004 Follow the instructions for each of the two parts of this examination. This examination
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
21 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationMacroeconomics Mankiw 6th Edition
N. Gregory Mankiw Lecture notes, ECON 1150 Macroeconomics Mankiw 6th Edition 21 & 22 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE
More informationThe influence of Monetary And Fiscal Policy on Aggregate Demand
Lecture 11 The influence of Monetary And Fiscal Policy on Aggregate Demand Prof. Samuel Moon Jung Introduction Earlier chapters covered: the long-run effects of fiscal policy on interest rates, investment,
More informationTest 3: April 4, Multiple Choice 30 points (1 each) Select the best answer for each question. Answer the questions on the Scantron sheet.
Test 3: April 4, 2002 Multiple Choice 30 points (1 each) Select the best answer for each question. Answer the questions on the Scantron sheet. 1. Suzanne, a Canadian resident, purchases stock in a Thai
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 20 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be
More informationSynthesis for Macroeconomics Summary of Aggregate Demand and Aggregate Supply Relevance of Fiscal and Monetary Policy. Fernando Nandy T. Aldaba, Ph.
Synthesis for Macroeconomics Summary of Aggregate Demand and Aggregate Supply Relevance of Fiscal and Monetary Policy Fernando Nandy T. Aldaba, Ph.D Senior Executives Class Batc 3 Sinagtala APPLIED PUBLIC
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
Chapter 32 The Influence of Monetary and Fiscal Policy on Aggregate Demand Test B 1. Of the effects that help explain why the U.S. aggregate demand curve slopes downward the a. wealth effect is most important
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 34 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Lecture
The Influence of Monetary and Fiscal Policy on Aggregate Demand Lecture 10 28.4.2015 Previous Lecture Short Run Economic Fluctuations Short Run vs. Long Run The classical dichotomy and monetary neutrality
More information7. Refer to the above graph. It depicts an economy in the: A. Immediate short run B. Short run C. Immediate long run D. Long run
CHAPTER 29 1. When the price level decreases: A. The demand for money falls and the interest rate falls B. Holders of financial assets with fixed money values decrease their spending C. Holders of financial
More informationMacroeconomics Sixth Edition
N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE In this chapter, look
More informationBUSI 101 Capital Markets and Real Estate
BUSI 101 Capital Markets and Real Estate PURPOSE AND SCOPE The Capital Markets and Real Estate course (BUSI 101) is intended to acquaint the student with the basic principles of macroeconomics and to give
More informationUniversity of Toronto July 27, 2012 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #3
Department of Economics Prof. Gustavo Indart University of Toronto July 27, 2012 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationProblem Set 3 Economics 201. a. What is the unemployment rate? What is the participation rate?
Problem Set 3 Economics 201 1. Consider the economy with the following characteristics. The employed population is 153.5 million. The unemployed is 6.7 million. The total population is 213.4 million people.
More informationPrint last name: Given name: Student number: Section number
Department of Economics University of Toronto at Mississauga ECO202Y5Y Macroeconomic Theory and Policy December 2002 Test Two Instructor: X. Gu Date: Friday, December 6, 2002 Time allowed: Two hours Aids
More informationSuggested Solutions to Problem Set 7
Econ 154b Spring 2005 Question 1 Suggested Solutions to Problem Set 7 The IS curve is Y C d I d G 600 0.8ŸY"1000 "500r 400"500r 1000, so 0.2Y 1200"1000r. This is plotted below: Since= e 0, the nominal
More informationRetake Exam in Macroeconomics, IB and IBP
Copenhagen Business School, Department of Economics, Birthe Larsen Question A Retake Exam in Macroeconomics, IB and IBP Answers 4hoursclosedbookexam 14th of August 2009 All questions, A,B,C and D are weighted
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto February 14, 2014 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test # 3 LAST NAME FIRST NAME STUDENT NUMBER Indicate your section of
More informationUNIVERSITY OF TORONTO Faculty of Arts and Science. August Examination 2006 ECO 209Y
UNIVERSITY OF TORONTO Faculty of Arts and Science August Examination 2006 ECO 209Y Duration: 2 hours Examination Aids allowed: Non-programmable calculators only INSTRUCTIONS: Students are required to answer
More informationAggregate Demand and Aggregate Supply. Chapter Objectives. AD AS Model
10 Demand and Supply 10-1 Chapter Objectives Demand and the Factors That Cause it to Change. Supply and the Factors That Cause it to Change. How AD and AS Determine an Economy s and the Level of Real GDP.
More information1. What was the unemployment rate in December 2001?
EC2105, Spring 2002 Weekly Quiz 1 (January 16, 2002) 1. What was the unemployment rate in December 2001? 2. When the Fed meets later this month and decides whether to lower interest rates, it is conducting:
More informationSOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY. Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER. University of Toronto June 18, 2002 INSTRUCTIONS:
Department of Economics Prof. Gustavo Indart University of Toronto June 18, 2002 SOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationTopic 7: The Mundell-Fleming Model
Topic 7: The Mundell-Fleming Model Read: Ch.18.3-18.6. Outline: 1. Introduction. 2. The IS-LM-BP equilibrium. 3. Floating exchange rates 4. Fixed exchange rates. 5. The case of imperfect capital mobility
More informationEcon 98- Chiu Spring 2005 Final Exam Review: Macroeconomics
Disclaimer: The review may help you prepare for the exam. The review is not comprehensive and the selected topics may not be representative of the exam. In fact, we do not know what will be on the exam.
More informationAP Macroeconomics. The Loanable Funds Market
AP Macroeconomics The Loanable Funds Market Loanable Funds Market The market where savers and borrowers exchange funds (Q LF ) at the r%. The D for LF, or borrowing comes from HH, firms, G and the foreign
More informationThe fixed money supply is represented by a vertical supply curve.
Chapter 20 The Influence of Monetary and Fiscal Policy on Aggregate Demand OUTLINE: 1. The theory of liquidity preference. 2. How monetary policy affects aggregate demand. 3. How fiscal policy affects
More informationECON 1002 E. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.
More informationSuggested Answers Problem Set # 5 Economics 501 Daniel
1. Use graphs of IS-LM-FE and AS-AD models to explain why RBC models with productivity shocks and money-supply shocks fail to explain the pro-cyclicality of money growth and inflation. Inflation falls
More informationECON 1000 B. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.
More informationECO 209Y - L5101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 19, 2005 SOLUTIONS ECO 209Y - L5101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME INSTRUCTIONS: STUDENT NUMBER 1. The total
More informationECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hours. Work on your own. Keep your notes and textbook closed. Attempt every question.
More informationMidsummer Examinations 2012
Midsummer Examinations 2012 No. of Pages: 6 No. of Questions: 34 Subject ECONOMICS Title of Paper MACROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper is in two sections.
More informationQuestions and Answers. Intermediate Macroeconomics. Second Year
Questions and Answers Intermediate Macroeconomics Second Year Chapter2 Q1: MCQ 1) If the quantity of money increases, the A) price level rises and the AD curve does not shift. B) AD curve shifts leftward
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto December 3, 2014 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Indicate your section of the
More informationUse the following to answer question 15: AE0 AE1. Real expenditures. Real income. Page 3
Chapter 10 1. An example of an autonomous consumption policy is a policy that A) lowers tax rates to stimulate additional consumer spending. B) makes credit more widely available to consumers in order
More informationMACROECONOMICS - CLUTCH CH FISCAL POLICY.
!! www.clutchprep.com CONCEPT: INTRODUCTION TO FISCAL POLICY Fiscal Policy involves setting the level of and by Focus specifically on spending and taxes of government > Government spending is an important
More informationIntroduction to Agricultural Economics Agricultural Economics 105 Spring 2018 Third Hour Exam
1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2018 Third Hour Exam There is only ONE best, correct answer per question. Place your answer on the attached sheet. DO NOT
More informationUniversity of Toronto January 25, 2007 ECO 209Y MACROECONOMIC THEORY. Term Test #2 L0101 L0201 L0401 L5101 MW MW 1-2 MW 2-3 W 6-8
Department of Economics Prof. Gustavo Indart University of Toronto January 25, 2007 SOLUTION ECO 209Y MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course:
More informationProblems. units of good b. Consumers consume a. The new budget line is depicted in the figure below. The economy continues to produce at point ( a1, b
Problems 1. The change in preferences cannot change the terms of trade for a small open economy. Therefore, production of each good is unchanged. The shift in preferences implies increased consumption
More informationFinal Exam - Answers April 26, 2004
Page 1 of 9 Final Exam - Answers April 26, 2004 Answer all questions, on these sheets in the spaces provided (use the blank space on page 9 if you need more). In questions where it is appropriate, show
More informationLecture 13 Questions & Answers. Principles of Macroeconomics KOF, ETH Zurich, Prof. Dr. Jan-Egbert Sturm Fall Term 2008
Lecture 13 Questions & Answers Principles of Macroeconomics KOF, ETH Zurich, Prof. Dr. Jan-Egbert Sturm Fall Term 2008 Exam Tuesday, January 13 15:15-16:45h Room HG F1 Closed book (allowed: non-programmable
More informationUNIVERSITY OF TORONTO Faculty of Arts and Science. August Examination 2013 ECO 209Y. Duration: 2 hours
UNIVERSITY OF TORONTO Faculty of Arts and Science August Examination 2013 ECO 209Y Duration: 2 hours Examination Aids allowed: Non-programmable calculators only LAST NAME FIRST NAME STUDENT NUMBER DO NOT
More informationTopic 4: AS-AD Model Dealing with longer run; more variance; look at the role of wages and prices
Topic 4: AS-AD Model Dealing with longer run; more variance; look at the role of wages and prices Aggregate Supply-Aggregate Demand (AS-AD) Model: Diagram General price level measured by some price index
More informationUniversity of Toronto July 15, 2016 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 15, 2016 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationRyerson University Department of Economics ECN 204 MidtermTwo W12. Name: Student No:
Ryerson University Department of Economics ECN 204 MidtermTwo W12 Instructor: Prof. T.Barbiero Duration: 50 Minutes Name: Student No: Choose the BEST answer and recorded it on both your scanner sheet and
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND. Chapter 34
1 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND Chapter 34 Importance of economic policy Economic policy refers to the actions of the government that have a direct impact on the macroeconomic
More informationECO 209Y MACROECONOMIC THEORY AND POLICY. Term Test #2. December 13, 2017
ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 December 13, 2017 U of T E-MAIL: @MAIL.UTORONTO.CA SURNAME (LAST NAME): GIVEN NAME (FIRST NAME): UTORID (e.g., LIHAO118): INSTRUCTIONS: The total time
More informationThe Mundell Fleming Model. The Mundell Fleming Model is a simple open economy version of the IS LM model.
International Finance Lecture 4 Autumn 2011 The Mundell Fleming Model The Mundell Fleming Model is a simple open economy version of the IS LM model. I. The Model A. The goods market Goods market equilibrium
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto December 4, 2013 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Indicate your section of the
More information4 MONEY MARKET EQUILIBRIUM: DERIVING THE LM CURVE
4 MONEY MARKET EQUILIBRIUM: DERIVING THE LM CURVE In this section, we derive a set of combinations of Y and i that ensures equilibrium in the money market, a concept that can be represented graphically
More informationExam #3 Section # 11, 12 or 13 December 2012
Economics 211 Macroeconomic Principles Exam #3 Section # 11, 12 or 13 December 2012 Name The value of this exam is 102 points plus 10 points for the Bonus Question. Instructor: Brian B. Young Please show
More informationExam 3 ECON Thurs. Nov. 14, :30 a.m. Form A
Exam 3 ECON 2105 Thurs. Nov. 14, 2002 9:30 a.m. Name: ID #: Form A There are 30 multiple choice questions, worth 2.5 points each (for a total of 75 points). The short answer questions are worth 25 points.
More informationUniversity of Toronto December 3, 2010 ECO 209Y MACROECONOMIC THEORY AND POLICY. Term Test #2 L0101 L0301 L0401 M 2-4 W 2-4 R 2-4
Department of Economics Prof. Gustavo Indart University of Toronto December 3, 2010 ECO 209Y MACROECONOMIC THEORY AND POLICY SOLUTIONS Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER Circle your section
More information1. STUDENTS WILL BE ABLE TO DEFINE AND EXPLAIN THE CONCEPT OF FISCAL POLICY
LIGHTHOUSE CPA SOCIAL SCIENCES DEPARTMENT AP ECONOMICS STUDY GUIDE # 18 - FISCAL POLICY & MANAGEMENT CHAPTER LEARNING OBJECTIVES STUDENTS WILL BE ABLE TO DEFINE AND EXPLAIN THE CONCEPT OF FISCAL POLICY
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. In a closed economy government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $110 billion this year. Investment spending
More informationArchimedean Upper Conservatory Economics, October 2016
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to: A. the proportion of consumer spending as a function of
More informationIntroduction. Learning Objectives. Learning Objectives. Chapter 13. Fiscal Policy
Chapter 13 Introduction Countries belonging to the European Monetary Union have agreed to follow a path of fiscal discipline, keeping government spending in line with tax receipts. Under what conditions
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Final Exam Practice Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In an economy with no government or foreign sector, it is always true
More informationAggregate Demand and Economic Fluctuations
Outline Macroeconomic Theory and Policy Chapter 9 Aggregate Demand and Economic Fluctuations Section 1 Business Cycle Section 2 Macroeconomic Modeling and Aggregate Demand Section 3 Keynesian Model Aggregate
More informationMacroeconomics 1 Seminar Miroslava Federičová
Macroeconomics 1 Seminar 9 21.04.2015 Miroslava Federičová Whenever the economy is in recession, we can expect: a. investment to decrease b. unemployment to decrease c. incomes to increase d. all of the
More informationBPE_MAC1 Macroeconomics 1 Spring Semester 2011
Masaryk University - Brno Department of Economics Faculty of Economics and Administration BPE_MAC1 Macroeconomics 1 Spring Semester 2011 Final Exam - 13.05.2011, 10:00-11:30 Test B Guidelines and Rules:
More informationMACROECONOMICS. Section I Time 70 minutes 60 Questions
MACROECONOMICS Section I Time 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best
More informationDisposable income (in billions)
Section 4 version 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. An increase in the MPC: A. increases the multiplier. B. shifts the autonomous investment
More informationECO 209Y MACROECONOMIC THEORY AND POLICY. Term Test #2. December 13, 2017
ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #2 December 13, 2017 U of T E-MAIL: @MAIL.UTORONTO.CA SURNAME (LAST NAME): GIVEN NAME (FIRST NAME): UTORID (e.g., LIHAO118): INSTRUCTIONS: The total time
More informationECON2010 test 2 study guide
ECON2010 test 2 study guide 1) In a closed economy public saving plus private saving is equal to a The budget deficit b The budget surplus c Taxes minus transfers d Investment 2) Which of the following
More informationThe Goods Market and the Aggregate Expenditures Model
The Goods Market and the Aggregate Expenditures Model Chapter 8 The Historical Development of Modern Macroeconomics The Great Depression of the 1930s led to the development of macroeconomics and aggregate
More informationI. A. B. C. D. E. F I. A. B. C. I. A B. C.
AP EXAM FRQS I. Assume that the United States economy is in long-run equilibrium with an expected inflation rate of 6 percent and an unemployment rate of 5 percent. The nominal interest rate is 8 percent.
More informationLecture 7. Fiscal Policy
Lecture 7 Fiscal Policy The role of government spending and taxes Fiscal policy: government spending and tax policy AD = C + II + G What if G changes? What is the effect on Y? How large is (government)
More informationHomework 4 of ETP Economics
Homework 4 of ETP Economics Winter Term 2014 Due: May 28 1.When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a.
More informationSOLUTIONS. ECO 209Y - L5101 MACROECONOMIC THEORY Term Test 2 LAST NAME FIRST NAME STUDENT NUMBER. University of Toronto January 26, 2005 INSTRUCTIONS:
Department of Economics Prof. Gustavo Indart University of Toronto January 26, 2005 SOLUTIONS ECO 209Y - L5101 MACROECONOMIC THEORY Term Test 2 LAST NAME FIRST NAME INSTRUCTIONS: STUDENT NUMBER 1. The
More informationMacroeconomics. The Influence of Monetary and Fiscal Policy on Aggregate Demand. Introduction
C H A P T E R 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Macroeconomics N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western,
More informationUniversity of Toronto July 21, 2010 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 21, 2010 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationMacroeconomics, Cdn. 4e (Williamson) Chapter 1 Introduction
Macroeconomics, Cdn. 4e (Williamson) Chapter 1 Introduction 1) Which of the following topics is a primary concern of macro economists? A) standards of living of individuals B) choices of individual consumers
More informationAggregate Demand and Aggregate Supply
Chapter 31 Aggregate Demand and Aggregate Supply Test B 1. Recession refers principally to a. below average real GDP growth. b. negative real GDP growth. c. below average inflation. d. negative inflation.
More informationECON Intermediate Macroeconomics (Professor Gordon) Second Midterm Examination: Fall 2015 Answer sheet
ECON 311 - Intermediate Macroeconomics (Professor Gordon) Second Midterm Examination: Fall 2015 Answer sheet YOUR NAME: Student ID: Circle the TA session you attend: INSTRUCTIONS: Chris 10AM Michael -
More informationEconomics Final Examination December, Part A: Multiple Choice. Choose the best alternative that answer or completes the sentence.
Economics 243-01 Final Examination December, 2000 Instructions: Put your name, social security number and your seat number on the blue book provided. Put all your answers in the blue book provided. Turn
More informationECO 2013: Macroeconomics Valencia Community College
ECO 2013: Macroeconomics Valencia Community College Exam 3 Fall 2008 1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of
More informationToday s lecture: Current U.S. fiscal policy. Monetary policy in open economy. Fixed exchange rates: IMF World Economic Outlook
Today s lecture: Current U.S. fiscal policy IMF World Economic Outlook Monetary policy in open economy. Fixed exchange rates: Short-run: IS-LM Medium run: AS-AD. Short and medium term effects of current
More informationLuiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2. Exam 3
Luiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2 Exam 3 Name (Print Clearly!) This is a 115 point exam. There are 25 multiple choice questions worth 2 points
More information4.2 Fiscal Policy.notebook May 02, Fiscal Policy
4.2 Fiscal Policy How do we achieve our three economic objectives? Economic Growth Full Employment Steady inflation With Monetary and Fiscal Policy! Review of the Business Cycle A cycle goes through a
More information3) If the Canadian dollar exchange rate increases, the 3) A) internal value of the dollar falls.
Forty questions were automatically and randomly chosen by the computer from Chapters 19 through 2 6 of the Textʹs test bank - the instructor has not seen the questions chosen. Name: Random Q. Practice
More informationQuestions and Answers
Questions and Answers Ch 1 (continued) Q1: MCQ Aggregate Demand 1) The aggregate demand curve shows A) total expenditures at different levels of national income. B) the quantity of real GDP demanded at
More informationEcon 330 Final Exam Name ID Section Number
Econ 330 Final Exam Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A group of economists believe that the natural rate
More informationSyllabus item: 113 Weight: 3
Macroeconomics - 2.4 Fiscal policy Syllabus item: 113 Weight: 3 113. Sources of government revenue IB Question Explain that the government earns revenue primarily from taxes (direct and indirect), as well
More informationForeign Trade and the Exchange Rate
Foreign Trade and the Exchange Rate Chapter 12 slide 0 Outline Foreign trade and aggregate demand The exchange rate The determinants of net exports A A model of the real exchange rates The IS curve and
More information1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:
1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy 2. When the Federal
More informationGehrke: Macroeconomics Winter term 2012/13. Exercises
Gehrke: 320.120 Macroeconomics Winter term 2012/13 Questions #1 (National accounts) Exercises 1.1 What are the differences between the nominal gross domestic product and the real net national income? 1.2
More informationTypes of Exposure. Forward Market Hedge. Transaction Exposure. Forward Market Hedge. Forward Market Hedge: an Example INTERNATIONAL FINANCE.
Types of Exposure INTERNATIONAL FINANCE Chapter 8 Transaction exposure sensitivity of realized domestic currency values of the firm s contractual cash flows denominated in foreign currencies to unexpected
More informationMonetary Macroeconomics Lecture 5. Mark Hayes
Diploma Macro Paper 2 Monetary Macroeconomics Lecture 5 Aggregate demand: external trade Mark Hayes slide 1 Exogenous: M, G, T, i, π e Goods market KX and IS (Y, C, I) Money market (LM) (i, Y) Labour market
More informationFree Response Answers
Free Response Answers 1. (1998 #1) The increase in government spending leads to an outward shift in aggregate demand. Given that the economy is at full employment, the price level increases. The effect
More informationProblem Set #5 Due in hard copy at beginning of lecture on Monday, April 8, 2013
Name: Solutions Department of Economics Professor Dowell California State University, Sacramento Spring 2013 Problem Set #5 Due in hard copy at beginning of lecture on Monday, April 8, 2013 Important:
More information