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![2. [10 points)] Explain in detail what effect a Fed purchase of bonds will have on: (1) the LM curve; and
(2) the IS curve.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33f32603-9bcc-4671-bed1-7adff93a4b98%2F7845858e-e57d-4db3-8ab9-2bb083ff85b5%2Fqog1j3p_processed.jpeg&w=3840&q=75)
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- 53. Suppose the Canadian economy had a recessionary gap. To increase the level of desired aggregate expenditure, the Bank of Canada could increase the reserve requirements of the commercial banks. increase its spending. sell securities in the open market. raise the bank rate. reduce its target for the overnight interest rate.8. Which of the following explain why the Aggregate Demand curve is downward sloping? a) An increase in the price level decreases the purchasing power of money denominated wealth, which in turn causes a decline in on consumption spending. b) An increase in the price level decreases the purchasing power of money, which means that more money is needed to purchase goods. This causes buyers of investment and durable goods to require bigger loans to finance their purchases. This, in turn, causes an increase in the demand for loanable funds which leads to a higher interest rate. A higher interest rate will reduce the real purchases of investment and durable goods. c) An increase in the price level makes goods relatively more expensive to foreigners causing them to buy less which means that net exports will decline. d) All of the above. e) None of the above. 9. Which of the following explain why the Aggregate Supply curve is upward sloping?…Q27 How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving? They all relate to the theory of consumer choice. They all relate to macroeconomics. They are not related to each other in any way. They all relate to monetary economics.
- 21. Assume that we are at the natural rate of GDP, meaning we do not have a recession or an expansion, and then the Central Bank raises interest rates, how can this create a recession (A) our business investments will increase and our exports will decrease (B) our business investments will decrease and our exports will increase C) our business investments will decrease and our exports will decrease (D) our business investments will increase and our imports will increase2- money Supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price level (P). Fill in the value of Money column in the following table. Now consider the relationship between the price level and the quantity of money that people demand. The lower price, the (More/ Less) money the typical transaction requires, and the (More/ Less) money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $4 Billion. Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. According to your graph, the equilibrium value of money is (0.25, 0.50, 0.75, 1.00) therefore the equilibrium price level is (1.00, 1.33, 2.00, 4.00). Now, suppose that the…7 Using the aggregate money demand theoretical framework, discuss 3 factors that determine Australia’s aggregate money demand.
- 8. Using an appropriate diagram, explain how the equilibrium interest rate is determined in the economy. If the central bank wants to reduce the equilibrium interest rate, what should they do? Illustrate this in the same diagram you have drawn earlier.32 - What happens as a result of aggregate demand and aggregate supply if the money supply decreases?A) Prices fall – output increasesB) NoneC) Prices increase – output decreasesD) Prices fall – production decreasesE) Prices increase – production increases5. Suppose that the central bank sells government bonds. Use a graph of the money market to show what this does to the value of money and price level.
- 5. Assume you built a new house, bought a used car, and bought some government bonds. Which of the following statements is true of the components of aggregate demand? A. consumption and government purchases went up since you bought a used car and government bonds B. investment went up since you built a new house C. investment and government purchases went up since you built a new house and bought government bonds D. consumption and investment went up since you bought a used car and government bonds E. consumption went up since you built a new house6 Assume the real interest rate increases from 5% to 6%, the interest elasticity of money demand is -0.3, and the money supply increases from 600 to 630. All else equal, what would be the percentage change of the equilibrium price level?5. Assuming that nominal interest rates stay the same, an decrease in the rate of inflation would raise the real interest rate, which would tend to: a. increase or decrease investment spending. b. increase investment spending. c. not affect investment spending d. decrease investment spending.
