Using monetary policy to raise the real interest rate leads to an ______ in investment spending and an ______ in consumption spending. a) increase, increas
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Using
a) increase, increase
b) increase, decrease
c) decrease, decrease
d) decrease, increase
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- Based on the money market model, when real GDP increases, the equilibrium interest rate should Select one: a. increase the same percentage as the money supply increase. b. increase. c. stay the same. d. decrease.The conduct of monetary policy is made more difficult because of lags. Two reasons for these time lags are the time it takes for A. the political process to approve the changes and households and firms to adjust their spending plans. B. the provinces to approve the changes and the Bank to implement them. C. the Bank of Canada governor to make a decision and the Parliament to grant approval. D. households and firms to adjust their spending plans and the multiplier process to work itself out.How does contractionary monetary policy affect net exports in the short run? Contractionary monetary policy increases exports and reduces imports. Contractionary monetary policy reduces exports and increases imports. Contractionary monetary policy increases exports and increases imports. Contractionary monetary policy reduces exports and reduces imports.
- In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule?Explain how increases in the real interest rate affect the quantity of real money balanced demanded. (Graphically illustrate)Q15 Which of the following statements is consistent with a given (i.e., fixed) LM curve? Select one: a. A reduction in the interest rate causes money demand to decrease. b. A reduction in the interest rate causes investment spending to increase. c. An increase in output causes an increase in demand for goods d. An increase in output causes an increase in money demand.
- Problem one (a) According to the statement, the MPC decreased the monetary policy rate (MPR) from 17 to 16%. Does this constitute a contractionary or an expansionary monetary policy? Explain. (b) What was the overriding concern of the Committee that led to the decrease? (c) Using money market, explain the effect of this decrease in the MPR on the real interest rate. (d) Explain how the change in real interest rate identified in part (c) will affect desired consumption and investment spending. (e) Explain how the decrease in MPR will help address the overriding concern of the Committee identified in part (a) above.A country has a total population of 79 million. The labour force in the country amounts to 47 million people. The current unemployment rate is 3.95%. The natural rate of unemployment is 4.2%. The marginal propensity to consume is 0.75. The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200. The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000. The economy is a closed economy. The level of investment is 2500. Transfer payments are at 3000. By how much should fixed taxes be changed in order to fix the GDP gap in this country? Selected Answer: Raise fixed taxes by approximately $700. Answers: Raise fixed taxes by approximately $933. Raise fixed taxes by approximately $700. Lower fixed taxes by approximately…Suppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary monetary policy, interest rates will likely Multiple Choice rise causing investment to increase. fall causing investment to increase. fall causing investment to decrease. rise causing investment to decrease.
- The multiplier is an indication of the capacity of money injected in the economy to a. increase investment b. increase welfare c. increase consumption d. increase interest rate e. increase GDPIn Keynes' Liquidity Theory of the Interest rate, individuals are assumed to divide their wealth between which two asset? bonds and money stocks and bonds money and stocks property and comomditiesSuppose real GDP is equal to $100 trillion, the money supply is equal to $50 trillion and the price level is equal to 2. In this case, the velocity of money is equal to ________.
