Macro Final Questions

Which of the following correctly describes one reason why the aggregate demand​ (AD) curve slopes​ downward?

Decrease in the price level causes an increase in private​-sector wealth, which leads to an increase in desired consumption.

The​ economy's AS curve is often assumed to be relatively flat at low levels of real GDP. The underlying reasoning is that…

at low levels of​ output, firms are faced with unused capacity and thus can increase output without significantly increasing their costs.

Consider the basic​ AD/AS model. Suppose that a rising percentage of high​-school graduates are​ illiterate, resulting in a decrease in average labour productivity. This change will…

shift the AS curve to the left.

Refer to Figure 8minus−2. Which of the following events could cause the upward shift of the AS​ curve?

a decrease in the world supply of oil as a result of a major hurricane

Consider the basic​ AD/AS model with an upward​-sloping AS curve. A positive aggregate demand shock will result in…

an increase in both output and prices.

Suppose firms are currently producing output at a level beyond their normal capacity. In this​ situation, the AS curve will be relatively​ and a positive AD shock will result in​ __.

steep; an increase in the price level with a small increase in real GDP

Consider the following news​ headline: "Information technology costs for Canadian firms continue to​ drop." Choose the statement below that best describes the likely macroeconomic effect.

The AS curve shifts to the​ right; the price level falls and real GDP rises.

The figure represents​ Canada's economy at point 0​, its original 20192019​ equilibrium, before the global​ COVID-19 pandemic

7.

Refer to Figure 8minus−6. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the​ right, as shown. The simple multiplier is​ __and the multiplier is​ __.

4; 1.2

Refer to Figure 9minus−1. If the economy is currently producing output of Upper Y 0Y0 and wages are sticky​ downwards, then the…

economy will move only slowly toward point A as wages slowly adjust.

If the economy in the short run is experiencing a recessionary​ gap, we are likely to see…

an increase in the number of workers receiving employment​-insurance benefits.

Suppose the following conditions are present in the​ economy:

−firms are increasing output to meet rising demand for their goods

−workers are able to demand higher wages as firms try to bid workers away from other firms

Which of the following statements describes the adjustment that will happen in the​ AD/AS macro​ model?

There is an inflationary output​ gap; wages and other factor prices will​ rise; the AS curve will shift to the left until equilibrium is restored at Y​*.

An economy may not quickly and automatically eliminate a recessionary output gap because wages…

have a tendency to be sticky downward.

​"The level of potential​ output, Y​*​, acts like an anchor for the level of real​ GDP." Which of the following best explains this​ statement?

Following an AD or AS shock that pushes real GDP away from Y​*​, the adjustment of factor prices brings real GDP back to Y​*.

What is meant by the term​ "stagflation"?

the combination of falling real GDP and a rising price level

In the basic​ AD/AS macro​ model, which of the following events could cause a negative AS​ shock?

a widespread outbreak of a serious infectious disease

Refer to Figure 9minus−4. Following the positive AS shock shown in the​ diagram, the adjustment process will take the economy to a long​-run equilibrium where the price level is​ __and real GDP is​ __.

110; 1000

Refer to Figure 9minus−1. If the economy is currently producing output of Upper Y 0Y0 and the government initiates an expansionary fiscal policy adequate to close the output​ gap, the result is intended to be…

that the AD curve will shift to the right until point B is reached.

One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that…

the recovery is likely to be more rapid.

Refer to Figure 9minus−8. In the initial short​-run equilibrium, there is​ ___output gap of​___ , but this gap could be closed by a​ ___.

a​ recessionary; 200; fiscal expansion

Refer to Figure 9minus−8. If the government takes no action to change the short​-run macro equilibrium in this​ economy, then…

the AS curve will shift to the right until it intersects with the AD curve at point B.

Refer to Figure 9minus−9. The government could close the existing output gap by…

increasing the net tax rate.

Suppose the economy is experiencing an inflationary gap in the short run. The advantage of using a contractionary fiscal policy rather than allowing the​ economy's natural adjustment process to operate is that…

it will reduce the upward pressure on the price level that would otherwise occur.

As a global recession began in late​ 2008, the governments of all major economies searched for policy responses to dampen the effects of the recession. In​ general, governments were aiming to…

shift the AD curve to the right through large increases in government spending.

Which of the following is an important automatic fiscal stabilizer in the Canadian​ economy?

the income​-tax system

The​ "paradox of​ thrift" refers to the understandable tendency of people who are worried about their economic situation to​__ their​ saving, but in aggregate this behaviour causes a​__ recession.

​increase; more severe

Given current​ limitations, fiscal policy as a macroeconomic stabilizer is more defensible the​ the ___output gap being​ suffered, an argument supporting​ __ .

​larger; gross tuning

Which of the following statements about fiscal policy is the best description of​ "fine tuning"?

The government continuously alters its spending and taxing plans to hold real GDP at potential.

The use of government purchases​ (G) as a fiscal policy tool can have an effect on long​-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output (Y​*​) to increase​?

If the increase in G is spent on public infrastructure that increases the productivity of private​-sector production.

Which of the following is an example of the use of money as a medium of​ exchange?

Barry pays​ $275 with his bank debit card for tickets for an NHL play​-off game.

Bitcoin will not be considered​ "money" unless which of the following conditions is​ satisfied?

It is generally accepted as a medium of​ exchange, a store of​ value, and a unit of account.

The largest element of the Canadian money supply today is…

bank deposits.

​Basic functions of the Bank of Canada include

1) acting as lender of last resort to private non​-financial ​corporations;

​2) acting as banker for the chartered​ banks;

​3) regulating the money supply.

2 and 3

Which of the following statements best describes the relationship between the Bank of Canada and the Government of​ Canada?

The Bank of Canada is a wholly owned entity of the government but is given independence in the day​-to​-day operations of monetary policy.

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies. A crucial function that ceased to work smoothly during this​ time, and contributed to the global recession that began in 2008 was…

the provision of credit to​ firms, households and other banks.

What is a bank run​?

A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash.

What is a commercial​ bank's actual reserve​ ratio?

The fraction of its deposit liabilities that it actually holds as​ reserves, either as cash or as deposits with the Bank of Canada.

The Canadian banking system is​ a(n)…

fractional​-reserve system.

Suppose Bank ABC has a target reserve ratio of​ 10%. If Bank ABC receives a new deposit of $100,000 it will immediately find itself with…

excess cash reserves of $90,000.

Refer to the table above. Assume that Bank North is operating at its target reserve ratio and has no excess​ reserves, and that all commercial banks have the same target reserve ratio. If a new deposit to the Canadian banking system of $300 is deposited at Bank​ North, the total new deposits created in the banking system can be calculated as​ follows:

300​/0.120.12 ​= $2,500

​Suppose you found a $55 bill that was lost for several years under your​ grandmother's mattress and you decided to deposit this money in a commercial bank. If the target reserve ratio were 25 percent and all excess reserves were lent​ out, your new deposit of $5 would lead to an eventual expansion of the money supply of…

​$20

Refer to the table above. Assume that Northern​ Bank's target reserve ratio is 7 percent. In order to achieve its target reserve​ ratio, Northern Bank must​ ___ and​ __.

increase its reserves by ​$140; decrease its loans by $140

Consider the creation of deposit money in the banking system. One implication of an increase in the cash drain to the public is that the…

banking​ system's ability to create new money following a new deposit is reduced.

Suppose Bank ABC has a target reserve ratio of​ 10%, no excess​ reserves, and it receives a new deposit of $500,000. This bank will initially expand its loans by….

$450,000.

Until​ recently, and for many​ years, the common definition of the money supply used by the Bank of Canada was M1​, which included currency in circulation plus…

chequable deposits at the chartered banks.

Other things being​ equal, which of the following statements about bond prices is​ correct? Bond prices…

vary inversely with interest rates.

What is the present value of a bond that pays​ $121.00 one year from today if the interest rate is​ 10% per​ year?

​$110.00

Consider a bond with a face value of $10,000​, a three​-year term and a coupon payment of​ 6% made at the end of each year. The face value of the bond is repaid at the end of the term. Which of the following equations will correctly calculate the present value of the​ bond?

PV​ = $600 Over 1.06 ​+ $600 Over 1.1236 + $10,600 Over 1.1910

The​ "precautionary demand" for money arises from the…

uncertainty about when some expenditures will be necessary.

Suppose a financial analyst suggests that investors should now hold cash instead of stocks or bonds. The analyst is probably encouraging an increase in money holdings for which​ reason?

speculative demand

Consider the demand for money curve. As we move up and to the left along the​ curve, the opportunity cost of holding money…

is​ increasing, so households and firms decrease their desired money holdings.

Refer to Figure 12minus−2. The demand for money is given by Upper M Subscript Upper DMD with a fixed quantity of money at Upper M 0M0. If the interest rate is at i 1i1​, the price of bonds will​__ , which will force the rate of interest​ __.

​fall; up

Refer to Figure 12minus−2. Starting at equilibrium Upper E 0E0​, an increase in the supply of money will result in the…

shift of the MS curve to the right and a fall in the interest rate.

Refer to Figure 12minus−2. If the interest rate is i1​, the subsequent adjustment in the money market is as​ follows:

Excess demand for money leads to a sale of​ bonds, which in turn causes the interest rate to rise.

Which one of the following statements best describes the monetary transmission​ mechanism?

An increase in the money supply leads to a lower interest​ rate, higher desired​ investment, an upward shift in the AE curve and a higher GDP.

An increase in the money supply sets the monetary transmission mechanism in motion which results in…

a fall in the rate of​ interest, a rise in the level of desired​ investment, an upward shift in the AE​ curve, and a rightward shift in the AD curve.

An increase in the money supply causes​ a(n) ___in the interest rate and​ a(n)___ in desired aggregate​ expenditure; it therefore causes a​ __shift of the AD curve.

reduction; increase; rightward

In​ practice, the Bank of Canada implements its monetary policy by…

directly influencing the overnight interest rate.

Suppose the Bank of Canada announces its target for the overnight interest rate at​ 2.5%. In that​ case, the Bank of Canada is willing to lend to commercial banks at​ __% and is willing to pay​ __% on deposits it receives from commercial banks.

​2.75; 2.25

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer​-term rates in the market fall as a result.​ Households' and​ firms' demand for new loans from the commercial banks would​ ___. In order to make the new​ loans, the commercial banks require more​ __.

​rise; cash reserves

How does the Bank of Canada communicate its target for the overnight interest rate to the​ public?

announcements made 8 times per year at pre​-specified fixed announcement dates​ (FADs)

In​ Canada, what are "open​-market operations"?

the buying and selling of government securities by the Bank of Canada

To expand the money supply​ directly, the Bank of Canada could…

buy government securities on the open market.

Suppose the Canadian economy had a recessionary gap. To increase the level of desired aggregate​ expenditure, the Bank of Canada could…

reduce its target for the overnight interest rate.

The best description of the cause​-and​-effect chain of a contractionary monetary policy in the short run is that it will__​ the interest​ rate, __investment​ spending, and​__ real GDP.

raise; decrease; decrease

​Suppose the economy is experiencing an inflationary gap. Which of the following describes a likely policy response by the Bank of​ Canada? A(n)__ monetary policy which leads to​ a(n)__ in investment​ demand, and a shift to the​ of the__ AD curve.

contractionary; decrease; left

An expansionary monetary policy is the reduction of the interest rate by the Bank of Canada because the lower interest rate…

leads to a rightward shift of the aggregate demand curve.