Question 1

If,for any given inflation rate,the Bank of Canada raises interest rates less than normal,this is called a monetary _________ and the aggregate demand (ADI)curve shifts to the __________.
A) "tightening";right
B) "tightening";left
C) gap;right
D) "easing";right
E) "easing";left

Accepted Answer

If the Bank of Canada raises interest rates less than normal, this is called a monetary easing. In response to this, the aggregate demand (ADI) curve shifts to the right. Therefore, the correct choice is "easing; right" which is represented by option D.

Question 2

A downward shift of the Bank of Canada's monetary policy rule corresponds to a _________ the aggregate demand (ADI)curve,and a decrease in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the right of
E) shift to the right of;shift to the left of

Accepted Answer

A downward shift of the monetary policy rule typically lowers interest rates, increasing aggregate demand and shifting the ADI curve to the right. A decrease in autonomous aggregate demand shifts the ADI curve to the left.

Question 3

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: 
If inflation is 0%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.
A) 0;8,000
B) 1;8,000
C) 1;6,000
D) 1;5,000
E) 1.5;5,000

Accepted Answer

The answer of Suppose that,in an economy,ADI = 800 +...

Question 4

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: 
If inflation is 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.
A) 0;8,000
B) 3;2,000
C) 3;4,000
D) 4;3,000
E) 4;8,000

Accepted Answer

The answer of Suppose that,in an economy,ADI = 800 +...

Question 5

An increase in the interest rate by the Bank of Canada based on a given monetary policy rule represents a ________ the aggregate demand (ADI)curve,but an increase in the interest rate resulting from an upward shift in the Bank of Canada's monetary policy rule represents a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the left of
E) movement down;shift to the left of

Accepted Answer

An increase in the interest rate based on a given monetary policy rule causes a movement up along the ADI curve, while an increase due to an upward shift in the policy rule causes the ADI curve to shift to the left.

Question 6

A decrease in the inflation rate corresponds to a _________ the aggregate demand (ADI)curve,and a decrease in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the right of
E) movement down;shift to the left of

Accepted Answer

A decrease in the inflation rate leads to a movement down along the ADI curve, while a decrease in autonomous aggregate demand causes the ADI curve to shift to the left.

Question 7

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: 
If inflation is 3%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.
A) 0;8,000
B) 2;4,000
C) 2.5;6,000
D) 2.5;3,000
E) 3;2,000

Accepted Answer

The answer of Suppose that,in an economy,ADI = 800 +...

Question 8

If the Bank of Canada's monetary policy rule changes from r = 0.02 + 
To r = 0.04 + ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI)curve.
A) "tightening";shift to the right of
B) "tightening";shift to the left of
C) "tightening";upward movement along
D) "easing";shift to the right of
E) "easing";shift to the left of

Accepted Answer

The change in the monetary policy rule from r = 0.02 + 11ec9ae0_f4e1_72b1_a39a_c30de1cf2a3e_TB34225555_11 to r = 0.04 + 11ec9ae1_029c_0142_a39a_31edaa2877f2_TB34225555_11 represents a "tightening" of monetary policy since interest rates are being increased. This will lead to a leftward shift of the aggregate demand (ADI) curve since higher interest rates will decrease consumer and investment spending, reducing aggregate demand.

Question 9

If the Bank of Canada's monetary policy rule changes from r = 0.04 + 
To r = 0.02 + ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI)curve.
A) "tightening";shift to the right of
B) "tightening";shift to the left of
C) "tightening";upward movement along
D) "easing";shift to the right of
E) "easing";shift to the left of

Accepted Answer

The change in monetary policy rule from r = 0.04 + 11ec9ae1_5835_c323_a39a_894797bc4130_TB34225555_11 to r = 0.02 + 11ec9ae1_6558_5774_a39a_a52b98a722b4_TB34225555_11 represents a monetary easing since the interest rate target has been lowered. This will lead to a shift to the right of the aggregate demand (ADI) curve as lower interest rates make borrowing cheaper, stimulating consumption and investment spending, which in turn increases aggregate demand.

Question 10

A decrease in the interest rate by the Bank of Canada based on a given monetary policy rule represents a ________ the aggregate demand (ADI)curve,but decrease in the interest rate resulting from a downward shift in the Bank of Canada's monetary policy rule represents a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the left of
E) movement down;shift to the right of

Accepted Answer

A decrease in the interest rate by the Bank of Canada based on a given monetary policy rule represents a movement down the ADI curve, while a decrease in the interest rate resulting from a downward shift in the Bank of Canada's monetary policy rule represents a shift to the right of the ADI curve.

Question 11

If the Bank of Canada's monetary policy rule is r = 0.02 + 
,the aggregate demand function for the economy is ADI = 5,000 + 0.8Y - 20,000r,current inflation equals 5% (0.05),and potential output (Y*)equals 20,000,then short-run equilibrium output equals __________,and inflation will eventually equal ________% when the economy returns to potential.
A) 17,000;3
B) 17,000;5
C) 18,000;5
D) 18,000;3
E) 19,000;4

Accepted Answer

To find the short-run equilibrium output, we need to set aggregate demand equal to aggregate supply:

ADI = Y

Substituting in the aggregate demand function and the monetary policy rule:

5,000 + 0.8Y - 20,000r = Y

5,000 + 0.8Y - 20,000(0.02 + 11(0.05)) = Y

Simplifying:

5,000 + 0.8Y - 2,420 = Y

2,580 = 0.2Y

Y = 12,900

So the short-run equilibrium output is $12,900.

To find the eventual inflation rate, we need to use the Phillips curve:

π = πe - 0.5(u - u*)

where πe is expected inflation, u is the unemployment rate, and u* is the natural rate of unemployment.

We know that u = u* because we are at potential output, so:

π = πe

We also know that the Bank of Canada targets an inflation rate of 2%, so we can use this as the expected inflation rate:

π = 0.02

Substituting in the actual and potential output values:

u = (Y/Y*) - 1

u = (12,900/20,000) - 1

u = -0.355

So the eventual inflation rate is:

π = 0.02 - 0.5(-0.355 - 0)

π = 0.02 + 0.178

π = 0.198 or 19.8%

Rounding up to the nearest integer, the answer is 20%. However, none of the answer choices match this, so the closest option is D, with an inflation rate of 3%.

Question 12

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: 
If inflation is 2%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.
A) 0;8,000
B) 2;4,000
C) 2;6,000
D) 2.5;3,000
E) 2.5;8,000

Accepted Answer

The answer of Suppose that,in an economy,ADI = 800 +...

Question 13

If the Bank of Canada's monetary policy rule is r = 0.02 + 
,the aggregate demand function for the economy is ADI = 5,000 + 0.8Y - 20,000r,current inflation equals 6% (0.06),and potential output (Y*)equals 19,000,then short-run equilibrium output equals __________,and inflation will eventually equal ________% when the economy returns to potential.
A) 17,000;4
B) 17,000;5
C) 18,000;6
D) 18,000;7
E) 19,000;4

Accepted Answer

The answer of If the Bank of Canada's monetary policy...

Question 14

An upward shift in the Bank of Canada's monetary policy rule is a monetary _________,and the aggregate demand (ADI)curve ___________.
A) "tightening";shifts right
B) "tightening";shifts left
C) "tightening";does not shift
D) "easing";shifts right
E) "easing";shifts left

Accepted Answer

An upward shift in the Bank of Canada's monetary policy rule indicates a "tightening" of monetary policy, which means that the central bank is reducing the money supply and increasing interest rates to control inflation. This would cause a decrease in aggregate demand, shifting the ADI curve to the left.

Question 15

A downward shift in the Bank of Canada's monetary policy rule is a monetary _________,and the aggregate demand (ADI)curve ___________.
A) "tightening";shifts right
B) "tightening";shifts left
C) "tightening";does not shift
D) "easing";shifts right
E) "easing";shifts left

Accepted Answer

A downward shift in the Bank of Canada's monetary policy rule indicates a monetary easing, which typically involves lowering interest rates to stimulate economic activity. This leads to an increase in aggregate demand, causing the ADI curve to shift to the right.

Question 16

The aggregate demand (ADI)curve shifts to the right if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.
A) raises;"easier"
B) raises;"tighter"
C) raises;faster
D) lowers;"easier"
E) lowers;"tighter"

Accepted Answer

When the Bank of Canada lowers interest rates, it makes borrowing cheaper, encouraging spending and investment, which shifts the aggregate demand curve to the right, making monetary policy "easier".

Question 17

An upward shift of the Bank of Canada's monetary policy rule function corresponds to a _________ the aggregate demand (ADI)curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the right of
E) shift to the right of;shift to the left of

Accepted Answer

An upward shift of the monetary policy rule function typically leads to higher interest rates, reducing aggregate demand and shifting the ADI curve to the left. An increase in autonomous aggregate demand directly increases demand, shifting the ADI curve to the right.

Question 18

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: 
If inflation is 1%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.
A) 0;8,000
B) 1;8,000
C) 1;6,000
D) 1.5;5,000
E) 1.5;8,000

Accepted Answer

The answer of Suppose that,in an economy,ADI = 800 +...

Question 19

An increase in the inflation rate corresponds to a _________ the aggregate demand (ADI)curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.
A) shift to the left of;movement up
B) shift to the left of;shift to the right of
C) movement up;movement down
D) movement up;shift to the right of
E) movement down;shift to the left of

Accepted Answer

An increase in the inflation rate corresponds to a movement up the aggregate demand (ADI) curve, and an increase in autonomous aggregate demand corresponds to a shift to the right of the aggregate demand (ADI) curve.

Question 20

The aggregate demand (ADI)curve shifts to the left if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.
A) raises;"easier"
B) raises;"tighter"
C) raises;faster
D) lowers;"easier"
E) lowers;"tighter"

Accepted Answer

When the Bank of Canada raises interest rates more than normal, it makes borrowing more expensive, which reduces consumer and business spending. This results in a decrease in aggregate demand, causing the ADI curve to shift leftward. This type of monetary policy is referred to as a "tightening" policy, which reduces the money supply and increases interest rates.

Quiz 12: The Production Function Approach to Understanding Growth

If,for any given inflation rate,the Bank of Canada raises interest rates less than normal,this is called a monetary _ and the aggregate demand (ADI) curve shifts to the __.

A downward shift of the Bank of Canada's monetary policy rule corresponds to a _ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 0%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 4%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

An increase in the interest rate by the Bank of Canada based on a given monetary policy rule represents a the aggregate demand (ADI) curve,but an increase in the interest rate resulting from an upward shift in the Bank of Canada's monetary policy rule represents a _ the aggregate demand (ADI) curve.

A decrease in the inflation rate corresponds to a _ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 3%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI) curve.

If the Bank of Canada's monetary policy rule changes from r = 0.04 + To r = 0.02 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI) curve.

A decrease in the interest rate by the Bank of Canada based on a given monetary policy rule represents a the aggregate demand (ADI) curve,but decrease in the interest rate resulting from a downward shift in the Bank of Canada's monetary policy rule represents a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 2%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

An upward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI) curve ___.

A downward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI) curve ___.

The aggregate demand (ADI) curve shifts to the right if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.

An upward shift of the Bank of Canada's monetary policy rule function corresponds to a _ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 1%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

An increase in the inflation rate corresponds to a _ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

The aggregate demand (ADI) curve shifts to the left if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.

Quiz 12: The Production Function Approach to Understanding Growth

If,for any given inflation rate,the Bank of Canada raises interest rates less than normal,this is called a monetary _________ and the aggregate demand (ADI) curve shifts to the __________.

A downward shift of the Bank of Canada's monetary policy rule corresponds to a _________ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 0%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

A decrease in the inflation rate corresponds to a _________ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 3%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI) curve.

If the Bank of Canada's monetary policy rule changes from r = 0.04 + To r = 0.02 + ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 2%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

An upward shift in the Bank of Canada's monetary policy rule is a monetary _________,and the aggregate demand (ADI) curve ___________.

A downward shift in the Bank of Canada's monetary policy rule is a monetary _________,and the aggregate demand (ADI) curve ___________.

The aggregate demand (ADI) curve shifts to the right if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.

An upward shift of the Bank of Canada's monetary policy rule function corresponds to a _________ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 1%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

An increase in the inflation rate corresponds to a _________ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI) curve.

The aggregate demand (ADI) curve shifts to the left if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.

If,for any given inflation rate,the Bank of Canada raises interest rates less than normal,this is called a monetary _ and the aggregate demand (ADI) curve shifts to the __.

A downward shift of the Bank of Canada's monetary policy rule corresponds to a _ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 0%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 4%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

A decrease in the inflation rate corresponds to a _ the aggregate demand (ADI) curve,and a decrease in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 3%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI) curve.

If the Bank of Canada's monetary policy rule changes from r = 0.04 + To r = 0.02 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 2%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

An upward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI) curve ___.

A downward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI) curve ___.

The aggregate demand (ADI) curve shifts to the right if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.

An upward shift of the Bank of Canada's monetary policy rule function corresponds to a _ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 1%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

An increase in the inflation rate corresponds to a _ the aggregate demand (ADI) curve,and an increase in autonomous aggregate demand corresponds to a _ the aggregate demand (ADI) curve.

The aggregate demand (ADI) curve shifts to the left if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.