Suppose the economy is experiencing an inflationary gap. Which of the following describes a likely policy response by the Bank of Canada?     a contractionary monetary policy which leads to a lower interest rate, reduced investment demand, and a shift to the left of the AD curve     a contractionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve     an expansionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve     an expansionary monetary policy which leads to a decrease in investment demand, and a shift to the left of the AD curve     a contractionary monetary policy which leads to a reduction in investment demand, and a shift to the left of the AD curve

The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 160 140 120 100 80 80 7 2 AS AD LAS 60 370 380 390 400 410 420 Real GDP (in billions) a. What increase in aggregate demand is necessary to achieve this? EA $ billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %

26. A contractionary monetary policy combined with an expansionary fiscal policy will (A) decrease both income and consumption (B) increase both income and consumption (C) have uncertain effects on the interest rate and investment D) increase the interest rate and decrease investment (E) increase both the interest rate and investment

8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False When the Fed increases the money supply, short-term interest rates tend to decline.       Actions that lower short-term interest rates will always lower long-term interest rates.       Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates.       The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.

Analyse the impact of these events on the price level and total output of an economy in the short term. If policymakers were to use monetary policy to actively stabilize the economy, in which direction should they move the money supply and interest rate and show the effects of these policies? Please discuss your answers with appropriate graphs. - (a) The government raises taxes and reduces expenditures to balance its budget. (b) Enterprises in the economy are pessimistic about the economy in the future. - (c) Foreigners increase their taste for domestically produced beef. (d) The money wage rate rises.

3. If the FED can only directly control nominal interest rates, how does the FED influence real interest rates that determine the actual stance of monetary policy?

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.

25. Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade. However, monetary policymakers are slow to recognize that the change is to potential, not current, output and interpret the decrease in output as a recession that leads current to fall below potential output. In this scenario, policymakers believe that building and incorrectly respond by interest rates, sending the economy into a(n) pressures are gap. a. inflationary; raising; inflationary b. inflationary; reducing; inflationary c. inflationary; raising; recessionary d. recessionary; reducing; inflationary e. Not enough information is given.

d) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.

133.) Assume prices and wages are flexible. If the Federal reserve reduces the reserve requirement ratio     Aggregate demand will increase         Output will decrease in the short run due to an increase in the money supply       Output will increase in the short run due to a decrease in the money supply       None of the above