Question

1. The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy. Which action by the Bank of Canada would be most consistent with this policy? 4. If the money GDP is S600 billion and, on the average, ench dollar is spent three times per year, then the amount of money demanded for transactions purposes: will be $1800 billion. buying government securities will be 5600 billion raising the desired reserve ratio will be $200 hillion raising the bank rate will be $100 billion selling yovernment securities 2. Refer to the market for money diagram above. Curve D, represents the: 5. Refer to the graphs given below. The first graph shows the investment demand curve of an economy, and the second graph shows the aggregate demand curve and the aggregate supply curve of the economy. investment Se demand Interest rate (%) speculative demand for money. transactions demand for money. $30 S60 S90 $120 $150 Investment (5) asset demand for money. stock of money. AD 0-120 3. An increase in the money supply will tend to: - AD393) AD, lower interest rates and increase the equilibrium GDP increase interest rales and increase the equilibrium GDP. In the above graphs, the numbers in the parentheses after the AD. AD, and AD labels indicate the levels of investment spending associated with cach AD curve. All numbers arc in billions of dollars. Suppose the level of investment spending in the cconomy is $90 billion. To achieve full employment in the economy, the monetary authorities should: increase interest rates and lower the equilibrium GDP lower interest rates and lower the equilibrium GDP.

Answer 1

1. buying government securities
(This will increase money supply.)

2. stock of money
(It is vertical.)

3. lower interest rates and increase the equilibrium GDP.
(Increase in money supply decreases the interest rates and increases GDP.)

4. will be $200 billion
(According to QTM, MV = PY. So, M = PY/V = 600/3 = 200)

5. make no change in the interest rate
(At I = 90, AD = AS = LRAS. So, the economy is already at full employment.)

(Note: As HOMEWORKLIB's policy, 4 MCQs are to be answered at a time.)