Increases in Canadian interest rates relative to those in the rest of the wor (a

Question

Increases in Canadian interest rates relative to those in the rest of the wor (a) (b) (c) increase Canadians' demand for foreign bonds. decrease foreigners' demand for Canadian bonds. decrease Canadians' and foreigners' demand for Canadian bonds. 18. Canadians' and foreigners' demand for Canadian bonds. e) increase Canadians' demand for foreign bonds and decrease foreigners' demand for Canadian bonds. If Canadian interest rates rise relative to those in other countries, the (a) demand for Canadian dollars in international exchange markets will (b) demand for Canadian dollars in international exchange markets will fall. (c) exchange rate will rise. (d) Canadian dollar will appreciate. (e) demand for Canadian dollars in international markets will increase and the Canadian 19. dollar will appreciate. With reference to your answer to Question 19, you would therefore expect (a) (b) (c) (d) (e) 20. net exports to increase and the AD curve to shift to the left. the AD curve to shift to the right. net exports to decrease and the AD curve to shift to the left. net exports to decrease and equilibrium levels of Y and P to increase. None of the above. autonomous aggregate We have seen in Chapter 23 in the text that an increase in expenditure e.g, an increase in government purchases-would cause the AD curv shift up GDP would cause the demand for real balances to increase and the real rate of interest to rise, which in turn would negatively affect desired investment expenditure and desired consumption expenditure two other components of aggregate expenditure. Therefore, an increase in government purchases would have a greater short-run impact on equilibrium 21. and equilibrium income to rise. We see now in Chapter 28 that an increase in real income (a) the greater the sensitivity of the demand for money to changes in real GDP (b) the greater the sensitivity of the demand for money to changes in the rate of interest (c) the greater the sensitivity of desired investment expenditure to changes in the rate of interest. (d) the smaller the sensitivity of desired consumption expenditure to changes in real GDP (e) the smaller the sensitivity of desired consumption expenditure to changes in the rate of interest. The Strength of Monetary Forces In the long run, monetary shocks are neutral. They influence nominal values but not the real sector of the economy such as real GDP. This is because monetary shocks create only short-run output t situations. Factor prices adjust over time, there nominal price level. This result reflects the long-run neutrality of money (no effects on rea macroeconomic variables) by restoring potential real GDP, albeit at a different In the short run, the extent to which the AD curve shifts depends on the sensitivity of mone demand and desired investment to changes in the interest rate. The steeper the Mo function the change in the equilibrium interest rate when the money supply changes. Moreover, the st investment demand curve (), the lower the change in desired investment expenditures interest rates. The debate between Keynesians and monetarists focu the to changes nf these two

Explanation / Answer

18) D. Increase in Canadian interest rate will increase the Canadian and Foreigner demand for canadian bond

19)E. The demand for Candian dollar will increase which will appreciate the canadian dollar

20)C. With appreciation of Canadian dollar net export will decrease and AD will shift leftward.

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