cate triggers net capital outflows that cause the exchange rate to rise (domesti

Question

cate triggers net capital outflows that cause the exchange rate to rise (domestic currency aenc, a domestic economy experiences more net exports (mare exports and fewer ere is an excess supply of money, households and firms will sell bonds and add to their holdings of money, thereby causing the interest rate to fall. rchase bonds and reduce their holdings of money, thereby causing the interest ratio to rise. hase bonds and reduce their holdings of money, thereby causing bond and bond prices to rise. (c) purc yields to fall (d) purchase bonds and reduce their holdings of money, thereby causing the price of bonds to fall. e) sell bonds and add to their holdings of money, thereby causing the price of bonds to fall. anges in interest rates caused by money supply contractions or expansions (o 13. Ch are usually of litl consequence in influencing economic activity in the shont run. will not affect the market prices of bonds. c) cause the money demand function to shift if the price level remains constant. cause the investment demand function to shift. d) vide the link between changes in the money supply and changes in aggregate expenditure and aggregate demand in the short run. Other things being equal, a decline in the interest rate causes (a) 14. a shift in the I function to the left. a shift in the function to the right. (b) (c) (d) a movement down the function. a movement up the function. (e) the market price of bonds to fall The investment demand curve illustrates the (a) positive relation between the quantity of desired investment and the (real) rate of interest. (b) negative relation between the quantity of desired investment and the (real) rate of interest (c) negative relation between the quantity demand for bonds and the rate of interest (d) positive relation between the quantity supply of bonds and the rate of interest. (e) positive relation between the demand for bonds and GDP 15. A transition from an excess demand for money balances situation to a monetary equilibrium (a) tends to increase aggregate demand. (b) has an unpredictable effect on aggregate demand (c) tends to decrease aggregate demand. (d) will affect aggregate demand but not the interest rate (e) will increase the demand for bonds. 16. If the Bank of Canada increases the money supply, we would expect the (a) interest rate to fall, the AE curve to shift upward, and the AD curve to shift to the left. (b) interest rate to fall, the AE curve to shift downward, and the AD curve to shift to the ri (c) interest rate to rise, the AE curve to shift upward, and the AD curve to shift to the left. 17. interest rate to fall, the AE curve to be unaffected, and the AD curve to become flatter interest rate to fall, the AE curve to shift upward, and the AD curve to shift up. (e) ACTIVITY 279

Explanation / Answer

12) C. Excess supply of money will makes demand of bond more

13)D. Change in money supply will effect the interest rate which inturns effect Aggregate demand

14)C. Decrease in interest rate will be moving downward on investment curve

15)B. Negative relation between investment and interest rate

16)A

17)E

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