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An autonomous rise in ____ shifts the MP curve to the ____, everything else held
constant.
A) net exports; right
B) net exports; left
C) money demand; right
D) money demand; left
Answer: D
Diff: 2 Type: MC Page Ref: 560 - 561
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
Despite an expansionary monetary policy, an economy experiences a recession. Everything
else held constant, the recession could occur in spite of the rightward shift of the MP curve if
____.
A) consumer confidence decreases sharply
B) there is an investment boom
C) the money supply increases
D) taxes are cut
Answer: A
Diff: 2 Type: MC Page Ref: 561
Skill: Recall
Objective List: 23.2 Explain how the IS - MP model can be used to address questions about the
effectiveness of monetary and fiscal policy
Describe how the Bank of Canada would apply the Taylor principle.
Answer: To stabilize inflation, the Bank of Canada raises nominal rates by more than any rise in
expected inflation so that real interest rates rise when there is a rise in inflation.
Diff: 2 Type: SA Page Ref: 559
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
Explain the difference between autonomous changes in monetary policy and the Taylor
principle.
Answer: The Bank of Canada uses autonomous monetary policy to shift the monetary policy
curve in order to change in inflation rate, for example. The Taylor principle changes the real
interest rate which does not impact the monetary policy curve.
Diff: 2 Type: SA Page Ref: 561
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate