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- Describe monetary easing at the Bank of Canada during the 2007-2009 Financial Crisis.
Answer: The Bank pursued autonomous monetary policy easing because of the negative shock
to the economy from the disruption to financial markets indicated that despite current high
inflation rates, the economy was likely to weaken in the near future and the inflation rate would
fall.
Diff: 2 Type: SA Page Ref: 562
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
23.3 The Aggregate Demand Curve
In deriving the aggregate demand curve a ____ inflation rate leads the central bank to
____ real interest rates, thereby ____ the level of equilibrium aggregate output.
A) higher; raise; lowering
B) lower; raise; lowering
C) higher; lower; lowering
D) higher; lower; raising
Answer: A
Diff: 2 Type: MC Page Ref: 563
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
The aggregate demand curve is derived from the ____.
A) IS curve
B) MP curve
C) LM curve
D) both A and B
Answer: D
Diff: 2 Type: MC Page Ref: 562
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
Suppose the aggregate demand curve is given by Y= 12 - r then, if inflation increases by 1
percent ____.
A) aggregate output is unchanged
B) aggregate output increases
C) the nominal interest changes
D) the real interest rate falls
Answer: D
Diff: 2 Type: MC Page Ref: 563
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate