the economics of money, banking, and financial markets

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39. 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

1. 
   

   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

   
   


2. 
   

   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

   
   


3. 
   

   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