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Everything else held constant, contractionary monetary policies will cause ____.
A) the quantity of aggregate demand to increase
B) the quantity of aggregate demand to decrease
C) aggregate demand to increase
D) aggregate demand to decrease
Answer: D
Diff: 2 Type: MC Page Ref: 573
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework
Everything else held constant, a purchase of government securities by the Bank of Canada
will cause ____.
A) aggregate demand to increase
B) aggregate demand to decrease
C) the quantity of aggregate demand to increase
D) the quantity of aggregate demand to decrease
Answer: A
Diff: 2 Type: MC Page Ref: 574
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework
Using the aggregate demand-aggregate supply model, explain and demonstrate graphically
the short-run and long-run effects of an increase in the money supply.
Answer: An increase in the money supply increases aggregate demand. In the short run both the
price level and real output increase. In the long run, wages adjust, decreasing short-run aggregate
supply, raising inflation further and reducing real output until the economy returns to the natural
level of output. The long-run result is to only increase the inflation rate.
Diff: 3 Type: SA Page Ref: 584 - 585
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework