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1. Explain the slopes of the aggregate demand, short-run aggregate
supply and long-run aggregate supply curves.
2. Draw an aggregate demand, aggregate supply diagram showing an
economy in short-run equilibrium with an inflationary gap. Show
the changes in the SAS curve, the inflation rate and income
levels which will occur as the economy moves into long-run
equilibrium. Explain why these changes will occur.
3. Using aggregate demand and aggregate supply diagrams explain how
in some situations rising prices are associated with a decline
in unemployment and in other cases with a rise in unemployment.
4. Using an aggregate demand and aggregate supply diagram, show the
impact of an increase in government spending on income and
prices.
5. Using an aggregate demand and aggregate supply diagram, explain
the impact of an increase in oil prices on the price level and
income.
6. Discuss the role of expected future income in shifting the
consumption function. What impact does entry into a recession
have on the consumption function? What impact does the beginning
of a strong expansion have on the consumption function?
7. Discuss the impact of interest rates and expected future profits
on the investment function.
8. Explain how net exports behave as gross domestic product
increases.
9. i)Explain how a change in government spending or tax rates can
eliminate a recessionary gap and discuss the advantages and
disadvantages of each method of altering income.
10. Draw an Aggregate Expenditure diagram showing an economy at full
employment and then clearly indicate the impact of a decrease in
exports on equilibrium income.
11. Given: Ye = 1000
Yfull = 1300
MPC = .80
MPM = .20
Draw a an Aggregate Expenditure diagram representing the income
level described above.
Calculate the size of the change in government spending required
to raise income to the full employment level, assuming that the
price level will not change. (Show your work.)
12. Show the impact of the change in government spending calculated
in (b) on the Aggregate Expenditure diagram drawn above. Be
sure to label the diagram clearly.
13. Using an aggregate expenditure diagram and an aggregate demand
aggregate supply diagram show the impact of an increase in
exports on equilibrium income and on prices.
14. Is a nation better off to have a large multiplier or a small
multiplier?
15. Discuss the role of automatic stabilizers in smoothing the
business cycle. What impact to they have on the government's
budget deficit during a recession?
16. Assume a nation is suffering from a severe recession. Draw an
aggregate expenditure diagram and a aggregate supply aggregate
demand diagram which describe the situation of that nation.
Discuss the appropriate change in fiscal policy which would end
the recession. Indicate the impact of that change in income and
prices in your diagrams. (Clearly label the change.) Explain why
the change in fiscal policy would cause the level of income and
prices to change.
17. List and explain the three functions of money.
18. In the 18th century all money was convertible into gold, and the
value of gold was believed to give value to money. What makes
money valuable today? Explain your answer.
19. Explain the differences between M1, M2, and M2+.
20. Explain the immediate impact of a large purchase of government
treasury bills by the Bank of Canada on the interest rate paid
by those bills.
21. Assume that the Bank of Canada has determined that the money
supply should rise $14 million. Given that the banks wish to
hold reserves equal to 10% of deposits and that the public
wishes to hold 5% of its deposits in the bank as cash, describe
the open market operation and give the monetary value of the
initial transaction which the Bank of Canada must undertake in
order to achieve the desired expansion of the money supply.
22. Describe an expansionary open market operation by the Bank of
Canada and discuss how it can cause real output to rise. Use
all diagrams appropriate to your answer.
23. Using the appropriate diagrams show the impact that an expansionary monetary policy will have on equilibrium income,
interest rates, the price level and investment.
24. Before Keynesian economic theory was accepted, governments
believed that annually balanced budgets were important. Discuss
the impact of a government policy of attempting to maintain an
annually balanced budget on income, employment and inflation.
25. Two goals of macroeconomic policy are low rates of inflation and
low levels of unemployment. Explain why governments may have
difficulty achieving both these goals. Use diagrams as
appropriate in your answer.
26.
a) Draw an aggregate demand, aggregate supply diagram, showing an
economy in long-run equilibrium.
b) Assume that exports fall substantially. Show the impact that
this change will have on income and the price level. Also show
any inflationary or recessionary gaps that may occur. Label the
change carefully. Explain your answer.
c) Briefly discuss the impact of the changes on the rate of
inflation and unemployment.
d) Describe the adjustment process that will occur in the long-run
if government takes no action.
e) Describe an appropriate fiscal policy intended to return the
economy to full employment.
27. Assume that the real GDP of Canada is below potential.
a) Describe the Open Market operation that the Bank of Canada should
undertake and use a diagram of the supply and demand for bonds in
the explanation.
b) Explain the impact of this open market operation on the price and
the interest rate of bonds.
c) Explain how the open market operation will move the economy back
to potential GDP.
28. Discuss three serious short comings of GDP as a measure of
economic well being.
2.
Population
Population 15 years and older
Employed
Unemployed
15,000
10,000
4,500
500
Using the information in the preceding table, answer the following
questions:
a. The labour force is __________, the unemployment rate is ________
and the participation rate is __________.
b. Are these figures more consistent with an economy in a recession,
or an economy working past potential? Explain your answer.
3.
a. Complete the following table with 2005 as the base year:
YEAR
2008
2009
2010
COST OF
BASKET
$1000
$1040
$1144
PRICE
INDEX
RATE OF
INFLATION
Not app.
b. Briefly describe the type of monetary policy you would likely
introduce if you were the Governor of the Bank of Canada in 2010
and briefly explain why.
4. List and briefly explain three
curve slopes down.
reasons why the aggregate demand
5. Draw a simple circular flow diagram and explain the impact of an
increase in imports on the level of income in the economy.
6. Draw and Aggregate Demand function and
a) indicate the impact of the multiplier on its slope
b) indicate the impact of the multiplier on the size of the shift
an increase in investment causes in the AD function.
7. Explain what automatic stabilizers are and how they can reduce the
swings of a business cycle.
8. List and explain the three functions of money.