51) Which of the following is a factor which determines the shape of the aggregate demand curve?
A) The real-balance effect
B) The nominal-balance effect
C) The law of diminishing marginal returns
D) The wage effect
52) The real-balance effect refers to
A) the real interest rate.
B) the production of real goods and services as opposed to financial instruments.
C) the prices of goods and services.
D) the real value of cash balances that a person is holding.
53) Holding nominal money balances constant, a decrease in the price level
A) causes the real value of the money balances to increase, in turn increasing the quantity of goods and services demanded.
B) causes the real value of the money balances to decrease, in turn decreasing the quantity of goods and services demanded.
C) causes the real value of the money balances to increase, thereby increasing the interest rate.
D) generates a reduction in the value of the money balances, leading to higher interest rates and a decrease in the quantity of goods and services demanded.
54) An indirect effect of an increase in the price level works through
A) people substituting out of domestic goods and into foreign goods as exchange rates rise.
B) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate.
C) interest rates as people save more as the higher prices make their money balances less attractive.
D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing the quantity demanded for goods and services.
55) Higher interest rates
A) reduce the quantity of goods and services demanded because they increase the cost of borrowing money.
B) reduce the quantity of goods and services demanded because they reduce the income of bankers and other creditors.
C) increase the quantity of goods and services demanded because they increase the incomes of all people in the economy.
D) increase the quantity of goods and services demanded because they lower the costs of building new plants and equipment.
56) If the Bank of Canada were to buy back Canada Savings bonds from the public, we would expect
A) the AD curve to remain unchanged since this has no effect on the money supply.
B) the AD curve to shift to the right since this has the effect of increasing the money supply.
C) the AD curve to shift to the left since this has the effect of decreasing the money supply.
D) will see a marked effect from the interest rate effect.
57) If the price level increases, then
A) the exchange rate will increase, causing Canadian goods to become cheaper and increasing the quantity demanded for domestic goods.
B) imports increase but exports do not change. Therefore, there is no effect on the quantity demanded for goods and services.
C) foreigners buy fewer Canadian goods, leaving more goods for Canadians and an increase in the quantity demanded for goods and services produced domestically.
D) domestic goods are more expensive relative to foreign goods, which reduces quantity demanded for domestic goods.
58) If the Bank of Canada were to raise the Bank rate, we would expect
A) the AD curve to remain unchanged since this has no effect on the money supply.
B) the AD curve to shift to the right since this has the effect of increasing the money supply.
C) the AD curve to shift to the left since this has the effect of decreasing the money supply.
D) will see a marked effect from the interest rate effect.
59) Suppose a country has no trade with other countries and people can borrow as much money as they want at the current interest rate. An increase in the price level will generate
A) a decrease in quantity demanded because of the real-balance effect.
B) a decrease in quantity demanded because of the open-economy effect and the indirect effect.
C) a decrease in quantity demanded because the real-balance effect will be stronger than the indirect effect and the open-economy effect.
D) a decrease in quantity demanded because the indirect effect will be stronger than the real-balance effect.
60) A fall in the price level
A) increases the real value of money balances which causes borrowing to decrease, leading to a decrease in investment and the quantity demanded of aggregate output.
B) causes exports to rise and imports to fall, leading to an increase in quantity demanded of aggregate output.
C) leads to an increase in the quantity of aggregate output because of the indirect effect.
D) causes the quantity demanded of aggregate output to increase as long as the fall is less than the fall in the price level in other countries.
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