Question

27.3 Question 28 (Algo) Question Help Consider the graph provided on the right. Which of the following events could have caused the shift of the money demand curve? 50- Ms 45- A. a decrease in real GDP 40- B. an increase in bond prices 35- E decrease in price level C. a 30- D. innovations in financial sector 25- O E. the economy moving into a recovery period 20- 1 Eo MYP) 15- 0 10- 5- 0- 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Quantity of Money Interest Rate Suppose that the money market in a hypothetical economy is given by the diagram at right. Currently, the interest rate is 15 percent 65- 60- Ms(Y,P) 55- At the given level of interest rate, the money market is in 50- and there is 45- 40- 35- 30- 25- 20+ 15- MD(Y,P) 10- 5- 0-+ 0 2,000 Quantity of Money (in billions of $) 6,000 4,000 8,000 10,000 Interest Rate (%) 27.3 Study Exercise 12 (Static) Question Help Consider the effects of events in the U.S. economy on the Canadian economy and on Canadian monetary policy a. If a serious recession begins in the United States, what is the likely effect on Canadian aggregate demand? O A. There is an increase in Canadian aggregate demand and thus a positive AD shock occurs. O B. There are no changes in Canadian aggregate demand. O C. There is a reduction in Canadian aggregate demand and thus a negative AD shock occurs O D. The effect on Canadian aggregate demand is entirely uncertain.

Answer 1

27.3) option c)

As money demand is drawn for a given GDP Y & price level P,

& Depends positively on Y & negatively on P,

So as P falls, Demand curve shifts upwards

If GDP rises ,then money demand rises.

Next question

At i = 15%, then money market is in disequilibrium.

& Excess money supply or lower level of money demand

Next question.

Option c)

As AD falls in recession time, so it's a negative shock