Question

Add explain please

1. In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

a. when the expected price level rises

b. when the dollar appreciates

c. when real wealth rises

d. when the interest rate rises

2. What would cause the real exchange rate of the Canadian dollar to depreciate?

a. the imposition of Canadian government import quotas

b. capital flight from Canada

c. an increase in the Canadian government budget deficit

d. an decrease in the world interest rate

3. According to the aggregate demand and aggregate supply model, in the long run what is the impact of an increase in the money supply?

a. It increases GDP, but it does not change the price level

b. It increases the price level, but it does not change real GDP

c. It lowers both the price level and real GDP

d. It increases both the price level and real GDP

4. How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases?

a. Neither change would affect aggregate demand.

b. The increase in income would decrease aggregate demand; the increase in the exchange rate would increase aggregate demand.

c. The increase in income would increase aggregate demand; the increase in the exchange rate would decrease aggregate demand.

d. Both changes would decrease aggregate demand.

Answer 1

Answer 1) when the real wealth rises it will lead to rightward shift in AD curve which will increase the quantity of goods demanded.

So option c) is correct.

Answer 2) When the Canadian government budget deficit increases, it means government expenditure is increasing which leads to leftward shift in AD curve and price level will rise. Candian dollar will depreciate.

So, option c) is correct.

Answer 3) increase in the money supply will lead to rightward shift in LM curve and AD curve. This will lead to decrease in interest rates and price will fall. In long run, investment will rise because of inverse relationship between investment and interest rate, AD will shift to right which will increase real gdp and price rise.

So, option d) is correct.

Answer 4) increase in foreign income will lead to rise in demand of domestic goods i.e aggregate demand will rise and if real exchange rate rises then it will lead to decrease in aggregate demand.

So, option c) is correct.