Question

Which one of the following variables is not held constant along a given aggregate demand curve?

	A.	expectations about inflation
	B.	the exchange rate
	C.	the price level
	D.	fiscal policy

Everything else remaining the same, an increase in the interest rate increases saving and

	A.	decreases aggregate demand through the intertemporal substitution effect.
	B.	increases aggregate demand through the intertemporal substitution effect.
	C.	increases aggregate demand through the international substitution effect.
	D.	increases aggregate demand through the wealth effect.

Discretionary fiscal policy is risky because it is hampered by

	A.	recognition lag, impact lag, and law-making lag.
	B.	recognition lag, inflation lag, and law-making lag.
	C.	recognition lag, impact lag, and business cycle lag.
	D.	recognition lag, business cycle lag, and law-making lag.

Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?       

	A.	Canadian aggregate demand decreases.
	B.	Canadian aggregate demand increases.
	C.	The quantity of Canadian real GDP demanded decreases.
	D.	The quantity of Canadian real GDP demanded increases.

Answer 1

Which one of the following variables is not held constant along a given aggregate demand curve?

C. the price level

Remaining variables are held constant along a given aggregate demand curve

Everything else remaining the same, an increase in the interest rate increases saving and

decreases aggregate demand through the intertemporal substitution effect.

Discretionary fiscal policy is risky because it is hampered by

The use of discretionary fiscal policy is seriously hampered by three time lags:
Law-making lag —the time it takes Parliament to pass the laws needed to change taxes or spending.
Impact lag —the time it takes from passing a tax or spending change to its effect on real GDP being felt. Recognition lag —the time it takes to figure out that fiscal policy action is needed.

Foreign exchange dealers expect the Canadian dollar next year to appreciate against all currencies. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?   

b. Canadian aggregate demand increases