Question

In: Economics

If a government increases its budget deficit, which statement would best predict the effects? a. The real...

If a government increases its budget deficit, which statement would best predict the effects?

a. The real exchange rate and domestic investment rise.

b. The real exchange rate and domestic investment fall.

c. The real exchange rate rises, and domestic investment falls.

d. The real exchange rate falls, and domestic investment rises.

35. If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

a. The money supply increases, and aggregate demand shifts right.

b. The money supply increases, and aggregate demand shifts left.

c. The money supply decreases, and aggregate demand shifts right.

d. The money supply decreases, and aggregate demand shifts left.

36. What is the effect of an increase in the Canadian real interest rate above the world interest rate?

a. Canadians buy more foreign assets, which increases Canadian net capital outflow.

b. Canadians buy more foreign assets, which reduces Canadian net capital outflow.

c. Foreigners buy more Canadian assets, which reduces Canadian net capital outflow.

d. Foreigners buy more Canadian assets, which increases Canadian net capital outflow.

37. What happens when the dollar appreciates?

a. Net exports increase, and aggregate demand shifts right.

b. Net exports increase, and aggregate demand shifts left.

c. Net exports decrease, and aggregate demand shifts right.

d. Net exports decrease, and aggregate demand shifts left.

Expert Solution

Ans.1- (C)

The real exchange rate rises, and domestic investment falls.

Ans.2- (A)

Open market purchases increases the money supply which shifts the AD curve to the right

Ans.3- (C)

Since canadian interest rate exceeds the world interest rate foreigners will buy more canadian assets to earn a higher return. So, capital inflows increases capital outflow decreases. Hence there is a reduction in canadian net capital outflow.

Ans.4- (D)

When dollar appreciates US good become more costly so exports of US fall. Foreign goods become cheaper for US residents so imports increases. As a result, net exports fall which shifts AD to the left.

Rahul Sunny answered 2 years ago

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