Question

a. Which of the following explain why the aggregate demand curve slopes downward?

• The interest-rate effect, the real-balances effect, and the foreign-trade effect

• The investment effect, the real-balances effect, and the international effect

• The investment effect, the real-purchases effect, and the foreign-purchases effect

• The interest-rate effect, the real-purchases effect, and the foreign-purchases effect

b. The real-balances effect says that as the price level

• rises, the real value of money will decrease, resulting in a decrease in the quantity demanded of real output.

• falls, the real value of money will decrease, resulting in a decrease in the quantity demanded of real output.

• rises, the real value of money will increase, resulting in an increase in the quantity demanded of real output.

• rises, the real value of money will increase, resulting in a decrease in the quantity demanded of real output.

c. The interest-rate effect says that as the price level rises,

• the increased demand for money will drive up the rate of interest, decreasing the buying of goods with borrowed money, and decreasing the amount of real output demanded.

• the decreased demand for money will drive down the rate of interest, decreasing the buying of goods with borrowed money, and decreasing the amount of real output demanded.

• the increased demand for money will drive down the rate of interest, increasing the buying of goods with borrowed money, and increasing the amount of real output demanded.

• the decreased demand for money will drive down the rate of interest, increasing the buying of goods with borrowed money, and increasing the amount of real output demanded.

d. The foreign-trade effect says that as the Canadian price level rises relative to other countries,

• Canadians will buy more abroad, and foreigners will decrease their buying of Canadian exports.

• Canadians will buy less abroad, and foreigners will decrease their buying of Canadian exports.

• Canadians will buy more abroad, and foreigners will increase their buying of Canadian exports.

• Canadians will buy less abroad, and foreigners will increase their buying of Canadian exports.

e. The demand curve for a single product is downsloping because of the

• income and substitution effects but these effects don't apply to the aggregate demand curve.

• income and substitution effects and these effects also apply to the aggregate demand curve.

• wealth and real interest rate effects but these effects don't apply to the aggregate demand curve.

• wealth and real interest rate effects and these effects also apply to the aggregate demand curve.

f. With the aggregate demand curve, moving down the curve means

• all prices are dropping, the price level is dropping, and with regard to the circular flow of economic activity, it also indicates lower incomes. With the single product demand curve the consumer's income is assumed to be fixed.

• all prices are dropping, the price level is dropping, and with regard to the circular flow of economic activity, it also indicates lower incomes. With the single product demand curve the consumer's income also drops with movement down the curve.

• all prices are rising, the price level is rising, and with regard to the circular flow of economic activity, it also indicates higher incomes. With the single product demand curve the consumer's income is assumed to be fixed.

• all prices are rising, the price level is rising, and with regard to the circular flow of economic activity, it also indicates higher incomes. With the single product demand curve the consumer's income also rises with movement down the curve.

Answer 1

1) Solution: The interest-rate effect, the real balances effect, and the foreign purchases effect

Explanation: The aggregate demand curve slopes downward due to the effect of real balances, interest-rate and foreign purchases.

2) Solution: rises, the real value of money will decrease, resulting in a decrease in the quantity demanded of real output

Explanation: The real-balances effect states that a rise in price level will decrease saving's value which reduces the purchase of products and services.

3) Solution: the increased demand for money will drive up the rate of interest, decreasing the buying of goods with borrowed money, and decreasing the amount of real output demanded

Explanation: The interest-rate effect states that a rise in price level will raise interest rate and thus reducing the amount of real output demanded

4) Solution: Candians will buy more abroad, and foreigners will decrease their buying of Canadian exports

Explanation: The foreign-trade effect states that a rise in price level will increase then the people in country will buy more abroad and foreigners will reduce their buying of exports

As per policy we have to answer first 4 parts