THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 669

CHAPTER 24 11 An important difference between Keynesians and monetarists rests on how long they think the long run actually is Is this statement true, false, or uncertain? Explain your answer Predicting the Future *12 Predict what will happen to aggregate output and the price level if the Bank of Canada increases the money supply at the same time that the government implements an income tax cut 13 Suppose that the public believes that a newly announced anti-inflation program will work and so Aggregate Demand and Supply Analysis 637 lowers its expectations of future inflation What will happen to aggregate output and the price level in the short run? *14 Predict the effect of an increase in the goods and services tax (GST) on both the aggregate supply and demand curves and on aggregate output and the price level 15 When there is a decline in the value of the dollar, some experts expect this to lead to a dramatic improvement in the ability of Canadian firms to compete abroad Predict what would happen to output and the price level in Canada as a result Q U A N T I TAT I V E P R O B L E M S Consider the following ISLM model Y * a + (A , bi) i* M * ak * Y - b h P where a* 1 - (1 - t) * mpc A is autonomous expenditure, b is the interest elasticity of investment expenditure, k is the income elasticity of money demand, h is the interest elasticity of money demand, t is the tax rate, and mpc is the marginal propensity to consume a Derive the equation for aggregate demand b Is the aggregate demand curve upward or downward sloping? *2 Continuing from the above problem, a How does an increase in M/P shift the aggregate demand curve? b How increases in G and declines in transfers shift the aggregate demand curve? WEB EXERCISES As this book goes to press, the Canadian economy was in a recession with an increasing unemployment rate Go to www.bankofcanada.ca and follow the link to employment statistics What has happened to the unemployment rate since the last reported figure in Table 24-5? As the CPI inflation rate in Canada fell close to 1% at the beginning of 2009, Bank of Canada policymakers were beginning to be concerned about deflation Go to www.bankofcanada.ca, and follow the link to the inflation statistics a What has happened to the inflation rate since then? b Does deflation still appear to be a threat? Be sure to visit the MyEconLab website at www.myeconlab.com.This online homework and tutorial system puts you in control of your own learning with study and practice tools directly correlated to this chapter content