1. Suppose the Central bank were required to conduct monetary policy so as to hold the inflation rate below 2%. What implications would this have for the economy?

2. Suppose you are hired as an economic advisor and you have been asked to provide policy recommendations that could improve the natural rate of unemployment in your country. Suggest two policies based on what you learned in the course.

3. Explain how fiscal policy could be used to close an output gap.

4. Suppose you are hired as an economic advisor and you have been asked to provide policy recommendations that could improve the rate of economic growth in your country. In your recommendations, you should specify if your country is a developed country or a developing country. Suggest two policies based on what you learned in the course.

5. Explain two reasons why high and unpredictable rate of inflation is bad for an economy?

6.Using AS-AD model explain how GDP, price level and unemployment change if investors become optimistic about future and increase their investments?

7.

a. How do commercial banks create money?

b. Why central banks cannot perfectly control supply of money?

8.True, false. Explain your answer.

a.If the government decides to sell more bonds, demand for bonds will increase in the bond market and price of bonds will increase.

b.In the market of money supply of money has a positive slope.

c.Demand for Canadian dollars will increase in the foreign exchange markets if foreigners decide to buy more assets in Canada.

9.Can there be a deficit on current account and a deficit on capital account at the same time? Explain.

10.

a. List three roles money serves in market economies.

b. List three incentives that explain why do people have demand for money?