$2$

PART I $-$ MULTIPLE CHOICE $(15$ MARKS$)$

For each of the questions or incomplete statements, choose the one alternative that best answers the question or completes the statement, then write hour answer in CAPITAL LETTERS in the area provided.

Which of the following policies will shift the AD curve to the right?

a$.$ The government increase its level of taxation in the cconomy.

b$.$ The government decrease the money supply in the economy.

c$.$ The government decrease its level of taxation in the economy.

d$.$ The government decrease its level of spending in the economy.

e$.$ Answers $($a$)$ and $($d$)$ will both shift the AD curve to the right.

f$.$ Answers $($c$)$ and $($d$)$ will both shift the AD curve to the right.

Contractionary fiscal policy

shifts the AD curve to the right, restoring the equilibrium level of output to the potential output level for the economy.

b$.$ often causes inflation or an increase in the aggregate price level.

c$.$ is most helpful for restoring an economy to the potential output level of production when there is a recessionary gap.

d$.$ If effective, shifts AD to the left, resulting in a decrease in the aggregate output and the aggregate price level for a given short run aggregate supply curve.

Credit cards

a$.$ are just another name for debit cards that allow users to access funds in their bank account.

b$.$ create an asset for users since the use of credit cards enables people to purchase goods and services.

c$.$ provide a means of borrowing funds, thus creating a liability, in order to make purchases of goods and services.

d$.$ Answers $($a$)$ and $($b$)$ are both correct.

c$.$ Answers $($a$)$ and $($c$)$ are both correct.

The three primary policy tools available to the Bank of Canada include

a$.$ the ability to tax banks, the overnight$/$bank rate, and open market operations.

b$.$ shifting of government deposits, the ovemight$/$bank rate, and open market operations.

c$.$ shifting of government deposits, the ability to tax banks, and open market operations.

d$.$ open market operations, the ability to tax banks, and the overnightbank rate.

A negative supply shock will, holding everything else constant, cause the aggregate price level th $$ and the aggregate level of real GDP th $$ in the short run.

a$.$ increase; increase

b$.$ increase; decrease

c$.$ decrease; increase

d$.$ decrease; decrease

Which of the following shocks will lead to a higher price level $($inflation$)$ in the economy?

a$.$ The level of sales of business are lower than expected.

b$.$ Productivity of workers have increased.

c$.$ Input and factor prices are more expensive.

d$.$ Consumers are pessimistic about the future.

Which of the following will not cause a shift in the AD curve?

a$.$ The decrease in the price of a commodity.

b$.$ The decision by the central bank in an oconomy to contract the money supply.

c$.$ An increase in government spending

d$.$ A decrease in the level of wealth in the cconomy.

Suppose an economy is currently in short run equilibrium where the level of real GDP is greater than potential output. Which of the following statement is true?

a$.$ In the long, nominal wages will rise and the SRAS curve will shift to the left, restoring the economy to potential output.

b$.$ In the long run, nominal wages will rise and the SRAS curve will shift to the right, restoring the economy to potential output.

c$.$ In the long run, nominal wages will rise and the AD curve will shift to the right, restoring the economy to potential output

d$.$ In the long run, nominal wages will rise and the AD curve will shift to the left restoring the economy to potential output.

Which of the following is the fundamental function of debit cards?

a$.$ They are used for reducing weight.

b$.$ They are used for deferring payment.

c$.$ They are used as a method of payment.

d$.$ They are equivalent to credit cards.