1. What are the effects of a major union wage settlement on the price level and real GDP? That is, when significant increases in wages or a sudden increase in price of an important raw material, such as oil, occurs. Is this a supply shock,demand shock, or both? Can you think of an example of such an important change?
2. During the financial crisis of 2007-2008, the governor of the Bank of Canada expressed concern that the commercial banks were "hoarding" cash rather than extending a more appropriate volume of loans. Why might the banks "hoard" cash rather than extending a more appropriate volume of loans and what is the implication for the money supply?
3. Explain the likely effects of a U.S. recession on the demand for Canadian exports. What would be the effect on Canadian aggregate demand? Suppose the Bank of Canada viewed its monetary policy as being appropriate for keeping output close to potential before any U.S. recession. What would you then predict to be the Bank's response to the foreign recession?