ASSIGNMENT FOR CLASS # 4 EMBA 642
The following problems are to be handed in on November 25.
1. Indicate whether the following statements are true, false, or uncertain, and briefly explain your answer.
a. If the government cuts back on its stimulus program at the same time that the Bank of Canada tightens monetary policy this should generate a decrease in output, the aggregate price level and interest rates
b. The consequence of past investment in capital equipment, especially if it embodies technological change, is an increase in productivity. The impact on aggregate supply should put downward pressure on prices while increasing GDP.
c. The decrease in exogenous exports caused by the rising C$ should generate increased inflationary pressures.
d. The value of the Canadian dollar will tend to rise in periods of rising global demand and prices for commodities which Canada exports.
e. If the Bank of Canada increases its sale of bonds, this will cause the money supply to decrease
2. Using an aggregate demand and supply model, describe the short-term impact on aggregate economic activity (price level, output, and employment) of each of the following events. Briefly explain your reasoning. [You may, if you wish, use AS/AD diagrams].
(a) A weakening C$ causes a substantial fall off in cross-border shopping by Canadians in the US .
(b) the Bank of Canada engages in quantitative easing
(c) there is a significant decline in energy prices in the global economy
(d) the federal government increases the HST by two percentage points
(e) past investment in R&D pays off in a significant increase in Canadian manufacturing productivity