tut6_(feb19) - Economics 291: Canadian Macroeconomic Policy...

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Economics 291: Canadian Macroeconomic Policy Tutorial #6 (week of Feb 19) 1. Can monetary policy be used to offset the real interest rate effects of an adverse supply shock or a decline in desired investment, if prices adjust quickly to restore general equilibrium? Explain. 2. Describe the effects, in both the very short run and the long run, of a decline in the money supply. Explain what happens to real output and the price level. 3. Suppose monetary policymakers decide to increase the money supply. If this economy can be best described by a Keynesian model, what will happen to output, price level, real interest rate, consumption, and investment? If this corresponds to a classical economy, what will happen to output, price level, real interest rate, consumption, and investment? 4. One of the most famous quotes by Keynes is: “In the long run, we are all dead”. Explain the policy suggestion behind this quote.
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Answer key: 1. General equilibrium is a situation in which all markets in an economy are
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tut6_(feb19) - Economics 291: Canadian Macroeconomic Policy...

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