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Unformatted text preview: A6-7. In the long-run the money supply is neutral with respect to real GDP. Statement A6-7 is true because GDP is measure of national output and income for a countrys economy. It is the total value of all final goods and services produced in an economy. The supply of money does not affect this as the supply of money is defined as the total quantity of money in an economy at a specific point in time. Therefore in the long-run the supply of money would not affect GDP as GDP is calculated over a specified period of time, where as the supply of money is calculated at a specific point in time. A6-8.For a given money demand function, the Bank of Canada can decrease the interest rate without adjusting the money supply.Statement A6-8 is false the Bank of Canada is no able to decrease the interest rate without adjusting the money supply; this is because there needs to be a monetary equilibrium. As the interest rate is lowered the demand for money increases, thus the supply level will have to adjust...
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This note was uploaded on 03/14/2010 for the course RELS RELS131 taught by Professor Jahanbaksh during the Spring '10 term at Queens University.
- Spring '10