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1.    Consider the money market. In conducting monetary policy the

Bank of Canada arranges the purchase and sale of Government of Canada securities with the chartered banks. 
a.    Show changes (with a + or - sign) to the assets and liabilities of the Bank of Canada and the Chartered Banks if the Bank of Canada sells $50 million in securities to the chartered banks.


Bank of Canada
Assets
Liabilities and Net Worth
increase
increase

Chartered Banks
Assets
Liabilities and Net Worth
decrease
decrease
b. Briefly explain in words whether this is an example of expansionary or contractionary monetary policy AND how this sale of securities in a) will change the money supply and the equilibrium interest rate.
expansionary monetary policy, Bank of Canada sold securities to sub-banks and got 50million and then more money can be lent out, so the interest rates fall.


c. Briefly explain in words what type of short-run "gap" the sale of securities would be used to eliminate AND what the impact of this monetary policy would be on the equilibrium real GDP and the price level.






d. Assuming this is an open economy with international capital​ mobility, briefly explain the second part to the monetary transmission mechanism as a result of the monetary policy described in b) above.






e.  Briefly explain the Keynesian and Monetarists debate about the effectiveness of monetary policy as a tool to stimulate growth and the assumptions about the demand for money curve and the investment demand curve held by each.













2.    Suppose an economy is Initially in equilibrium at potential GDP, Y*. Then the government decreases the net tax​ rate (t).
a.  Briefly explain in words ( What type of gap would be caused by this policy AND the impact​ on real GDP and the price level in the short-run.






b.  Briefly explain in words how the economy adjusts back to the long​ run equilibrium if left alone and no further fiscal or monetary policy is used.






c.   In going from the short run equilibrium to the long-run equilibrium, briefly explain how the composition of real GDP may have changed.






d.    Briefly explain what the difference in the growth rate of potential GDP might occur If instead of a decrease in the net tax​ rate, there was an increase in government purchases




e.    Briefly explain what the "Money Neutrality" argument implies about the effectiveness of discretionary fiscal policy and the impact on potential real GDP and price level in the long run.

微信图片_20200625174006.png
1. Consider the money market. In conducting monetary policy the Bank of Canada arranges
the purchase and sale of Government of Canada securities with the chartered banks. ~
a. Show changes (with a + or - sign) to the assets and liabilities of the Bank of Canada and the
Chartered Banks if the Bank of Canada sells $50 million in securities to the chartered banks.
Bank of Canada
Assets~
Liabilities and Net Worth
Chartered Banks
Assets(
Liabilities and Net Worth
b. Briefly explain in words (1-2 sentences and with no diagram) whether this is an example of
expansionary or contractionary monetary policy AND how this sale of securities in a) will
change the money supply and the equilibrium interest rate.
c. Briefly explain in words (1-2 sentences with no diagram) what type of short-run "gap" the
sale of securities would be used to eliminate AND what the impact of this monetary policy
would be on the equilibrium real GDP and the price level.~
微信图片_20200625174023.png
d.flissuming this is an open economy with international capital mobility, briefly explain (1—2
sentences with no diagram] the second part to the monetary transmission mechanism as a
result of the monetary policy described in b] above.<—‘ ’t ‘t’t e. Briefly explain {in 2 sentences with no diagram] the Keynesian and Monetarists debate about
the effectiveness of monetary policy as a tool to stimulate growth and the assumptions about the demand for money curve and the investment demand curve held by each. <-‘ ’t ‘t’t
微信图片_20200625174028.png
i." 2. Suppose an economy is Initially in equilibrium at potential GDP, ‘1”. Then the government
decreases the net tax rate [t]. <-‘ a. Briefly explain in words [1—2 sentences without a diagram} What type of gap would be
caused by this policy AND the impact on real GDP and the price level in the short—run.<-‘ ‘1: fit b. Briefly explain in words [1—2 sentences with no diagram] how the economy adjusts back to
the long run equilibrium if left alone and no further fiscal or monetary policy is used.<-' ”lit ‘1: c. In going from the short run equilibrium to the long—run equilibrium, briefly explain {1
sentence] how the composition of real GDP may have changed. <-‘ ’t ‘t’t d. Briefly explain what the difference in the growth rate of potential lEDP might occur If instead
of a decrease in the net tax rate, there was an increase in government purchases (1 sentence]. ’t’t’t
微信图片_20200625174033.png
e. Briefly explain {1—2 sentences without a diagram] what the "Money Neutrality" argument
implies about the effectiveness of discretionary fiscal policy and the impact on potential real
GDP and price level in the long run.<-‘ ”T: ‘t‘i:

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