Post a New Question

economics

posted by .

Suppose government spending increases in a closed economy. Would the effect on aggregate demand be larger if the Bank of Canada took no action in response, or if the Bank were committed to maintaining a fixed interest rate? Explain

  • economics -

    I presume you are from Canada.

    Larger under b) the bank is committed to maintaining a fixed interest rate.
    Use a IS/LM curve analysis. An increase in G shift outward the IS curve, Which, by its self, increase aggregate demand and interest rates. To maintain a constant r, the Bank increases the money supply which shifts outward the LM curve.

  • economics -

    no

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Macroeconomics

    Suppose the Fed wishes to use monetary policy to close an expansionary gap. a. Should the Fed increase or decrease the money supply?
  2. econ 181

    1. The three reasons for the downward slope of the aggregated demand curve are measured in effect. They are: Real Balances-this is caused by a change in the price levels. Next are Interest Rates-here high price levels increases the …
  3. Economics

    Hopefully you can help me and I need this ASAP. I need this by tomorrow in the morning. You answer the questions if it decreases increases, expands or not. Also, can you explain it too?
  4. economics

    What happens to the bank lending, supply of money, and aggregate demand if the Federal Reserve increases discount rate to 3.5% and why?
  5. economics

    Question 4 (1.00 points) The multiplier effect indicates that: a. a decline in the interest rate will cause a proportionately larger increase in investment. b. a change in spending will change aggregate income by a larger amount. c. …
  6. economics

    3. Consumer spending on durables falls, draw a graph to analyze the effects of this change in real interset. 4. The Canadian demand for Mexican Pesos is downward sloping and supply of pesos is upward sloping. Assume a system of flexible …
  7. economic

    3. Consumer spending on durables falls, draw a graph to analyze the effects of this change in real interset. 4. The Canadian demand for Mexican Pesos is downward sloping and supply of pesos is upward sloping. Assume a system of flexible …
  8. economics

    some study guide questions i am stumped on 1 uncertainty about the future is likely to a increase current spending b either increase or decrease c decrease current spending d no impact on current spending think it's d 2 as the general …
  9. MACRO 2 ECON

    2.4 (Investment and the Multiplier) This chapter assumes that investment is autonomous. What would happen to the size of the multiplier if investment increases as real GDP increases?
  10. Economics

    Bank A has a leverage ratio of 10, while Bank B has a leverage ratio of 20. Similar losses on bank loans at the two banks cause the value of their assets to fall by 7 percent. Which bank shows a larger change in bank capital?

More Similar Questions

Post a New Question