1.a)The Bank of Canada purchases Federal Government bonds worth $1,000 from the ABC chartered bank.

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Université d’Ottawa/University of Ottawa
Faculté des sciences
sociales /Faculty of Social Sciences
Science
Économique/Economics

ECO 1102E Introduction to Macroeconomics Winter 2012

Assignment #2

Instructor:
Claude Théoret

.0/msohtmlclip1/01/clip_image003.gif” alt=”Text box: • due date: april 3rd lecture.
• no e-mails. paper copies only.
• maximum of two (2) students per assignment.
• this assignment is worth 14 points è 10% of the final grade.
“>

Question 1 (3 points)
Using appropriate T-accounts, show the impact of the two
monetary transactions below [questions 1.a) and 1.c)] on the balance sheets of
the Bank of Canada and the ABC chartered bank.

1.a) The Bank of
Canada purchases Federal Government bonds worth $1,000 from the ABC chartered bank.(1 point)

1.b) Would the purchase
of bonds by the Bank of Canada in 1.a) increase or decrease the potential for money creation? Explain
in less than 5 lines.
(0.5 point)

1.c) The Bank of
Canada transfers $1,000 of Federal Government deposits at the Bank of Canada to the Federal Government
account at ABC chartered Bank.
(1 point)

1.d) Would the transfer
of Government deposits by the Bank of Canada in 1.c) increase or decrease the potential for money creation? Explain
in less than 5 lines. (0.5 point)

Question 2 (2
points)
Assume
that in Walada
·
Investment expenditures (I) increase by a
multiple of 10 dollars for each 1 percent point decrease in the country’s only rate
of interest (i).
·
Each dollar of new investment expenditure (I)
increases GDP by 4 dollars.
·
The money multiplier is equal to 5.
·
A change of 5 dollars in the supply of money
leads to a 1 percentage point change in the rate of interest (i).

What
change (increase or decrease) in the supply of money would you recommend to the
Minister of Finance to bridge Walada’s current recessionary gap of 300?

Question 3 (5 points)
What
is the impact of the following events on the Canadian dollar, other things
being equal? Graphs are not required.
3.a)
Major international financial institutions
believe that Canadian financial markets will be
riskier in 2012 than financial institutions in other developed countries. (1 point)
3.b) U.S. computer firms are expected to
purchase fewer Canadian-made hardware and software
products in 2012.
(1 point)
3.c)
Major international financial
institutions expect the rate of economic growth in emerging
countries to outpace Canadian economic growth in 2012.(1
point)
3.d) The Federal Government increases the tariff
on imported foreign-made vehicles.(1 point)
3.e) The Bank of Canada announces that the risks of a Canadian recession
in 2012 far exceed the risks
increased inflation.(1 point)
Question 4 (4 points)
Explain in
5 lines or less (graphs are not required but can be useful) the likely primary
or initial impact of the following independent events on the aggregate demand
curve (AD), the short-run aggregate supply curve (SAS), and on the long-run
aggregate supply curve (LRAS).
Please
note that these events would most likely affect only one of AD, SAS and LRAS in
the first round. You are not required to account for secondary and other
effects as the economy tends to a general equilibrium.
4.a) An increase in Canadian government
expenditures (G).
(1 point)
4.b) Canadian labour productivity increases by
2% while wages increase by 3%.(1
point)
4.c) Canadian exports of wheat and oil increase
very significantly.(1
point)
4.d) Important discoveries of mineral resources
in Canada.(1
point)

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