Question

For each scenario below, draw the appropriate money market and goods market diagrams to illustrate the scenario. Explain the short-run effects on the interest rate and real GDP.

a) The Bank of Canada purchases a large number of federal government bonds from Canadian commercial banks.

b) A new type of robot is invented, resulting in increased productivity across all industries.

c) The U.S. Federal Reserve increases its money supply. What happens to the U.S. economy and the Canadian economy?

d) New mobile technology lets people convert bonds to cash (and cash to bonds) easier than ever before.

e) The U.S. economy enters a recession caused by a negative aggregate supply shock that has no direct influence on Canada. What happens to the Canadian economy?