If the Bank of Canada Maintains a Fixed Exchange Rate

question 55

Multiple Choice

If the Bank of Canada maintains a fixed exchange rate, which of the following effects will an expansionary fiscal policy have?

• A)It will cause a large and permanent rightward shift in the AD curve.
• B)It will cause a large and permanent leftward shift in the AD curve.
• C)It will have no permanent effect on the position of the AD curve, but it will cause interest rates to rise.
• D)It will have no permanent effect on either the position of the AD curve or the interest rate.

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Definitions:

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making processes, often leading to quick but sometimes inaccurate conclusions.

Propositions

Statements or assertions that express a judgment or opinion.

Predicate

The part of a sentence or clause containing a verb that states something about the subject.

Spreading Activation Model

A cognitive theory suggesting ideas in the brain are connected in a network, and thinking about one concept can trigger related concepts.