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Macro economy
Question 1.
Assume there is an increase in in the demand for money at every interest rate, with the use of an appropriate diagram, show what effect this will have on the equilibrium interest rate when money supply is constant. If the Bank of Canada is following a policy of targeting the overnight rate, explain what the Bank will have to do to keep the overnight rate at its initial level. Show this on your diagram and also on the balance sheets of the Bank of Canada and of commercial banks.
Question 2.
Assume the economy is operating at potential.
Explain why the appropriate monetary response to a change in the exchange rate depends on the cause of the cause of the exchange-rate change.
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After a two-week period, she returns to the traps and finds no spiders. Estimate the probability of finding a spider in this region using a 95% confidence interval.
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