Consider the effects of an exogenous increase in the domestic price level. For each of the assets listed, explain how the change in the price level would affect the wealth of the asset holder. Then explain the effect on aggregate (private sector) wealth and how the AE would shift in each case.

a) Cash holdings

b) A household mortgage

Question 1

The following event causes a shift in the AD and(or) AS curve in Canada. Describe the effect of the event on equilibrium real GDP and the price level in Canada:

World commodity prices increased sharply from 2002 to 2008. Many of these commodities are both produced in Canada and used as important inputs for Canadian firms.