Question Details

Why will this policy affect Canada 



1. "Some claim that the fact that both deficits and unemployment have increased together since 1979 proves that fiscal stimulus doesn't work. It's true that our jobless rate rose from 1979 to 1984 while the federal deficit doubled as a percentage of GDP. But the inference about the ineffectiveness of fiscal stimulus is nevertheless wrong, because ......" Complete the argument about to be developed here 
a) the deficits were caused by the recession 
b) the government has been using policy to combat inflation 
c) the unemployment was due to decreases in the participation rate 
d) the unemployment was due to a fall in the natural rate of unemployment 
2. "Counter-cyclical policy is about filling in holes and shaving off peaks, exactly what John Maynard Keynes prescribed." Exactly what filling in holes and shaving off peaks did Keynes prescribe? 
a) raising taxes in recessions and decreasing government spending in booms 
b) cutting taxes in recessions and increasing government spending in booms 
c) decreasing government spending in recessions and increasing it in booms 
d) increasing government spending in recessions and decreasing it in booms 
3. "The French economy took a nosedive after the Socialist government was elected in 1981. In reaction, Mr. Mitterand's government shortened the workweek, raised the minimum wage and increased various social benefits, whereupon unemployment actually increased further." This happened because 
a) the NRU increased b) of the multiplier process 
c) aggregate demand decreased d) the social benefits were not appreciated 
4. "Business inventories could have accumulated because sales fell below expectations. On the other hand, firms may have stockpiled inventories because they anticipated a surge in sales. The distinction is important because 87 percent of the stronger-than-expected 3.4 percent annualized growth in real GDP in the second quarter came from inventory accumulation. Those going with the first explanation are forecasting __________, while those who go with the second explanation are forecasting __________." Fill in the blanks. 
a) a recession; a boom b) a boom; a recession 
c) inflation; unemployment d) a drop in inventories; a rise in inventories 
5. "For Canada, the demand pressures generated by the U.S. tax cuts and the spillover effects of increased U.S. defense spending will push the Canadian economy further into an excess demand situation." Why will this policy affect Canada ? 
a) It shouldn't because Canada is a different country 
b) American imports will rise, increasing Canadian exports 
c) Canadians will flock to the U.S., decreasing aggregate supply in Canada 
d) Canada will increase its defense spending to counteract the higher U.S. defense spending



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