Lec13 iC Questions Flashcards
Economists estimate the long-run equilibrium unemployment rate at 6% and expected inflation at 2%. If the unemployment rate is 7% and inflation is 2%, it is most likely that we are experiencing a:
a) Peak
b) Trough
c) Positive output gap
d) Expansion
e) Negative output gap
e) Negative output gap
Cyclical Unemployment = Unemployment Rate - Long-Run Equilibrium Unemployment
CU = 7-6
CU = 1%
Cyclical Unemployment = -1/3 X Output Gap
Output Gap = CU/(-1/3)
OG = 1/(-1/3)
OG = -3%
A decrease in Canadian exports to the United States will cause:
a) An increase in demand for the Canadian dollar
b) A decrease in demand for the Canadian dollar
c) An increase in the supply of the Canadian dollar
d) A decrease in the supply of the Canadian dollar
e) None of the above
b) A decrease in demand for the Canadian dollar
“When Canadian exports decrease, fewer U.S. buyers need Canadian dollars to purchase Canadian goods and services. This leads to a decrease in demand for the Canadian dollar in the foreign exchange market.”
A decrease in Canadian interest rates will lead the Canadian dollar to:
a) Appreciate in value, increasing net exports
b) Appreciate in value, decreasing net exports
c) Depreciate in value, increasing next exports
d) Depreciate in value, decreasing net exports
e) None of the above
c) Depreciate in value, increasing next exports
“Lower interest rates in Canada make Canadian financial assets less attractive to foreign investors. This leads to a decrease in demand for the Canadian dollar in the foreign exchange market. As a result, the Canadian dollar depreciates. A weaker (depreciated) Canadian dollar makes Canadian goods and services cheaper for foreign buyers, boosting exports”
A reduction in the interest rate in the economy would be associated with:
a) An increase in consumption
b) An increase in investment
c) An increase in government spending
d) An increase in net exports
e) All of the above
e) All of the above
Which of the following would cause the IS curve to shift to the right in Canada?
a) An increase in real interest rates
b) A decrease in real interest rates
c) A decrease in government purchases
d) An increase in U.S. incomes
e) None of the above
d) An increase in U.S. incomes
“If U.S. incomes rise, Americans buy more Canadian exports. This increases net exports, boosting aggregate demand in Canada. Higher demand for Canadian goods shifts the IS curve right.”
In 2008, the financial crisis in the United States caused banks in Canada to increase interest rates charged to riskier borrowers. In our model, this is modeled as:
a) The IS curve shifts left
b) The IS curve shifts right
c) The MP curve shifts up
d) The MP curve shifts down
e) None of the above
c) The MP curve shifts up
If an increase in consumer optimism leads to an increase in domestic consumption, the direct effect would be:
a) Increased GDP, and increased interest rates
b) Increased GDP and no change in interest rates
c) No change in GDP, and a increase in interest rates
d) Decreased GDP, and no change in interest rates
e) None of the above
b) Increased GDP and no change in interest rates
The U.S. Economy enters an economic boom, with incomes rising in the United States, and increasing exports from Canada. What would be the direct equilibrium impact in Canada?
a) Increase in GDP, increase in interest rates
b) No change in GDP, increase in interest rates
c) Increase in GDP, no change in interest rates
d) No change in GDP, no change in interest rates
e) None of the above
c) Increase in GDP, no change in interest rates
“Interest rates do not change immediately in response to higher GDP; they would only change if the central bank responds later.”
The economy experiences a drop in GDP and an increase in real interest rates. All else equal, which of the following would be the most likely cause?
a) An increase in investment spending
b) A decrease in investment spending
c) An increase in the risk premium
d) A decrease in the risk premium
e) None of the above
c) An increase in the risk premium
In the short-run, which of the following would be expected to lead to a reduction in unemployment?
a) An increase in government purchases
b) A reduction in real interest rates
c) An increase in net exports
d) An increase in the value of the stock market
e) All of the above
e) All of the above
