Lec22 iC Questions

Question 1

Starting in long-run equilibrium, if business optimism falls, the expected monetary policy response in Canada would be:

a) Lower tax rates
b) Higher government purchases
c) Increases in transfers to households
d) Lower interest rates
e) None of the above

Answer 1

d) Lower interest rates

Question 2

Starting in long-run equilibrium, business optimism falls and the Bank of Canada responds by lowering interest rates. All else equal, we would expect the:

a) Cdn dollar to depreciate and net exports to fall
b) Cdn dollar to depreciate and net exports to rise
c) Cdn dollar to appreciate and net exports to fall
d) Cdn dollar to appreciate and net exports to rise
e) None of the above

Answer 2

b) Cdn dollar to depreciate and net exports to rise

Question 3

Which of the following policy options would lead to lower unemployment in the short-run?

a) An increase in Employment Insurance payments
b) A decrease in Employment Insurance payments
c) Lower tax rates and lower government purchases
d) Lower tax rates and higher government purchases
e) None of the above

Answer 3

d) Lower tax rates and higher government purchases

Question 4

Consider the model for loanable funds. Which of the following long-run policies is most likely to lead to a higher quantity of private sector investment?

a) Lower tax rates and higher government spending
b) Higher tax rates and lower government spending
c) Lower tax rates and lower government spending
d) Higher tax rates and higher government spending
e) None of the above

Answer 4

c) Lower tax rates and lower government spending

Question 5

The multiplier effect on government spending is larger when:

a) The AD curve is flatter
b) The AD curve is steeper
c) The AS curve is flatter
d) The AS curve is steeper
e) None of the above

Answer 5

c) The AS curve is flatter

Question 6

If the economy is in a positive output gap, we would expect that in the short-run expansionary fiscal policy would mostly cause:

a) A small increase in GDP and a large increase in prices
b) A small increase in GDP and a small increase in prices
c) A large increase in GDP and a small increase in prices
d) A large increase in GDP and a large increase in prices
e) None of the above

Answer 6

a) A small increase in GDP and a large increase in prices

Question 7

In a recession, we often see coordinated fiscal and monetary policy, with a combination of:

a) Lower interest rates and lower government spending
b) Lower interest rates and higher government spending
c) Higher interest rates and lower government spending
d) Higher interest rates and higher government spending
e) None of the above

Answer 7

b) Lower interest rates and higher government spending

Question 8

Given the concept of asymmetric adjustment (discussed last week), discretionary fiscal policy is mostly relevant when there is a

a) Large negative output gap
b) Small negative output gap
c) Small positive output gap
d) Large positive output gap
e) None of the above

Answer 8

a) Large negative output gap