Question 1

During the last two decades,Canada has experienced all of the following,except one.Which is the exception?
A)Robust economic growth
B)A steady predictable exchange rate
C)Low inflation rates
D)Low interest rates

Accepted Answer

Canada has experienced robust economic growth, low inflation rates, and low interest rates over the last two decades. However, the exchange rate has not always been steady and predictable, as it has been subject to fluctuations depending on global economic conditions and commodity prices.

Question 2

What is the crowding-out effect?
A)The idea that when a government borrows to finance a deficit,it crowds out private investment because it causes interest rates to fall
B)The idea that when a government borrows to finance a deficit,it crowds out private investment because it causes interest rates to rise
C)The idea that fiscal policy crowds out economic growth
D)The idea that balanced budgets crowd out economic growth

Accepted Answer

The crowding-out effect refers to the idea that when a government borrows to finance a deficit, it increases the demand for loanable funds and drives up interest rates. This increase in interest rates makes it more expensive for firms to borrow and invest, leading to a decrease in private investment and a crowding-out of private investment by the government. Therefore, the correct answer is B - the idea that when a government borrows to finance a deficit, it crowds out private investment because it causes interest rates to rise.

Question 3

Stagflation is the simultaneous occurrence of both:
A)A recession and deflation.
B)A recession and inflation.
C)Inflation and rapid growth in GDP.
D)Recession and rapid growth in GDP.

Accepted Answer

Stagflation is a phenomenon where an economy experiences a combination of stagnant growth (recession) and high inflation. Option B correctly reflects this situation. Option A is incorrect because deflation indicates a decrease in prices and is contrary to inflation. Option C is incorrect as rapid growth in GDP would suggest an increase in production capacity and would be unlikely to coincide with high inflation. Option D is incorrect because recession and rapid growth in GDP are contradicting situations.

Question 4

Which one of the following represents one of the basic problems illustrated by the Phillips curve?
A)That the inflation rate tends to decrease as the economy moves closer to full employment
B)That the inflation rate tends to increase as the economy moves closer to full employment
C)That the unemployment rate tends to decrease as the economy moves toward price stability
D)That high levels of unemployment tend to accompany high rates of inflation

Accepted Answer

The Phillips curve represents the trade-off between inflation and unemployment. Option B illustrates the basic problem that as the economy moves closer to full employment, there tends to be an increase in the inflation rate.

Question 5

All of the following,except one,would cause the aggregate demand curve to shift to the right.Which is the exception?
A)An increase in taxes
B)An increase in government spending on goods and services
C)An increase in the money supply
D)A decrease in the exchange rate

Accepted Answer

An increase in taxes would reduce disposable income and therefore reduce consumption, leading to a decrease in aggregate demand. The other options listed would increase aggregate demand by increasing government spending or increasing the supply of money or export demand.

Question 6

Which of the following would neutralize the crowding-out effect?
A)An increase in tax rates
B)An increase in the money supply
C)An increase in money demand
D)A decrease in the money supply

Accepted Answer

The answer of Which of the following would neutralize the...

Question 7

The problem portrayed by the short-run Phillips curve is that:
A)unemployment tends to increase when prices are rising.
B)changes in the composition of the labor force tend to increase the natural rate of unemployment.
C)inflation tends to increase when unemployment falls.
D)stagflation is unavoidable.

Accepted Answer

The short-run Phillips curve shows an inverse relationship between the level of unemployment and the rate of inflation. Specifically, when unemployment is low, there is upward pressure on wages and prices, leading to higher inflation. Conversely, when unemployment is high, there is downward pressure on wages and prices, leading to lower inflation. Therefore, option C is the correct answer. Options A and B are incorrect, as they do not accurately describe the relationship depicted by the short-run Phillips curve. Option D is also incorrect, as stagflation is not inevitable and can be avoided through appropriate macroeconomic policies.

Question 8

The Phillips Curve suggests that,if government uses an expansionary fiscal policy to stimulate output and employment:
A)unemployment may actually increase because of the crowding-out effect.
B)tax revenues may increase even though tax rates have been reduced.
C)inflation may result.
D)the natural rate of unemployment may fall.

Accepted Answer

The Phillips Curve suggests that there is a tradeoff between inflation and unemployment. If the government uses an expansionary fiscal policy to stimulate output and employment, it may cause an increase in demand, leading to higher prices and inflation. Therefore, C is the correct choice. A is incorrect because crowding-out effect happens when the government borrows money, which is not mentioned in the scenario. B is incorrect because an increase in tax revenues is not necessarily caused by the expansionary fiscal policy. D is incorrect because the natural rate of unemployment is a long-term concept that cannot be affected by short-term fiscal policy.

Question 9

What is the result of contractionary fiscal and monetary policies if an economy is suffering stagflation?
A)Unemployment may be cured but at the cost of higher inflation.
B)Inflation may be cured but at the cost of higher unemployment.
C)It will increase the levels of both unemployment and inflation.
D)It will decrease the levels of both unemployment and inflation.

Accepted Answer

Contractionary fiscal and monetary policies both aim to reduce aggregate demand, which can help to control inflation. However, if an economy is experiencing stagflation, it means that inflation is high and unemployment is also high. Contractionary policies can help to reduce inflation but they can also worsen unemployment. Therefore, the best choice is B, which states that inflation may be controlled but at the cost of higher unemployment.

Question 10

The Phillips Curve suggests a tradeoff between:
A)price level stability and income equality.
B)the level of unemployment and price level stability.
C)unemployment and income equality.
D)economic growth and full employment.

Accepted Answer

The Phillips Curve suggests a tradeoff between the level of unemployment and price level stability. It implies that low unemployment rates lead to higher inflation rates, and high unemployment rates lead to low inflation rates. Therefore, policymakers face a dilemma between achieving full employment and stable prices.

Question 11

What characterized the economic conditions in Canada from 1990-2008?
A)Low inflation and steady economic growth
B)Stagflation
C)Rising levels of unemployment but low inflation
D)Low unemployment and high inflation.

Accepted Answer

During this time period, Canada experienced low inflation and steady economic growth, which were largely due to the implementation of sound monetary and fiscal policies. This allowed for a period of relative economic stability and prosperity.

Question 12

What is the result of expansionary fiscal and monetary policies if an economy is suffering stagflation?
A)Unemployment may be cured but at the cost of higher inflation.
B)Inflation may be cured but at the cost of higher unemployment.
C)It will increase the levels of both unemployment and inflation.
D)It will decrease the levels of both unemployment and inflation.

Accepted Answer

Expansionary fiscal and monetary policies are aimed at increasing aggregate demand and stimulating economic growth. However, stagflation refers to a situation where an economy experiences high inflation and stagnant or declining economic activity. In this scenario, expansionary policies may improve unemployment levels, but at the same time, they may fuel inflation. Therefore, the best option is A, which states that unemployment may be cured but at the cost of higher inflation.

Question 13

According to supply-siders,what is one of the keys to curbing stagflation?
A)An increase in the money supply and a cut in government spending
B)A decrease in the money supply and an increase in government spending.
C)An increase in aggregate demand
D)Convincing people to buy domestic rather than foreign-produced goods
E)A cut in tax rates

Accepted Answer

Supply-siders argue that tax cuts can stimulate economic growth by encouraging entrepreneurship, investment, and consumer spending. This, in turn, can increase aggregate supply and reduce inflationary pressures, leading to reduced stagflation.

Question 14

The crowding-out effect of expansionary fiscal policy suggests that:
A)government spending increases at the expense of private investment.
B)imports replace domestic production.
C)private investment increases at the expense of government spending.
D)saving increases at the expense of investment.

Accepted Answer

The crowding-out effect occurs when the government increases its spending and as a result, interest rates increase. As the interest rates rise, private investors become less likely to invest in businesses because it becomes more expensive for them to borrow money. Therefore, government spending increases at the expense of private investment.

Question 15

Stagflation is the simultaneous occurrence of both
A)A recession and deflation
B)A recession and inflation
C)Inflation and rapid growth in GDP
D)Recession and rapid growth in GDP

Accepted Answer

Stagflation is a term used to describe the occurrence of both inflation and a recession in the economy. This is an unusual phenomenon because inflation and recession are typically seen as opposites. Inflation tends to occur when the economy is growing rapidly, while recessions typically lead to deflation or low inflation. Stagflation can occur when the economy experiences supply-side shocks, such as a sudden increase in oil prices or a decline in productivity, which lead to higher costs for businesses and lower output. As a result, prices rise, causing inflation, while the decrease in output leads to a recession. Therefore, choice B (a recession and inflation) is the best answer.

Question 16

Which of the following best explains the Phillips curve relationship?
A)Inflation increases at a faster rate as the economy moves toward full employment.
B)Unemployment falls as the economy moves toward full employment.
C)Inflation decreases as the economy moves closer to full employment.
D)As unemployment decreases,so does the rate of inflation.

Accepted Answer

The answer of Which of the following best explains the...

Question 17

Why have fiscal and monetary policies been criticized as tools to fight stagflation?
A)Because they are able to cure unemployment but not inflation.
B)Because they are able to cure inflation but not unemployment.
C)Because they are unable to cure either unemployment or inflation.
D)Because they are unable to cure both unemployment and inflation at the same time.

Accepted Answer

Fiscal and monetary policies have been criticized as tools to fight stagflation because they are unable to cure both unemployment and inflation at the same time. For instance, expansionary policies like increasing government spending or lowering interest rates can reduce unemployment but can also lead to increased inflation. On the other hand, contractionary policies like reducing government spending or increasing interest rates can lower inflation but can also lead to higher unemployment. Therefore, using these policies to fight stagflation can result in negative side effects on other factors of the economy.

Question 18

-Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?
A)The demand for labor is large when the rate of inflation is small.
B)When the rate of unemployment is high,the rate of inflation is high.
C)The rate of inflation and the rate of unemployment are inversely related.
D)The rate of inflation and the rate of unemployment are directly related.

Accepted Answer

The curve described is the Phillips Curve, which illustrates an inverse relationship between the rate of inflation and the rate of unemployment. This means that as inflation increases, unemployment tends to decrease, and vice versa.

Question 19

Select the answer that correctly completes this sentence: "The Phillips curve shows the relationship between:
A)the rate of change in the price level and the unemployment rate."
B)the rate of change in the price level and the level of real output produced."
C)the unemployment rate and real income."
D)the price level and the level of unemployment."

Accepted Answer

The Phillips curve illustrates the inverse relationship between the unemployment rate and the rate of change in the price level, usually represented by inflation. When the unemployment rate is low, there is upward pressure on wages, which leads to an increase in prices. Conversely, during periods of high unemployment, workers have less bargaining power, resulting in lower wages and lower inflation. Therefore, the correct answer is A.

Question 20

-What is the name of the curve shown in Figure 12.7 above?
A)Phillips curve
B)Aggregate supply curve
C)Laffer curve
D)Production possibilities curve

Accepted Answer

The Phillips curve shows the relationship between inflation and unemployment.

Quiz 12: Macroeconomic Policy Revisited

During the last two decades,Canada has experienced all of the following,except one.Which is the exception?

What is the crowding-out effect?

Stagflation is the simultaneous occurrence of both:

Which one of the following represents one of the basic problems illustrated by the Phillips curve?

All of the following,except one,would cause the aggregate demand curve to shift to the right.Which is the exception?

Which of the following would neutralize the crowding-out effect?

The problem portrayed by the short-run Phillips curve is that:

The Phillips Curve suggests that,if government uses an expansionary fiscal policy to stimulate output and employment:

What is the result of contractionary fiscal and monetary policies if an economy is suffering stagflation?

The Phillips Curve suggests a tradeoff between:

What characterized the economic conditions in Canada from 1990-2008?

What is the result of expansionary fiscal and monetary policies if an economy is suffering stagflation?

According to supply-siders,what is one of the keys to curbing stagflation?

The crowding-out effect of expansionary fiscal policy suggests that:

Stagflation is the simultaneous occurrence of both

Which of the following best explains the Phillips curve relationship?

Why have fiscal and monetary policies been criticized as tools to fight stagflation?

-Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?

Select the answer that correctly completes this sentence: "The Phillips curve shows the relationship between:

-What is the name of the curve shown in Figure 12.7 above?