Questions and Answers of Macroeconomics Canada In The Global Environment

How can we know that the benefits to the economy from free trade are greater than the benefits accruing to the domestic industry that is protected from foreign competition?
Describe the situation in the market for a good or service that Canada imports.
How will countries know which domestic industries have a comparative advantage in order to allocate resources towards specialization in producing those goods and services?
Describe the situation in the market for a good or service that Canada exports.
Shouldn’t we protect the workers of those industries that are hurt by foreign competition?
Explain why the SAS curve slopes upward and the LAS curve is vertical.
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move?
If potential GDP increases, what happens to aggregate supply? Does the LAS curve shift or is there a movement along the LAS curve? Does the SAS curve shift or is there a movement along the SAS curve?
What is the relationship between the short-run aggregate supply curve and the short-run Phillips curve? Between the long-run aggregate supply curve and the long-run Phillips curve?
In 2007-2008, the nominal exchange rate of U.S. dollars declined relative to both the Japanese yen and the European euro. What would you need to know about the U.S. economy to determine whether this
When the Federal Reserve Chairman Ben Bernanke repeatedly decreased the interest rate during late 2008, he was attempting to stimulate the U.S. economy by lowering the interest rates in the U.S.
In part due to the recession of 2008, the Canadian government budget changed from a smaller surplus to a deficit. What impact would this have on the net exports and private sector balances, other
The Canadian price level is 115, the Japanese price level is 95.4, and the real exchange rate is 103.6 Japanese real GDP per unit of Canadian real GDP. What is the nominal exchange rate?
The demand curves for all products have negative slopes. For instance, the demand curves for milk, automobiles, personal computers, and shirts all have negative slopes. Therefore, because the
Explain how an increase in the money wage rate influences the SAS curve. Why does a change in the money wage rate influence the SAS curve and not the LAS curve?
If the government spends more money by buying more goods and services, is this change an example of fiscal policy or monetary policy?
What is a recessionary gap? How does the economy adjust to eliminate a recessionary gap?
Does inflation result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply?
Suppose that the E.U. economy goes into an expansion. Explain the effect of the expansion on U.S. real GDP and unemployment in the short run.
Explain why changes in consumer spending and business investment play a large role in the business cycle.
Why is there a “two-way” link between consumption and GDP?
If the consumption function shifts upward, what happens to the saving function? Why?
Explain why induced consumption expenditure differs from autonomous consumption expenditure. Why isn’t all consumption expenditure induced expenditure?
Explain the difference between the AE curve and the AD curve.
Suppose that exports increase. What happens to the AE curve? The equilibrium level of aggregate expenditure? The AD curve?
Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $100 billion. What is the change in equilibrium expenditure if the price
Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $100 billion. a. What is the immediate change in the quantity of real GDP
Some economists claim that inflation is always a “monetary phenomenon. ” What do they mean by this claim and are they correct?
How can a higher price of oil create inflation?
Suppose the expected and actual inflation rates are 7 percent a year and the natural unemployment rate is 6 percent. If the inflation rate falls to 5 percent a year while the expected inflation rate
Suppose the expected and actual inflation rates are 7 percent a year and the natural unemployment rate is 6 percent. If the inflation rate falls to 5 percent a year and the expected inflation rate
Suppose that the actual inflation rate is 7 percent a year and that the economy is at the natural unemployment rate. If the Bank of Canada announces that it is going to lower the inflation rate and
How does demand-pull inflation begin?
How does cost-push inflation begin?
What must happen to create a cost-push inflation spiral?
Suppose that the Canadian business cycle is best described by RBC theory and that a new technology increases productivity.Explain the when-to-work decision when technology advances.
What is the distinction between deflation and a one-time fall in the price level?
What causes deflation?
What are the consequences of deflation?
How can deflation be ended?
At the end of 2011, China’s government debt was ¥4,700 billion (¥ is yuan, the currency of China). In 2012, the government spent ¥6,000 billion and ended the year with a debt of ¥5,300 billion.
Explain why a higher marginal tax rate reduces the size of the government expenditure multiplier.
Compare the effect of an increase in government expenditure on equilibrium real GDP in the AE model with that in the short run in the AS-AD model. If the effect is the same, why? If it differs, why?
Suppose government increases autonomous taxes and defence expenditure by the same amount. Will real GDP increase in the short run? Why?
The NDP called for immediate action to create jobs by investing in infrastructure and green energy programs to give the economy a kickstart. It needs more than corporate tax cuts, the NDP
How do taxes and transfer payments programs work as automatic fiscal policy to dampen the business cycle?
The NDP called for immediate action to create jobs by investing in infrastructure and green energy programs to give the economy a kickstart. It needs more than corporate tax cuts, the NDP
How can the federal government use discretionary fiscal policy to stimulate the economy?
Suppose events in the rest of the world cause the exchange rate to fall when the Canadian, economy is at full employment. How should the Bank of Canada react to maintain macroeconomic stability? Why?
What limits the Bank of Canada’s ability to steer the economy to avoid both recession and inflation?
Why is there a difference between the short-run and long-run effects from an increase in the quantity of money?
Why must the Bank of Canada decide to target either the interest rate or the monetary base? Why can’t the Bank of Canada determine acceptable values for both and then use open market operations to
What is the operating band?
What happens when the Bank of Canada buys securities in the open market?
Why was the recovery from the 2008–2009 recession so slow?
What is the relationship between the price of a treasury bond and its interest rate? Why does the interest rate move inversely to price?
First Call, Inc., a smartphone company, plans to build an assembly plant that costs $10 million if the real interest rate is 6 percent a year or a larger plant that costs $12 million if the real
1. Using the PPF model to analyze an “Arms Race” between nations. 2. What would happen if the larger country decided to increase military production? 3. What were the economic
“Why are economists so concerned about the material aspects of life?” Economists are often criticized for focusing on material well-being. Remind students that promoting the emotional (or
1. Using the PPF model to analyze global environmental agreements between nations. 2. What if the citizens of each country were required to make equal reductions in per-person greenhouse gas
1. Gains from Trade?2. Why didn’t Billy Sunday do his own typing? 3. Why doesn’t Martha Stewart bake her own bread? 4. Why doesn’t Vinnie Jones play soccer?
1. John Q: Could a legal market for human organ donations have saved his dying son? 2. Can we illustrate a market for something as vital as organ donations?3. Are there unintended
To estimate GDP you add the value of all the goods and services produced, both final and intermediate goods. Is this procedure correct? Why?
What is the relationship between aggregate income and aggregate production? Why does this relationship exist?
Does my purchase of a Ford car that was manufactured in Windsor, Ontario in 2000 add to the current Canadian GDP? Why? How about my purchase of a domestically produced, newly produced Ford?
If a homeowner cuts his or her lawn, is the value of this work included in real GDP? Suppose that the homeowner hires a neighbourhood student to cut the lawn. Is this activity included in real GDP?
Should discouraged workers be counted as part of the unemployment rate?
How can the unemployment rate be less than the natural rate?
Why is a change in the age structure of the population, increasing the proportions of young or old workers in the labour force, likely to change the natural rate of unemployment?
What is the natural unemployment rate? What is the controversy concerning its measurement?
What has been the average annual growth in real GDP per person in Canada over the last 80 years? Over the past 50 years, during which periods has annual growth been more rapid than the average? When
What is an aggregate production function? A change in what factor or factors cause a movement along the aggregate production function? A change in what factor or factors shifts the aggregate
Define labour productivity. Why is labour productivity important?
What role do technological advances play in the classical theory of growth? The neoclassical theory? The new theory?
What is the difference between “insolvency” and “illiquidity”?
Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $400,000. During 2015, his business grew and he bought new servers for
Explain why and how investment depends on the real interest rate.
Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $400,000. During 2015, his business grew and he bought new servers for
What is the loanable funds market?
If the actual real interest rate differs from the equilibrium real interest rate, what forces drive the real interest rate to the equilibrium real interest rate?
Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $400,000. During 2015, his business grew and he bought new servers for
First Call, Inc., a smartphone company, plans to build an assembly plant that costs $10 million if the real interest rate is 6 percent a year or a larger plant that costs $12 million if the real
An economy’s capital stock was $46.3 trillion at the end of 2010, $46.6 trillion at the end of 2011, and $47.0 trillion at the end of 2012. Depreciation in 2011 was $2.4 trillion, and gross
What is the Ricardo-Barro effect and how does it modify the crowding-out effect?
An economy’s capital stock was $46.3 trillion at the end of 2010, $46.6 trillion at the end of 2011, and $47.0 trillion at the end of 2012. Depreciation in 2011 was $2.4 trillion, and gross
Annie runs a fitness centre. On December 31, 2014, she bought an existing business with exercise equipment and a building worth $300,000. During 2015, business improved and she bought some new
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets was $1,500,000 in 2013. At the beginning of 2013, she owned $900,000 worth of financial assets.
Why is the use of money in the exchange of goods and services less costly than using barter?
Everyone knows that true money is issued by the government; that is, the only real form of money is the nations currency.” Comment on this assertion.
In July 2011, currency held by individuals and businesses was $57 billion; chequable deposits owned by individuals and businesses were $211 billion; nonchequable person deposits were $163 billion;
Define the monetary base.
Ask anyone if he or she has enough money. No one ever has enough money, that is, everyone demands more money. Thus theorizing about the demand for money makes no sense because this demand obviously
If the price level was already doubling every month and inflation accelerating, what would you expect to happen to the velocity of circulation and why? How close would you expect the relation between
In the economy of Nocoin, bank deposits are $300 billion, bank reserves are $15 billion of which two thirds are deposits with the central bank. Households and firms hold $30 billion in bank notes.
How does a currency drain affect the money multiplier?
What are depository institutions?
What is the central bank in Canada and what functions does it perform?
The RBC says lines of credit for education are popular and the size of loans to students has been going up as tuition costs have increased. Compared to “good debt” like a mortgage, student loan
The RBC says lines of credit for education are popular and the size of loans to students has been going up as tuition costs have increased. Compared to “good debt” like a mortgage, student loan
Describe the Bank of Canada’s assets and liabilities. What is the monetary base and how does it relate to the Bank of Canada’s balance sheet?

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