Macroeconomics

Macroeconomics

Briefly Answer each questions.

 

 

  1. Suppose there is an increase in taxes. Explain fully how this contractionary fiscal policy will move the economy towards lower inflation. Why is the fiscal policy less effective under a flexible exchange rate compared with a fixed exchange rate?

 

  1. Explain, with the aid of an example, why under a flexible exchange rate Canada can have lower interest rates than the United States.

 

  1. Explain why part-time workers can cause the measured unemployment rate to be under estimated.

 

  1. For each question below provide a brief answer.

 

  1. Why would the government implement a wage-price controls program?

 

  1. Why does the short-run Phillips curve shift up or down?

 

  1. “Indirect taxes such as the GST increase the price of goods and thereby increase the value of the GDP of a country. “ if this statement is true or false? Explain why.

 

  1. Explain clearly the rationale behind your numerical answers.

 

  1. If the money multiplier is 4, and the income multiplier with respect to the money supply is 2, what is the effect on the equilibrium income if the Bank of Canada sells $1million of bonds on the open market?

 

  1. Suppose Canada and the U.S are equilibrium with flexible exchange rate and a risk premium of 2% (Canada is riskier). The real rates of growth in Canada and in the U.S are both 2%, but the U.S interest rate is 7% and the Canadian interest rate is 10%. What is happening to Canada/U.S. exchange rate?

 

  1. Suppose the typical basket of goods and services consists of 10kg of meat at $3 per kg and 50 bus tickets at $2 per ticket.

 

  1. If the price of meat increases $1 and the price of bus tickets increase by fifty cents during the year, what is the CPI for next year if this year is the base year?

 

  1. If the current exchange rate is 0.5 pounds sterling per $C, and the current prices in Britain are 1 pound sterling per Kg of meat and one pound sterling per bus ticket, what is this year’s PPP exchange rate between the pound sterling and $C?
  2. Answer the following:

 

  1. Why does an increase in interest rates cause an increase in unemployment?

 

  1. Why does an increase in interest rate cause the price of bonds to fall?

 

  1. Explain the differences between the Bank of Canada targeting the interest rate versus targeting the money supply.

 

  1. Why is it NOT possible for Canada to have lower interest rates than the U.S with a fixed exchange rate?

 

  1. What kind of monetary policy would be inconsistent with price stability?

 

  1. Can the Fed act independently of what the U.S. president wants it to do? How about the Bank of Canada?

 

 

 

 

 

 

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