(ECON22358G) TEST 2 (Chapters 6-8) Class/Day of Week PART A (5 marks):ANSWER ALL
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(ECON22358G) TEST 2 (Chapters 6-8) Class/Day of Week PART A (5 marks):ANSWER ALL 5 QUESTIONS IN PART A 1. Which of the folowing components of aggregate demand Buchustes the least over the business cycle? (a) Foroign spending on exports (b) Business spending on additions to inventornen (c) Spending by Canadian consumers (d) Spending on new housing (e) Business spending on equipment and machinery 2. Which of the following is not true? Rapid inflation (a) hurts groups that lack economic power, such as low-income people (b) causes higher interest rates. (c) can make a nation's exports less competitive intemationally (d) reduces the standard of lving of everyone in the country, due to higher prices. the saving-investment process that is a key to higher productivity and 3. The most basic cause of economic recessions is (a) low interest rates. (b) a falling level of aggregate demand. (c) decreases in the Consumer Price Index. (d) layoffs by employers that cause a rising level of unemployment. (e) a decrease in the size of the labour force Which of the following describes how the multiplier effect affects the economy? (a) 4. The economic upswings and downswings of the business cycle are made larger by the multiplier effect. (b) The multiplier effect causes the economy to grow less rapidly during booms (c) Price levels are made more stable by the multiplier effect. (d) The multiplier effect causes the unemployment rate to fluctuate less. (e) Because of the multiplier effect, the population grows more rapidly during economic booms than during recessions 5. Which of the following is an example of the multiplier effect? (a) Workers on a construction site spend their paycheques on various consumer goods (b) Due to rising sales, businesses invest in more capital equipment so as to be able to (c) During an economic boom, consumers increase their borrowing and spending. and services, which increases the incomes of other people. increase production. (d) During a boom, interest rates fall, which encourages more borrowing and spending. (e) Families have more children during economic booms than during recessions. D1Explanation / Answer
Answer 1) optionC
Consumer spending & govt expenditure tend to be stable during business cycle where as business investment expenditure & net exports fluctuates most
Q2 option E,
Inflation makes domestic currency depreciation, thus export competitiveness falls bcoz exports get cheaper.
Answer 3) option b
Falling level of GDP is the basic cause of recession
Answer 4 option a) since multiplier raises the income during boom type & reduces during recession by some mutiple, thus effects of business cycles are increased many times
Answer 5) option c) Economic boom increase equilibrium income thus people increases spending as well as lenders increases due to increase in income , so borrowing rises
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