18. Refer to the graph above to answer this question. If the full-employment lev
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18. Refer to the graph above to answer this question. If the full-employment level of national income is S5.000, and the interest rate is 8%, then what should the Bank of Canada do? A) It should lower the interest rate by 2% points. B) It should lower the interest rate by 490 points. C) It should raise the interest rate by 2% points. D) It should raise the interest rate by 4% points. 19. 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. 20. Which of the following best explains the Phillips curve relationship? A) B) C) D) E) Inflation increases at a faster rate as the economy moves toward full employment. Unemployment falls as the economy moves toward full employment. Inflation decreases as the economy moves closer to full employment. As unemployment decreases, so does the rate of inflation. None of the above. 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. 21. 22. 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.Explanation / Answer
19. c) Rising levels of unemployment, and, low inflation
Inflation between 1991 to 1996 - 1.6%
1997 - Unemployment over 9.5%
20. E) None of the above
There is an inverse relationship between the rate of inflation & rate of unemployment
21. c) Inflation may result
As the rate of unemployment decreases inflation falls
22. d) decreases the levels of inflation and unemployment
Expansionary fiscal and monetary policy - Decrease in interest rates, and, increase in Government spending
23. c) the US economy is more stable than the Canadian economy
The Canadian economy does not suffer owing to economic shocks, as the GDP gains due to increase in commodity prices
24. d) interest rate; ineffective
Equality between domestic & foreign interest rates
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