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    Review answers Review answers Presentation Transcript

    • FISCAL AND MONETARY POLICY REVEIW
    • inflation •rising price 1. Define Inflation: ______________________ levels •falling buying power of _______________________________ money 2. What are the macro-economic signs of an inflationary economy? production (GDP) a)__________________________ up b )__________________________ prices (CPI) rising _ employment (LFS) c )__________________________ improved _
    • 3. How would most governments respond to inflation with their fiscal policies? a) ________________________________________________ •increase tax rates - (i.e. income taxes on the wealthy to decrease their ability to __________________________________________________ spend.) • decrease gov’t spending - ( i.e. cut back b) on ________________________________________________ funding to schools and infrastructure development. __________________________________________________ c ) What type of budget would this be heading toward? surplus ___________________ budget
    • 4. How would the Bank of Canada respond to inflation withinterest rates (make borrowing their monetary policies? increase • a) ________________________________________________ more expensive - discourage __________________________________________________ spending.) b) • sell government bonds on the open market ________________________________________________ (give consumers the chance to invest rather than spend.) __________________________________________________ • increase the reserve ratio at banks decreasing c) ________________________________________________ the funds they have available for __________________________________________________ loans. d) • use moral suasion to encourage the banks to use ________________________________________________ a tight money policy. __________________________________________________
    • unemployment •members of the labour force 1. Define Unemployment: _________________________ currently without work but actively looking. ___________________________________________________ 2. What are the macro-economic signs of a declining/recessionary economy? production (GDP) down a)__________________________ prices (CPI) falling b )___________________________ employment (LFS) falling c )___________________________
    • 3. How would most governments respond to a recession with their fiscal policies? a) •decrease tax rates - (especially on low-income ________________________________________________ earners as it will increase their ability to spend.) __________________________________________________ • increase gov’t spending - (i.e.in areas such as b ) ________________________________________________ infrastructure development thus creating jobs.) __________________________________________________ c ) What type of budget would this be heading toward? surplus deficit ___________________
    • 4. How would the Bank of Canada respond to a recession with their monetary policies? a) ________________________________________________ • decrease interest rates (make borrowing cheaper - encourage spending.) __________________________________________________ b ) ________________________________________________ • buy government bonds on the open market (putting money back in the hands of consumers to spend.) __________________________________________________ c) ________________________________________________ • decrease the reserve ratio at banks (increasing the funds they have available for loans.) __________________________________________________ d)• use moral suasion to encourage the banks to use ________________________________________________ an easy money policy. __________________________________________________
    • types of inflation
    • demand-pull increased demand drives prices up. Fiscal policy? Pros and cons?
    • cost-push a general rise in price levels due to increased costs of wages and/or raw materials. Fiscal Policy? Pros and cons?
    • imported inflation inflation due to an increase in the price of imports. Fiscal Policy? Pros and cons?
    • stagflation inflation and rising unemployment occurring at the same time. Fiscal Policy? Pros and cons?
    • Types of unemployment
    • frictional when workers are transitioning from one job to another - usually to improve their position. Fiscal Policy? Pros and cons?
    • structural workers lack the skills to get a job in a technologically changing work place. Fiscal Policy? Pros and cons?
    • Cyclical unemployment occurs due to the movement of the business cycle. Fiscal Policy? Pros and cons?
    • insurance induced it’s simply too good not working - the government will look after you. Fiscal Policy? Pros and cons?
    • Youth unemployment due to lack of experience. Fiscal Policy? Pros and cons?
    • other key terms and concepts MPC MPS Stagflation expansionary contractionary multiplier effect economic indicators leading/lagging/coincident indicators