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![Page 1: Review answers](https://reader033.fdocuments.in/reader033/viewer/2022061221/54be39574a79591b608b4592/html5/thumbnails/1.jpg)
FISCAL AND MONETARY POLICY
REVEIW
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inflation
1. Define Inflation: ______________________
_______________________________
•rising price levels
•falling buying power of money
2. What are the macro-economic signs of an inflationary economy?
c)___________________________
production (GDP) up
prices (CPI) rising
employment (LFS) improvedb)___________________________
a)__________________________
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3. How would most governments respond to inflation with their fiscal policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
•increase tax rates - (i.e. income taxes on the
wealthy to decrease their ability to spend.)
• decrease gov’t spending - ( i.e. cut back on
funding to schools and infrastructure development.c) What type of budget would this be heading toward?
___________________surplus budget
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4. How would the Bank of Canada respond to inflation with their monetary policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
d) ________________________________________________
__________________________________________________
c) ________________________________________________
__________________________________________________
• increase interest rates (make borrowing more
expensive - discourage spending.)
• sell government bonds on the open market (give
consumers the chance to invest rather than spend.)
• increase the reserve ratio at banks decreasing the
funds they have available for loans.
a tight money policy.
• use moral suasion to encourage the banks to use
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unemployment
1. Define Unemployment:
___________________________________________________
2. What are the macro-economic signs of a declining/recessionary economy?
c)___________________________
production (GDP) downprices (CPI) falling
employment (LFS) fallingb)___________________________a)__________________________
_________________________•members of the labour force
currently without work but actively looking.
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3. How would most governments respond to a recession with their fiscal policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
•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
infrastructure development thus creating jobs.)c) What type of budget would this be heading toward?
___________________surplus deficit
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4. How would the Bank of Canada respond to a recession with their monetary policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
d) ________________________________________________
__________________________________________________
c) ________________________________________________
__________________________________________________
• decrease interest rates (make borrowing cheaper
- encourage spending.)
• buy government bonds on the open market (putting
money back in the hands of consumers to spend.)
• decrease the reserve ratio at banks (increasing the
funds they have available for loans.)
an easy money policy.
• use moral suasion to encourage the banks to use
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types of inflation
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demand-pullincreased demand drives prices up.
Fiscal policy?
Pros and cons?
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cost-pusha general rise in price levels due to increased costs of wages and/or raw materials.
Fiscal Policy?
Pros and cons?
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imported inflationinflation due to an increase in the price of imports.
Pros and cons?
Fiscal Policy?
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stagflationinflation and rising unemployment occurring at the same time.
Fiscal Policy?
Pros and cons?
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Types of unemployment
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frictional
when workers are transitioning from one job to another - usually to improve their position.
Fiscal Policy?
Pros and cons?
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structural
workers lack the skills to get a job in a technologically changing work place.
Pros and cons?
Fiscal Policy?
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Cyclical
unemployment occurs due to the movement of the business cycle.
Pros and cons?
Fiscal Policy?
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insurance induced
it’s simply too good not working - the government will look after you.
Pros and cons?
Fiscal Policy?
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Youth
unemployment due to lack of experience.
Pros and cons?
Fiscal Policy?
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other key terms and concepts
MPC
MPS
Stagflation
expansionary
contractionary
multiplier effect
economic indicators
leading/lagging/coincident indicators
recessionary/inflationary gap
paradox of thrift
debt/deficit
leakages/injections
automatic/discretionary