Governments and The Business Cycle

Question 1

Some of the ways government affects international trade and business include:

Answer 1

• Establishing import and export laws
• Setting tariffs
• Maintaining membership in trade organizations and negotiating trade agreements
• Determining monetary policy, including currency exchange rates
• Determining fiscal policy, including taxation laws
• Building infrastructure, such as roads and sewer systems

Question 2

Monetary policy

Answer 2

• Process by which the government affects the economy by influencing the expansion of money and credit
• To ensure that Canada’s economy has just the right amount of money to purchase goods and services without causing inflation or deflation, the government uses monetary policies to adjust interest rate.

Question 3

Tight money

Answer 3

• Term used to describe monetary policies of high interest rates, more difficult availability of credit and a decrease in the money supply
• Used to restrain the economy in times of expansion

Question 4

Easy money

Answer 4

• Term used to describe monetary policies of low interest rates, easy availability of credit, and growth of the money supply
• Used to curb recessions

Question 5

Fiscal policy

Answer 5

Is the use by government of its powers of expenditures, taxation, and borrowing to alter the size of income in the economy as to being about greater consumer demand, more employment, inflationary restraint, or other economic goals

Question 6

Discretionary fiscal policy

Answer 6

When government takes deliberate actions through legislation to alter spending to alter spending or taxation policies in order to influence the level of spending and employment

Question 7

Expansionary policy

Answer 7

Entails a tax cut, an increase in government spending, or both to stimulate economic growth and lower employment rates

Question 8

Contractionary policy

Answer 8

Entails a tax increase, a decrease in government spending, or both to reduce upward pressure of prices