Midterm 5

Question 1

What are determinants of Exports

Answer 1

-exports depend on income in other countries
-exchange rate
-price level
-income abroad

Question 2

Exports would be considered as what?

Answer 2

Injections

Question 3

What are determinants of Imports

Answer 3

-Income in Canada
-Exchange rate
-Price level

Question 3

Marginal propensity to import = ?

Answer 3

^M / ^Y

Question 3

Imports would be considered what

Answer 3

A leakage

Question 4

The higher the GDP in Canada means what for imports

Answer 4

Higher the imports

Question 5

What is Aggregate Demand

Answer 5

Total demand in economy at various prices

Question 6

What causes a Negative slope of AD

Answer 6

-wealth effect
-interest rate effect
-foreign trade effect

Question 7

What causes a Negative slope of Individual Demand

Answer 7

-substitution effect
-income effect
-law of diminishing MU

Question 8

If Price goes up what happens to the purchasing power of wealth

Answer 8

Purchasing power of wealth goes down

Question 9

When purchasing power of wealth goes down what must happen to return it to normal

Answer 9

Supply must go up
Consumption must go down

Question 10

What is Fractional Reserve system

Answer 10

a system where only a fraction of money that’s deposited are held in chatter banks or with Bank of Canada

Question 11

What is Fiscal Policy

Answer 11

its used by the gouv in order to remove recessionary and inflationary gaps

Question 12

What are the two parts of Discretionary Fiscal Policy

Answer 12

-Expansionary Fiscal Policy
-Contractionary Fiscal Policy

Question 13

What is Non-Discretionary Fiscal Policy

Answer 13

Automatic or Built-in stabilizers

Question 14

How is the Gouvs Spending Financed

Answer 14

Tax Collections
Borrowing from public by selling Gouv bonds
Borrowing from Bank of Canada

Question 15

If G > T then what is it

Answer 15

A budget deficit

Question 16

If G = T then what is it

Answer 16

A balanced budget

Question 17

If T > G then what is it

Answer 17

A Budget Surplus

Question 18

What are some examples of a Non-Discretionary Fiscal Policy

Answer 18

Gouv Transfer Payment
Progressive taxing System

Question 19

Automatic stabilizers do what

Answer 19

They don’t allow a recession to become too severe and reduce the magnitude of fluxuations

Question 20

What is a progressive tax system

Answer 20

As peoples income grow they pay more taxes

Question 21

What are monetary functions

Answer 21

money as a medium of exchange
money as a store of value
money as a unit of account

Question 22

What is fiat money

Answer 22

Money not backed by a precious metal

Question 23

What are some components of money supply

Answer 23

Narrow Definition of Money Broad Definition of Money

Question 24

Commercial Banks in Canada are called what

Answer 24

Chartered banks

Question 25

How does T go down

Answer 25

DI = C + S

Question 25

What happens when there is a Contractionary fiscal policy

Answer 25

Decrease in G or a Increase in T or both to deal with inflationary gap

Question 25

How do we make G go up

Answer 25

1/MPM + MPS

Question 26

What happens when there is a Expansionary fiscal policy

Answer 26

Increase of G or decrease of T or both to deal with recessionary gap

Question 27

What are some Issues with Fiscal Policy

Answer 27

Time Lags Crowding out effect Net Export effect Political Business cycle Budget deficit and public debt Debt to GDP ratio

Question 28

What are the three parts of time lags

Answer 28

Recognition lag Administrative lag Operational lag

Question 29

Debt to GDP ratio = ?

Answer 29

Debt / GDP

Question 30

What is the crowding out effect

Answer 30

increase in G spending by borrowing from public

Question 31

What is the political business cycle

Answer 31

if G increases spending and reduces taxes, then there would be inflation