Which of the Following Situations Illustrates How Fiscal Policy Can

question 25

Multiple Choice

Which of the following situations illustrates how fiscal policy can influence aggregate demand?

• A)The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases.
• B)The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.- Canada border increase their imports of goods and net exports decrease.
• C)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases.
• D)The government increases its expenditures.The demand for loanable funds increases, which raises the real interest rate.Investment increases.
• E)The Bank of Canada raises interest rates so people plan to buy fewer consumer durables.As a result, aggregate demand decreases.

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Definitions:

Commercial Invoice

A document used in international trade that details the price, type, and quantity of goods shipped, serving as a demand for payment.

Contract of Affreightment

An agreement between a ship-owner and a charterer to transport goods in a specified quantity over a set period of time without designating a specific vessel.

Bill of Lading

A legal document between a shipper and carrier; it details the type, quantity, and destination of the goods being carried.

Negotiable Instrument

An instrument in writing that, when transferred in good faith and for value without notice of defects, passes a good title to the instrument to the transferee.