Which of the Following Situations Illustrates How Fiscal Policy Can

question 29

Multiple Choice

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

• A)The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases.
• B)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases.
• C)The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases.
• D)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.
• E)The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases.

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Definitions:

Volcanic Breccia

A type of rock composed of large volcanic fragments, often formed during explosive volcanic eruptions.

Pyroclastic Flow

A fast-moving current of hot gas and volcanic materials (such as ash and lava fragments) that flows along the ground after an eruption, capable of causing destruction.

Flow-Banded Obsidian

A type of obsidian characterized by the alignment of mineral grains or layers along the flow direction of the lava.

Viscous Lava

Lava that has a high silica content resulting in a thick, slow-flowing consistency.