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.

---

Definitions:

Net Present Value

A financial metric that calculates the value of a series of future cash flows in today's dollars, factoring in both the time value of money and the risk of those cash flows.

Lease Cost

Lease cost refers to the expense incurred by leasing property or equipment, including monthly payments, maintenance, taxes, and other associated fees.

Rate of Return

The increase or decrease in value of an investment during a particular time frame, represented as a percent of the investment's initial cost.

Supply Chain Network Design

The process of defining a supply chain's structure, including the selection of locations for production, storage facilities, and transportation routes.