Which of the Following Situations Illustrates How Fiscal Policy Can

question 98

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, the aggregate demand curve shifts leftward.
• 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)Both A and C are examples of fiscal policy.

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Definitions:

National Governments

The primary governing bodies of sovereign nations, responsible for creating and enforcing laws, policies, and administrative functions.

Foreign Labour

workers from one country who are employed in another country, often to fulfill labor shortages or take on jobs not filled by the local workforce.

Commodification

The process by which something, often non-material, becomes transformed into a good or service for economic exchange.

Rationalization

The process of replacing traditional and emotional thought with reason and efficiency, often applied in organizational and economic contexts.