Question

Autoworkers agree to a cut in the nominal wage rate. This event ________ short-run aggregate supply and ________ long-run aggregate supply.

	A.	does not change; does not change
	B.	decreases; does not change;
	C.	increases; does not change;
	D.	increases; increases

Discretionary fiscal policy

	A.	involves only a change in personal income tax rates.
	B.	requires action by Parliament.
	C.	occurs during recessions but not during expansions.
	D.	is triggered by the state of the economy.

If the current account is in surplus and the capital and financial account is also in surplus, then the official settlements account balance is

	A.	probably close to zero, but could be either negative or positive.
	B.	zero.
	C.	negative.
	D.	equal to the sum of the current account and the capital account.
Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S. per Canadian dollar. If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can A. buy Canadian dollars. B. violate purchasing power parity. C. enforce interest rate parity. D. sell Canadian dollars.

A technological advance shifts

	A.	both SAS and AD rightward.
	B.	both SAS and LAS rightward.
	C.	LAS rightward but leaves SAS unchanged.
	D.	SAS rightward but leaves LAS unchanged.

Choose the correct statement.

	A.	Tax cuts increase aggregate supply and aggregate demand.
	B.	Tax cuts strengthen the incentive to work and to invest.
	C.	The tax multiplier becomes smaller as time passes.
	D.	Both A and B are correct.

A tax on labour income

	A.	decreases the supply of labour and has no influence on the real wage rate.
	B.	has no effect on the demand for labour.
	C.	increases the supply of labour and lowers the real wage rate.
	D.	decreases the demand for labour but does not change the real wage rate.

Important factors that change the demand for dollars and hence shift the demand curve for dollars include which of the following?

I.     interest rates around the world

II.   the current exchange rate

III. the expected future exchange rate

	A.	I and II
	B.	II
	C.	I, II, and III
	D.	I and III

Answer 1

Ànswer 1) Autoworkers agree to a cut in the nominal wage rate. This event increase short-run aggregate supply and does not change long-run aggregate supply. Workers won't have more bargaining power in the short run so they will work less. Hence option C is the correct answer.

2) Discretionary fiscal policy implies government actions and often occurs in periods of economic recession or turbulence. Hence option C & D is the correct answer.

3) If the current account is in surplus and the capital and financial account is also in surplus, then the official settlements account balance is equal to the sum of the current account and capital account. Hence option D is the correct answer.

4) Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S. per Canadian dollar. If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can sell canadian dollars. To maintain the exchange rate central bank will appreciate the currency this will nullify the effect. Hence option D is the correct answer.