Question

PART 2 Please answer these with true and false answers, but please give your explainations, use diagrams if necessary

5. Suppose the government funds the provision of a pure public good from tax revenue. The total burden to the economy of providing the good exceeds the amount spent on the good.

6. A decrease in posted (nominal) interest rates necessarily means a decrease in real interest rates.

7. At the end of 2016 the Canadian dollar exchange rate with the US dollar was 1.3030, while at the endo of 2017, the rate was 1.2494. The Canadian dollar depreciated against the US dollar over this time.

8. Suppose an economy currently has a labour force of 10 and 2 unemployed workers. If a previously discouraged worker starts looking for job, the unemployment rate rises and the “unemployment problem” becomes worse.

Answer 1

5. False

The benefit to cost analysis of providing a public good using tax revenues is ascertained after looking into the marginal social benefits of the public good, which might exceed its cost.

6. False

A falling nominal interest rate can be accompanied by a one-to-one increase in inflation in the economy. Thus, the effect of a fall of nominal interest rates on real interest rate depends upon the nature of inflationary changes over that time.

7. False

The value of the Canadian dollar has increased against the US dollar. In 2016, one USD was worth 1.3030 Canadian dollars but in 2017, it is worth only 1.2494 Canadian dollars. That is, the value of Canadian dollar has 'appreciated' against the USD.

8. True

A discouraged worker who enters the labour force, assuming that there are jobs now available counts into an 'unemployed worker' until he finds a job. Thus, the unemployment rises when a discouraged worker starts looking for a job.