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How will the U.S tax cut and the increased U.S defense spending influence the U.S economy?

Question 1.Show on a supply-and-demand diagram, and explain in words, what will happen to the Canadian exchange rate compared to the foreign exchange rate when the world demand for lumber, wheat, and paper increases. Ignore interactions with other sectors. Hint: Be sure to clearly label your axes!


Question 2. A government report traces the economy’s stagnation in the last fifteen months to massive declines in spending on commercial construction, while residential construction grew at only half the pace of previous recoveries. Of recent note, however, is a fall in inventories.


A: In which category or categories of the national expenditures accounts, C,I,G or X, would these spending be recorded?

B: Does the fall in inventories appear in the accounts as a positive or a negative number? why?


Question 3.The commerce department announced that it is shifting from 1987 to 1992 as the base year for calculating the nation’s real GDP and price index. The new figures will account for changes in consumers’ tastes, technological advances, and other phenomena.


A: In the new official figures, will the number of real GDP for 1987 become larger, smaller, or stay the same as it was before the base was changed to 1992?

B: In the new official figures, will the 1992 real GDP number be larger, smaller, or the same as the 1992 nominal GDP?

C: What will the new 1992 price index number be?

D: Will the new 1987 price index number be larger, smaller, or the same it was before?

E: The clipping claims that consumer tastes and technological advances will be accounted for. How would this accounting be done?


Question 4. Nationally the monthly survey of American households found 387,000 more people at work in February than in January, but many of the new jobs were only part-time, the labor department reported.


A: does the creation of part time jobs affect unemployment in the same way as the creation of full time jobs?

B: What can you say about the unemployment rate from this information?


Question 5. There are some subsidy features to unemployment insurance, primarily for jobs that are unattractive or that offer seasonal or unstable employment. Without this subsidy, paid mainly by the government, many unskilled jobs would go begging.


A: Explain how unemployment insurance subsidizes certain kinds of jobs.

B: What do you think would happen to wages paid for these jobs if unemployment insurance ceased to exit?


Question 6.For Canada, the demand pressures generated by the U.S tax cut and the spill-over effects of increased U.S defence spending will push the Canadian economy further into an excess demand situation.


A: How will the U.S tax cut and the increased U.S defense spending influence the U.S economy?

B: What name do economists give to this kind of government action?

C: How would this effect influence the Canadian economy?


Question 7.  GDP grew much at a much faster4.8 percent rate in the October-December quarter, but analysts said that growth masked some dangerous imbalances that were no present in the first quarter report. Almost all of the fourth quarter increase in GDP wound up as unsold inventory sitting on shelves.


A: If it doesn’t get sold, how could it get counted into GDP?

B: Why is this phenomenon described as a “dangerous imbalance “?


Question 8. Budget deficits are sometimes useful to spur consumption and thus encourage investment in business plant and equipment, but more generally they discourage rather than encourage investment because……..


A: Explain how budget deficits could spur consumption and encourage investment.

B: Complete this clipping.


Question 9. If it were a “Simulative deficit ” that was deliberately undertaken to prime the pump of the economy, then the debt might liquidate itself.


A: How could a deficit “Prime the pump” of the economy?

B: How could this cause the debt to liquidate itself?


Question 10. A key economic adviser to president George W. Bush said yesterday he believed that national saving was too low in the United States. But he agreed that encouraging consumers to save at a time when their spending was largely responsible for keeping the U.S economic recovery on track could be risky. But in the longer term, he said, the rationale for increasing savings in the United States was clear


A: Explain the logic that lies behind the statement that encouraging savings could be risky.

B: What is the rationale behind why increasing saving is good in the longer term?

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