Transcript
FISCAL AND MONETARY POLICY
REVEIW
inflation
1. Define Inflation: ______________________
_______________________________
•rising price levels
•falling buying power of money
2. What are the macro-economic signs of an inflationary economy?
c)___________________________
production (GDP) up
prices (CPI) rising
employment (LFS) improvedb)___________________________
a)__________________________
3. How would most governments respond to inflation with their fiscal policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
•increase tax rates - (i.e. income taxes on the
wealthy to decrease their ability to spend.)
• decrease gov’t spending - ( i.e. cut back on
funding to schools and infrastructure development.c) What type of budget would this be heading toward?
___________________surplus budget
4. How would the Bank of Canada respond to inflation with their monetary policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
d) ________________________________________________
__________________________________________________
c) ________________________________________________
__________________________________________________
• increase interest rates (make borrowing more
expensive - discourage spending.)
• sell government bonds on the open market (give
consumers the chance to invest rather than spend.)
• increase the reserve ratio at banks decreasing the
funds they have available for loans.
a tight money policy.
• use moral suasion to encourage the banks to use
unemployment
1. Define Unemployment:
___________________________________________________
2. What are the macro-economic signs of a declining/recessionary economy?
c)___________________________
production (GDP) downprices (CPI) falling
employment (LFS) fallingb)___________________________a)__________________________
_________________________•members of the labour force
currently without work but actively looking.
3. How would most governments respond to a recession with their fiscal policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
•decrease tax rates - (especially on low-income
earners as it will increase their ability to spend.)
• increase gov’t spending - (i.e.in areas such as
infrastructure development thus creating jobs.)c) What type of budget would this be heading toward?
___________________surplus deficit
4. How would the Bank of Canada respond to a recession with their monetary policies?
a) ________________________________________________
__________________________________________________
b) ________________________________________________
__________________________________________________
d) ________________________________________________
__________________________________________________
c) ________________________________________________
__________________________________________________
• decrease interest rates (make borrowing cheaper
- encourage spending.)
• buy government bonds on the open market (putting
money back in the hands of consumers to spend.)
• decrease the reserve ratio at banks (increasing the
funds they have available for loans.)
an easy money policy.
• use moral suasion to encourage the banks to use
types of inflation
demand-pullincreased demand drives prices up.
Fiscal policy?
Pros and cons?
cost-pusha general rise in price levels due to increased costs of wages and/or raw materials.
Fiscal Policy?
Pros and cons?
imported inflationinflation due to an increase in the price of imports.
Pros and cons?
Fiscal Policy?
stagflationinflation and rising unemployment occurring at the same time.
Fiscal Policy?
Pros and cons?
Types of unemployment
frictional
when workers are transitioning from one job to another - usually to improve their position.
Fiscal Policy?
Pros and cons?
structural
workers lack the skills to get a job in a technologically changing work place.
Pros and cons?
Fiscal Policy?
Cyclical
unemployment occurs due to the movement of the business cycle.
Pros and cons?
Fiscal Policy?
insurance induced
it’s simply too good not working - the government will look after you.
Pros and cons?
Fiscal Policy?
Youth
unemployment due to lack of experience.
Pros and cons?
Fiscal Policy?
other key terms and concepts
MPC
MPS
Stagflation
expansionary
contractionary
multiplier effect
economic indicators
leading/lagging/coincident indicators
recessionary/inflationary gap
paradox of thrift
debt/deficit
leakages/injections
automatic/discretionary
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