1. Despite the fact the fiscal policy is not effective when dealing with recessi
ID: 1116218 • Letter: 1
Question
1. Despite the fact the fiscal policy is not effective when dealing with recession, Canadian government conducted an expansionary fiscal policy in response to the 2008-2009 financial crisis and recession. What might explain best the rationale for this policy?
A) The muted response proved politically unpopular, and it was increasingly apparent that the recession was worldwide in scope, requiring a coordinated response internationally.
B) No other countries conducted an expansionary fiscal policy, so Canada had to do it
C) Canada had a budget surplus and could afford to conduct an aggressive expansionary policy.
D) Since the US did not conduct an expansionary fiscal policy, Canada had to do it.
2. Which one of the following describes Keynesians' rationale for the positively sloped SRAS?
A) Workers prefer longer term contracts because of job security.
B) There is misperception about the relative price levels.
C) Nominal wages are fixed for the term of labour contracts, but price level changes, leading to a change in real wages and output.
D) Demand for labour increases as prices and therefore profits increase.
3. The Keynesian theory of nominal wage rigidity predicts that
A) The real wage is procyclical.
B) the real wage is constant.
C) the real wage is acyclical.
D)the real wage is countercyclical.
Explanation / Answer
1. The right answer is option C. Canada had a budget surplus and could afford to conduct an aggressive expansionary policy.
Explanation: Between 1997-2008, Canada experienced budget surplus, which enabled it to spend more on the economy to combat recession.
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