23. All of the following, except one, are reasons why some economists favour fix
ID: 2441395 • Letter: 2
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23. All of the following, except one, are reasons why some economists favour fixing the Canadian exchange rate to the U.S. dollar. Which is the exception? A) Monetary independence in Canada is overrated in that Canada almost always follows U.S. policy anyway B) Investment in Canada would be stabilized and encouraged. C) The U.S. economy is more stable than the Canadian economy. D) The brain-drain of Canadian talent to the U.S. would be reduced. 24. "A fixed exchange rate implies a fixed which results in monetary policy being A) B) " (Fill in the blanks) Price level; very effective. Price level; ineffective. C) D) Interest rate; very effective. Interest rate; ineffective. 25. All of the following statements about deflation, except one, are true. Which is the exception? A) It is characterized by interest rates at zero or near zero. B) Apart from one year, it has not occurred in Canada since the Great Depression. C) It means that a return on idle money is possible. D) It encourages consumers to postpone major purchases. E) It encourages large-scale investment in the economy. 26. Keynes did not agree with neoclassical theory about prices and wages being flexible, nor did he believe that their adjustment would guarantee full employment. Why is this? A) Because monopolistic forces in the economy cause wages and prices to be B) Because it is adjustments in the interest rate that will guarantee full employment. C) Because in modern capitalism there is too much competition to permit price-wage D) Because wage receivers and price setters belong to different groups who have inflexible and lower wages will result in decreased spending. flexibility different objectives.Explanation / Answer
23. Economists are in favour of the fixation of canadian exchange rate to the US dollar because of the various reasons that are monetary independence in canada is overrated in that canada almost always follows U.S. policy anyway, investment in canada would be stabilized and encouraged, U.S. economy is more stable than the canadian economy. These all are the reasons of economists in favour of fixation of canadian exchange rate.
Therefore, option d that is the brain drain of the canadian talent to the U.S. would be reduced is correct and the exception to the reason of fixation of canadian exchange rate.
24. "A Fixed exchange rate implies a fixed price level which results in monetary policy being ineffective". Exchange rate is the ratio of price of home country currency to the price of foreign country currency, thus fixed exchange rate means price level is fixed and thereby ineffective monetary policy.
Hence, option b is correct.
25. Deflation is the fall in the price level. It encourages consumers to postpone major purchases, encourages large scale investment in the economy, characterized by interest rates at zero or near zero, apart from one year it has not occurred in canada since the great depression.
Hence, option c is correct that is it is not true that a return on idle money is possible.
26. Keynes did not agree with neoclassical theory about prices and wages being flexible, nor did he beleive that their adjustment guarantee full employment. This is because it is the adjustments in the interest rate that guarantee full employment by change in effective demand through changes in the monetary or fiscal policy.
Hence, option b is correct.
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