Question

True, False, or Uncertain [48 marks - 6 marks each]

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

A4-5. 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.

A4-6. A decrease in posted (nominal) interest rates necessarily means a decrease in real interest rates.
A4-7. 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.

A4-8. 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. Infact public good will lead to benefits net of sacrifices. Even otherwise such expenditure raises demand by full amount and leds to multiplier effect. The benefits are more than costs in case of public goods

6 false. because inflation may fall more than nominal interest rate so that real interest rate rises or remains same

7 false. it appreciated since less units of Canadian dollars are now exchanged for 1 unit of American dollar

8 true because now he will be included in labour force. He is now unemployed and looking for jobs. Unemployed people rise by 1 and thus unemployment rises and unemployment problems becomes worse. Earlier unemployment was 2/10.while as now it is 3/11.the latter is larger