If Canada is able to import a product that is produced more efficiently in a foreign country, do all Canadians benefit? Explain your response. (

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

 1) (a) If Canada is able to import a product that is produced more efficiently in a foreign country, do all Canadians benefit? Explain your response. (15 marks) 

 

 

(b) Using a diagram to assist in your explanation, indicate the difference between Canada’s imposing (a) a tariff or (b) a quota on an imported product. Which would be preferred by (a) the importing nation and (b) the exporting nation—and why? (10 marks) 

 

 

 

2) With the aid of a properly-labeled diagram, explain what adjustment would automatically take place if total planned spending (C+I) in Economia (a closed economy with no government) intersected the 45º line at a national income of $600 billion, but the economy temporarily found itself with national income of $615 billion. (20 marks) 

 

 

 

3) In the remote island of Monovia, with 20 million citizens, the nation’s government wants to combat record high unemployment through a spending program aimed at updating the country’s roads and bridges. The intention is to raise the current GDP of $900 billion to $960 billion—the target level deemed to be consistent with the desired lower rate of unemployment. 

 

(a) Given a consumption function of C=4/5Y+10 (and assuming no change in the price level), how much will the program cost the government treasury? Show the steps taken to arrive at your answer. (15 marks) 

 

 

(b) If the opposition party urges instead that the target GDP be reached by issuing a tax refund to each citizen, how much of a refund would each citizen receive? Show the steps taken to arrive at your answer. (15 marks) 

 

 

4. a)  What is the difference between the short-run AS curve and the long-run AS curve?  Define each and explain the underlying assumptions. What would cause each to shift either to the right or left? (15 marks)

 

b)  What does the concept “sticky wages” refer to?  Explain its implications within the AD/AS model. (5 marks)

 

 

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