Q1. It is estimated that the recent global outbreak of Covid-19 has caused a downturn in global GDP by 2-3%. Suppose the Canadian government wants to use Fiscal and Monetary policy to stabilize the economy during the time of this outbreak. What actions should it take in terms of Fiscal Policy?

In terms of Monetary Policy?

Discuss how these policies work; include diagrams in your analysis. Mention some of the actual measures that have been taken by the Government so far

Q2 Suppose a country is facing an inflationary gap, and the Central wants to use monetary policy to stabilize the economy. What kind of policy should it follow? How will it impact bond prices, interest rates, investment, the exchange rate, net exports, real GDP, and the price level. Illustrate your analysis graphically with explanations.

a) What is natural rate of unemployment? When do we say an economy has full employment?

b) Identify what type of unemployment will result from the following scenarios

a. Jane has completed college and quit her job at Tim Horton so she can work full-time in her marketing field

b. The clothing store George used to work for was shut down as the clothing brand is now selling all its collection through its online website:

c. The business Hank was working for had to shut down as there has been a decrease in overall demand in the economy:

d. Talk about one policy that the government can use to reduce frictional unemployment

Q3 Assume that Canada is initially in long run equilibrium with price level of P1 and GDP of Y1. Discuss how each of the following four events would affect aggregate demand, the price level and real GDP of Canada

a. There is a sharp fall in Canada's exchange rate

d. A wave of pro-Canadian sentiment sweeps the U.S. and people in U.S. increase their consumption of Canadian goods

e. There is a recession in China, which is a large importer of Canadian agricultural goods

f. Due to a global health concern, there is a travel restriction of foreign travellers coming to Canada

Q4 What are the two types of challenges faced by the government when it comes to implementing a stabilization policy (fiscal and/or monetary)?

Q5 Explain the likely effects of a U.S. boom on the demand for Canadian exports. What would be the effect on Canadian aggregate demand? Suppose the Bank of Canada viewed its monetary policy as being appropriate for keeping GDP of Canada close to potential GDP. What would you then predict to be the Central Bank's response to the foreign boom in U.S.?