You are the new Policy Advisor to the Minister of Finance in the Northwest Territories. The Minister has told you that the Government of Canada is imposing a counter cyclical approach to balance a recessionary gap with federal spending. She is unsure what this means and what the implications are to the Northwest Territories.

Required:

a.Explain to the Minister what a counter cyclical fiscal policy approach means. (5 marks)

b.Identify the two tools the government of Canada has at their disposal to narrow a recessionary gap. (2 marks)

c.Explain what the government can do to reduce a recessionary gap, given the two tools above. (2 marks)

d.The Minister LOVES graphs. Draw a graph illustrating a recessionary gap and show on the graph what the government can change to reduce the gap. Explain the effect this change will have on aggregate supply, aggregate demand and GDP.(4 marks)

e.Identify two benefits to society that will result if this policy approach is successful? (2 marks)