Assume the Canadian economy is currently in recession and the government budget is in deficit. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves for the Canadian economy. Label the current short-run equilibrium as point X. (b) Assume the government increases its deficit spending to restore full employment. What effect will this have on real interest rates in Canada? Explain. (c) Based on your answer to part (b), what will happen to financial capital flows to Canada?

Assume the Canadian economy is currently in recession and the government budget is in deficit. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves for the Canadian economy. Label the current short-run equilibrium as point X. (b) Assume the government increases its deficit spending to restore full employment. What effect will this have on real interest rates in Canada? Explain. (c) Based on your answer to part (b), what will happen to financial capital flows to Canada?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles

Section: Chapter Questions

Problem 19E

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