41) Lack of evidence of a pattern of international consumption smoothing is best explained by

A) government policies to fight trade deficits.

B) failure of consumers in less advanced economies to act rational.

C) a tendency for business cycles to be a worldwide phenomenon.

D) Ricardian equivalence.

E) very different levels of aggregate economic activity.

42) Theory predicts that current account surpluses should be ________; the Canadian experience since 1961 suggests that current account surpluses have been ________.

A) procyclical; procyclical

B) procyclical; countercyclical

C) countercyclical; procyclical

D) countercyclical; countercyclical

E) countercyclical; acyclical

43) The behavior of the current account deficit and the government budget deficit in Canada in 1973-1975 and during the period of the early 1990s to 2002 is often referred to as the

A) interrelated deficits.

B) Reagan deficits.

C) twin deficits.

D) reverse deficits.

E) national deficits.

44) Absorption can be defined as

A) C + I + G.

B) I/GDP.

C) X – M.

D) GDP/NX.

E) the quantity of foreign produced goods absorbed through domestic spending.

45) Absorption refers to

A) the quantity of imports that is absorbed into the domestic economy.

B) the amount of government spending that is absorbed into the domestic economy.

C) the amount of transfer payments from the federal government that is absorbed into the domestic economy.

D) the quantity of aggregate output that is absorbed into the domestic economy.

E) the amount of current period income that is used to purchase domestic aggregate output.

46) In a two-good, two-period model with trade, an increase in the world real interest rate

A) increases domestic output and increases the current account surplus.

B) increases domestic output and decreases the current account surplus.

C) decreases domestic output and increases the current account surplus.

D) decreases domestic output and decreases the current account surplus.

E) increase aggregate consumption and have no effect on the current account surplus.

47) In a two-good, two-period model with trade, a negative total factor productivity shock abroad

A) increases foreign output and increases domestic output.

B) decreases foreign output and decreases domestic output.

C) increases foreign output and decreases domestic output.

D) decreases foreign output and increases domestic output.

E) decreases foreign output and leaves domestic output unchanged.

48) In a two-good, two-period model with trade, an increase in domestic government spending

A) increases domestic output and increases the current account surplus.

B) increases domestic output and decreases the current account surplus.

C) decreases domestic output and increases the current account surplus.

D) decreases domestic output and decreases the current account surplus.

E) increases domestic output with no change in the current account surplus.

49) In a two-good, two-period model, the government expenditure multiplier

A) is larger in an open economy because net exports fall.

B) is larger in an open economy because net exports are unaffected.

C) is smaller in an open economy because net exports fall.

D) is smaller in an open economy because net exports increase.

E) is larger in an open economy because net exports increase.

50) An increase in total factor productivity in a closed economy

A) increases labour demand, increases the real wage, increases output and decreases the real interest rate.

B) increases labour demand, increases the real wage, increases output and increases the real interest rate.

C) increases labour demand, decreases the real wage, decreases output and increases the real interest rate.

D) increases labour demand, decreases the real wage, decreases output and decreases the real interest rate.

E) decreases labour demand, increases the real wage, increases output and decreases the real interest rate.