Question # 1

If the nominal money supply doubles while real money demand is unchanged what happens to the price level.

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The price level increases by a factor of four

The price level doubles

The price level is unchanged

The price level falls by one half.

Those who favor setting the target rate of inflation at about 3% believe.

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The cost of moderate inflation can be minimized by indexing the tax system and bonds

that the cost of going to 0% is very low

That moderate inflation increases money illusion

Believe that moderate inflation aggravates the time inconsistency problem

An increase in the quantity of money supplied shifts the money supply curve to the_______ and the equilibrium interest rate

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right ; falls

right ; rises

left ; falls

left ; rises

According to the supply side model a reduction in the tax rate.

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Could reduce the size of any budget deficit

Would have no effect on output

Would have no effect on consumption

None of the above

Which of the following causes M1 demand to decrease.

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A fall in the tax rate

An increase in income

A fall in the interest rate

An increase in the use of credit cards

Which of the following measures is the best measure of money as a medium of exchange.

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M1

M2

M3

None of the above

An item designed as money that is intrinsically worthless could the.

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A currency note

A silver coin

A barter item

Any tradeable commodity

In the ISLM frame work an expansionary fiscal policy causes aggregate output to _________ and the interest rate to.

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increases ; increase

increases ; decrease

decreases ; decreases

decreases ; increses

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to __________ at any given interest rate and shifts the _______ curve to the __________

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rise ; LM ;right

rise ; IS ; right

Fall ; LM ; left

rise ;IS; Left

What's the most common way for a central bank to reduce the money supply.

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Collect higher taxes

Sell bonds to the public

Buy bounds from the government

Buy bonds from the public

An increase in money _______ shifts the LM curve to the _____ causing the interest rate to fall and output to rise

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demand ; right

demand ; left

supply ; right

supply ; left

The equilibrium level of saving is.

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Rs.120

Rs.75

Rs.40

Rs.80

in The Liquidity trap region

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Fiscal policy is not effective

Monetary policy is completely ineffective

Monetary policy is completely effective

Fiscal policy and monetary policy are equally effective

Monetary policy can affect output.

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this statement is always true

This statements always false

This statement is true only in the short run

This statement is true only in the medium run and the long run

In an economy experience high interest rates and high unemployment The ISLM frame work predicts that _________ policy has been too.

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fiscal ; expansionary

fiscal ; contractionary

monetary ; expansionary

monetary ; contractionary

You move some of your savings account balance into your checking account.

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M2 falls and M1 rises

M1 falls and M2 rises

M1 and M2 are unchanged

M1 rises and M2 remains unchanged

Believers in the monetarist rule assert that

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Lags are long and variable

the economy cna be stabilized by automatic mechanisms

The central bank should keep the money supply growth constant

All of the above

Total utility of a commodity is measured by which price of that commodity.

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Value in use.

Value in exchange

Both of above

None of above

The equilibrium level of income is.

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Rs. 360

Rs.600

Rs.440

Rs.500

in the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift _____the equilibrium level of aggregate output to ______l and the IS curve Curve to shift to the.

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rise ; left

rise ; right

fall ; left

fall ; right

The IS curve shifts to the left when

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Taxes increase

Government spending increase

The money supply increases

All of the above occur

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