Question # 1

The parable of Riding a Switchback suggests that stabilizing policy.

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Is not sufficiently stimulating or contra citing the economy at any time

Is desirable

Is effective

Is stimulating or contracting the economy at the wrong times.

A 15% VAT is a.

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Proportional income tax

Fixed excise duty

Ad valorem indirect tax

None of the above

A shift in tastes loward foreign goods______ net exports and causes the quantity of aggregate output demanded to.

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decreases ; rise

decreases ; fall

increases ; rise

increases ; fall

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

Suppose a new law imposes a tax on all trades of bonds and stock What is the likely effect on money demand.

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Money demand declines first then rises when inflation increases

Money demand rises

The overall effect is ambiguous

Money demand declines

Short run contractionary Fiscal policy would result in.

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Aggregate demand moving to the right

Aggregate supply moving to the right

Aggregate demand moving to the left

Aggregate supply moving to the left

A decrease in fully autonomous investment other things equal shifts the ______ curve to the

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IS ; right

IS ; Left

LM ; Left

LM ; right

If the State bank of Pakistan wished to pursue a light monetary policy it would.

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Lower the required reserve ratio and the statutory liquidity ratio.

Lower interest rates

Buy government securities on the open market

Sell government securities on the open market

According to classical models, the level of employment is determined primarily by

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The level of aggregate demand for goods and services

Prices and wages

Government taxation

Government spending

Given fixed exchange rates assume Pakistan initiates contractionary monetary ad fiscal policies to combat inflation. these policies will also.

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Reduce a balance of payments surplus

Reduce a balance of payments deficit

Increases both imports and exports

Decrease both imports and exports

By controlling the monetary base economists mean

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Controlling the money multiplier

Restricting the amount of cash in circulation

Not allowing commercial banks to issue notes and coins

making banks keep a certain % of their assets as M0

Net taxes are.

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Government expenditures minus government revenues.

Taxes paid by firms and households to the government minus the transfer payments made to firms and household.

Taxes paid by firms and household to the government plus transfer payments made to firms and hose holds.

Taxes paid by firms and hose hold to the government minus the cost of collecting the taxes.

The near term effect of an unexpected sale of bonds by the central bank is.

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An increase in interest rates, a risen investment and a rise in GDP

An increase in interest rates a drop in investment and a drop in GDP

A decrease in interest rtes a rise in investment and a rise in GDP

A decrease in interesr rates a drop in investment and a drop in GDP

In the ISLM frame work a contractionary fiscal policy causes aggregate output to ___________ and the interest rate to

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Increase ; increase

Increase ; decrease

decrees ; decrease

decrease ;Increase

Equilibrium in the money markets can be expressed by the equation i = 9k/h) Y -M/h. The slope of LM decrease when

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k increases and h increase

k increases and h decrease

k decrease and h increase

k decrease and h decrease

Under a fixed exchange rate system an expansionary fiscal policy leads to a

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Trade account deficit and a capital account surplus.

Trade account deficit and a capital account deficit

Trade account surplus and a capital account surplus

Trade account surplus and a capital accoundt deficit

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

Weighted monetary aggregates

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Ignore the fact that some assets are more money like than others.

Are constructed by simply adding up the outstanding amounts of various types of asssets

Give greater weight to currency than to savings deposits

Value coins more than currency.

The limit of an economy's total productive capacity at any given time is set by

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The amount of money in circulation

Business demand for goods and services

The level of government spending and taxation

the quantity and quality of its productive resources

During periods of negative demand shocks deficit target reductions such as those mandated in the Gramm Rudman Hollings Act would tend to.

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Stimulate the economy and increase empolyment.

Result in additional recessionary declines in employment and income

Stimulator defiance spending

Have an automatic stabilizing impact upon the economy

Which of the followig does not shift the IS curve .

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An increases in autonomous consumption

An increase in government spending.

A decline in government spending

A fall in theinterest rate

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