Question # 1

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 rise in planned investment spending unrelated to the interest rate causes teh equilibrium level of aggregate output to __________ at shifts the _____ curve to the _______

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rise ; LM ;right

rise ; IS ; right

Fall ; LM ; left

rise ;IS; right

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 framework an expansionary monetary policy causes aggregate output to _____________ and the interest rate to

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increase ; increase

Increase ; decrease

decrease ; decrease

decrease ; increase

Why do people keep currency in their pockets when bank deposits pay interest.

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Because banks might steal your money

Because currency is more liquid

Because bank deposits lose value due to inflation

Because bank deposits lose value due to exchange in interest rates.

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 fall and the IS curve to shift to the.

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up ; left

up ; right

down ; left

down ; right

The negative effect on the economy that occurs when average tax rates increases because taxpayers have moved into higher income brackets during an expansion is.

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Fiscal drag

The Laffer curve

Bracket creep

Debt burden

Factors that cause the IS curve to shift include.

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Changes in autonomous consumer spending

Changes in government spending

Changes in investment spending related to business confidence

All of the above

The use of money is more efficient than barter because the introduction of money

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Reduces the need for economic specialization

Reduces the need to exchange goods

Reduce the need for other stores of value

Reduces transaction costs

When the central Bank ________ the money supply the LM curve shifts to the _______ interest rates ____________ and equilibrium aggregate output.

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Increase ; right ; fall; increase

increases ; left ; rise ; decrease

decreases ; left ;rise ; increases

decreases ; left ; fall ; increases

The central bank and the government are working against each other if as the government cuts taxes the central bank

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Sells government bonds

Lowers the discount rate

Increase the money supply

Decrease the legal reserve requirements

What technical terminology do economists use to refer to how much the money will multiply as this process unfolds.

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The multiplier

The money multiplier

Required reserve ratio

Open market operations

The equilibrium level of income is.

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Rs. 360

Rs.600

Rs.440

Rs.500

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 situation in which the imports are greater than exports is termed as.

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Trade surplus

Trade deficit

Budget surplus

None

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

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

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

The money multiplier is 4, and the money creating potential of the banking system is Rs. 40,000,000. The legal reserve ratio and the excess reserves are.

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40 percent and Rs. 4,000,000

40 percent and Rs. 10,000,000

25 percent and Rs. 2.500,000

25 percent and Rs.10,000,000

When considering any kind of economics indicator, prices are important because.

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They reflect the value of goods and services.

They are established by the government to control population 's needs

They categorize goods and services by their weight

Historically they have proved to the good predictors of futures unemployment.

A Political problem with discretionary fiscal policy is the.

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Contractionary bias

Big state bias

Expansionary bias

Over reaction bias

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