Question # 1

The purpose of financial intermediaries is.

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To allow more saving than investment

To discourage consumption spending

To collect income taxes for the government

To serve are middlemen between savers and borrowers.

A change in the money supply has a greater effect upon equilibrium income.

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The more interest sensitive private sector spending is.

The less interest sensitive private sector spending is.

The smaller the expenditure multiplier is

The more interest sensitive money holdings are to the rate of interest.

At any given level of the interest rate expectations are likely to be___________ optimistic and planned investment is likely to be ______ when _________ is growing rapidly than when it is growing slowly or falling.

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Less ; higher ; output.

more ; higher ; output

less ; lower ; unplanned investment

more ; lower ; unplanned investment

An expansionary monetary policy

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Reduces interest rates

Increases real output

Shifts the LM curve to the right

All of the above

Knowledge of the money supply can lead to good predications of nominal GDP only

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If the price level is stable

If the money supply is stable

Over very short periods of time

If the determinants of velocity are known

When a nations money supply is Rs.1200 billion and the nominal Gros National product is Rs.4800 billion the velocity of money is.

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0.25

4

0.4

Rs.4 billion

Consider the five panels of the figure on the previous page in which panel would the simultaneous imposition of restrictive monetary policy and expansionary fiscal policy cause the largest increase in interest rates.

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Panel a

Panel b

Panel c

Panel d

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

An increase in spending those results from expansionary _______ policy cause the interest rate to.

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fiscal ; rise

fiscal ; fall

incomes ; rise

income ; fall

Increases in government spending increase interest rates and aggregate output in the ISLM framework this is a ____ shift of the _____ curve.

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Left ward ; LM

Right ; LM

Left ward ; IS

Left ward ; AD

A sale of bonds by the central bank should cause.

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A fall in the interest rate

An increase in the money supply

A decrease in the reserves of the commercial banks

An increase in the commercial banks loans to the public

A bonds becomes a riskier asset the demand for money_______ and all else constant, the equilibrium interest rate

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Rises ; rises

rises ; falls

falls ; rises

falls ; falls

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

When a government prints money to finance its expenditures it is likely to cause

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Unemployment

Inflation

Deflation

Reductions in the use of barter

In the Keynesian cross diagram an increasing investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift _____ and the equilibrium level of aggregate output to.

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up ; rise

up ; fall

down ;rise

down ; fall

As a result of the increase in government expenditures disposable income increases by.

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Rs.10 billion

Rs.9 billion

Rs.20 billion

Rs.5 billion

Credit constitutes.

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Saving made available to borrowers

A form of liquid asset

bank loans converted into commodity money

Money used as a standard of deferred payment.

An example of discretionary fiscal policy would be.

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The operation of the welfare sate

The operation of the processive federal income tax

A tax cut adopted to stimulate consumption

An interest rate out in plummeted to stimulate consumption

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

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.

There are ______ methods of measuring GDP

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Three

Four

Five

None

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