Question

1. Periods of inflation are generally characterized by a decline in

1. The price level.
2. Total intended spending.
3. Nominal GDP.
4. The supply of money.
5. The value of money.

2. In a Keynesian model, a decrease in the money supply

1. Shifts the investment function upward.
2. Shifts the C + I + G + (EX – IM) line downward.
3. Causes interest rates to fall.
4. Leads to an increase in the GDP.
5. Has no effect on the level of economic activity.

3. The difference between the budget deficit and the national debt is that the deficit is

1. The difference between expenditures and revenues; the debt, the total amount owed by the government.
2. Financed by borrowing; the debt by selling bonds.
3. A long-term concept; the debt, a short-term concept.
4. The difference between the size of the debt and the amount of government revenues in a given year.
5. The estimate revenue shortfall; the debt is the actual revenue shortfall.

4. An excess of government revenues over expenditures

1. Causes the national debt to grow larger.
2. Has been the norm in the United States economy since 1980.
3. Leads to a decline in national saving.
4. Is called a budget surplus.
5. Is most appropriate during a severe recession.

Answer 1

1) option E)

Inflation is rise in Price level ( or spending by people )

As P = 1/ value of money

So, value of money falls in inflation

2) option A)

As M falls, Interest rate will rise , c is false

So GDP will fall, d is false , & so e is false, as economic activity is affected

As I = I° - bi

I° : AUTONOMOUS INVESTMENT

AS i rises, I will fall, so investment function shifts upwards , at every i, I falls

3).option A)

deficit = expenditure - revenue

& Debt is accumulated deficit in economy

Debt is long run concept , C is false

4) option D) budget surplus

As revenue > expenditure

So it is budget surplus

So national debt will fall, a is false

& National saving will rise, c is false

During recession, G should rise ( govt expenditure should rise ), e is false