Question

26) Which of the following is NOT true about the multiplier effect?

A) it mainly influences the economy in the short-run

B) it dominates the crowd-out effect in the long run

C) it dominates the crowd-out effect in the short run

D) it raises the effect of fiscal policies in the short run

27) The quantity theory of money implies that the price level remains stable when the growth rate of the money supply equals

A) 0

B) the growth rate of the price level

C) the growth rate of the velocity of money

D) the growth rate of real GDP

28) Which of the following is the most crucial feature that a money must have, to be used in transactions ?

A) it needs to be issued by the central bank of a country

B) it must be authorized by the central bank of a country

C) it needs to be backed by the central bank of a country

D) it must be trusted and accepted by many individuals

Answer 1

26) b) dominates the crowd out effect in the long-run

27.a) 0

The QTM theory states that there is a direct relationship between the price level and the quantity of money in an economy. So, according to this theory if the money supply in the economy doubles, the price level also doubles.Thus, a stable price level could be achieved if the money supply does not grow.

28. d) it must be trusted and accepted by many individuals.

(Even if all the other conditions mentioned here are satisfied but people are not willing to accept it, then money cannot be used for transaction purposes.)