Question

1. ________ fiscal and monetary policy will make AD shift to the left A. contractionary B....

1. ________ fiscal and monetary policy will make AD shift to the left

A. contractionary

B. expansioanry

C. expansioanry and contractionary

D. None of the other alternatives are correct

2. If banks keep excess reserve that will _____ the money multiplier

A. reduce

B. expand

C. higher

D. None of the other alternatives are correct

3. Demand lead recessions shift AD ____ and the economy shifts to a ______ run equilibrium

A. left, short

B. right, long

C. left, full employment

D. None of the other alternatives are correct

4. Savings and Investment belong to the _____ economy

A. real

B. nominal

C. financial

D. None of the other alternatives are correct

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Answer #1

1. Contractionary fiscal and monetary policy will make AD shift to the left. When government adopts a contractionary policy, the aggregate demand falls and income is reduced.

2. If banks keep excess reserve, that will reduces the money multiplier.

Money multiplier = 1/ reserve ratio

When banks increase excess reserve, reserve ratio increases leading to a fall in money multiplier.

3. Demand lead recessions shift AD left and the economy shifts to a short run equilibrium. AD shifts to the left when there is a fall in demand leading to recession. The economy moves from the long run equilibrium to a short run equilibrium.

4. Financial economy

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