Question

1.High interest rates might………….purchasing a house or a car but at the same time high interest rate might ……………….saving.

A)  discourage; encourage

B)  discourage; discourage

C) encourage; encourage

D)  encourage; discourage

2.An increase in interest rates might ………..saving because more can be earned in interest

income.

A) encourage

B) discourage

C) disallow

D) invalidate

3.   Everything else held constant, an increase in interest rates on student loans ………………..

A)  increases the cost of a college education.

B)  reduces the cost of a college education.

C) has no effect on educational costs.

D)  increases costs for students with no loans.

4. Money is defined as ….

A) bills of exchange.

B) anything that is generally accepted in payment for goods and services or in the repayment

of debt.

C) a risk-free repository of spending power.

D) the unrecognized liability of governments.

5. The upward and downward movement of aggregate output produced in the economy is

referred to as the…………

  .

A) roller coaster

B) see saw

C) business cycle

D) shock wave

6. Sustained downward movements in the business cycle are referred to as ………………

A)  inflation.

B)  recessions.

C) economic recoveries.

D)  expansions.

7. During a recession, output declines resulting in ………..

A)  lower unemployment in the economy.

B)  higher unemployment in the economy.

C) no impact on the unemployment in the economy.

D)  higher wages for the workers.

8. Prior to all recessions since 1900, there has been a drop in ……………

A)  inflation.

B)  the money stock.

C) the growth rate of the money stock.

D)  interest rates.

9. Evidence from business cycle fluctuations in the United States indicates that

A)  a negative relationship between money growth and general economic activity exists.

B)  recessions have been preceded by declines in share prices on the stock exchange.

C) recessions have been preceded by dollar depreciation.

D)  recessions have been preceded by a decline in the growth rate of money.

10…………….. theory relates changes in the quantity of money to changes in aggregate economic activity and the price level.

A)  Monetary

B)  Fiscal

C) Financial

D)  Systemic

11. A sharp increase in the growth of the money supply is likely followed by …….

A)  a recession.

B)  a depression.

C) an increase in the inflation rate.

D)  no change in the economy.

12. Which of the following is a true statement?

A) Money or the money supply is defined as Federal Reserve notes.

B) The average price of goods and services in an economy is called the aggregate price level.

C) The inflation rate is measured as the rate of change in the federal government budget

deficit.

D) The aggregate price level is measured as the rate of change in the inflation rate.

13. Complete Milton Friedmanʹs famous statement, ʺInflation is always and everywhere a ………….phenomenon.ʺ

A) recessionary

B) discretionary

C) repressionary

D) monetary

14. There is a ……………..association between inflation and the growth rate of money………….  

A) positive; demand

B) positive; supply

C) negative; demand

D) negative; supply

15. Policy involves decisions about government spending and taxation.

A) Monetary

B) Fiscal

C) Financial

D) Systemic

16. When tax revenues are greater than government expenditures, the government has a budget ………

A) crisis

B) deficit

C) surplus

D) revision

17. A budget ……………. occurs when government expenditures exceed tax revenues for a

particular time period.

A) deficit

B) surplus

C) surge

D) surfeit

18. Budget deficits are important because deficits …………….

A) cause bank failures.

B) always cause interest rates to fall.

C) can result in higher rates of monetary growth.

D) always cause prices to fall.

Short Answer Questions:

19. What happens to economic growth and unemployment during a business cycle recession?

20. What is the relationship between the money growth rate and a business cycle recession?

Answer 1

Here,

Answering the first 4 questions:

Q1)

High interest rate increaes the cost of owning/ purchasing a house and hence discourage someone to buy it but at the same it increaes return on money saved.

Hence it dicourages purchase and encourages savings

Q2)

A mentioned above increase in interest rate increaes saving due to better returns from interest income.

So it encourages

Q3)

As interest rates on education loan increases it directly leads to higher cost for the student taking it and hence increases the cost of a college education

Q4)

Money is a bill of exchange. It can be used as a bill of exchange against all tranactions