Question

Q.1 Assume that the central bank implements monetary expansion that is fully anticipated by financial markets. This fully anticipated monetary expansion will cause which of the following to occur?

Select one:

a. An ambiguous effect on stock prices.

b. Stock prices to rise.

c. Stock prices to remain unchanged.

d. Stock prices to fall and the interest rate to rise.

e. Stock prices to fall.

Q.2 Assume that political business cycles do not exist. Given this assumption, we would expect, all else fixed, the output growth to be highest in which period?

Select one:

a. Just after an election.

b. Just prior to an election.

c. In the second year of a government.

d. In the first year of a government.

e. None of the above.

Q.3. The average ratio of exports to GDP for Australia during 2000-2011 is equal to:

Select one:

a. 11%.

b. 21%.

c. 5%.

d. 25%.

e. 20%.

Answer 1

Q1) If the monetary policy is fully anticipated than the stock market is already taking the effects of the policy into account and until the monetary policy is surprising, there will be no effect on the stock market. Thus, the answer is (c)  Stock prices to remain unchanged. Other options are incorrect as they show an effect in prices

Q2) Since there are no political business cycles, there is no reason to believe that output will be higher in some year of government or around the election. Thus, the answer is (e) None of the above. Other options are incorrect as we can no say when the output growth is maximum

Q3) Using the World Bank data, it is clear that the average ratio of exports to GDP for Australia during 2000-2011 is equal to 20.1% = 20% (e)

Other options show a different average and are hence incorrect.