Question

In general, people hold cash for all of the following reasons EXCEPT a. To meet unforeseen emergencies b. As a store of wealth c. To make purchases d. To maximize interest earned

2. Which of the following best represents the classical / monetarist view on money? a. Money has no effect on GDP or employment b. Money affects the allocation of resources in the economy c. Money has a strong effect on GDP d. Money has no effect on price levels

3. Countercyclical government policy involves a. High expenditures and high taxation during recessions b. High expenditures and low taxation during recessions c. Low expenditures and high taxation during recessions d. Low expenditures and low taxation during recessions

4. When the interest rate rises, the rental price of capital a. Rises, and so investment rises b. Rises, and so investment falls c. Falls, and so investment rises d. Falls, and so investment falls

5. The federal government raises most of its revenues from a. Sales taxes and property taxes b. Income taxes and payroll taxes c. Excise taxes and wealth taxes d. Corporate taxes and estate taxes

Answer 1

The correct answer is d. To maximize interest earned.

Because people hold cash for three reasons 1. Transaction motive = Money need to buy goods and services.2. precautionary motive = money needed for unforseen emergency condition like sickness, demise etc. 3. Speculative motive = when people hold money and wealth rather than buy bonds and securities.

So cash doesn't hold to earn interest.

3. The correct answer is b. High expenditure and low taxation during recession.

Because to curb the recession in the economy government uses expansionary Fiscal policy, in which government increase it's spending and decrease in tax rate.

4. The correct answer is b. Rises and so investment falls.

Because when interest rate rises the cost of credit/loan increases due to which the investment falls.

5. The correct answer is b. Income tax and payroll tax