Question

1. If taxes

A. increase, consumption increases, aggregate demand shifts right

B. increase, consumption decreases, aggregate demand shifts left

C. decrease, consumption increases, aggregate demand shifts left

D. decrease, consumption decreases, aggregate demand shifts right

2. When the interest rate increases, the opportunity cost of holding money

A. increases, so the quantity of money demanded increases.

B. increases, so the quantity of money demanded decreases.

C. decreases, so the quantity of money demanded increases.

D. decreases, so the quantity of money demanded decreases.

3. How does the Quantity Theory of Money help us understand the limitations of the Federal Reserve’s power to control economic growth?

a. The velocity of money does not adjust to monetary policy.

b. Increases in the money supply result in increases in output in the long run.

c. Increases in the money supply result in increases in velocity in the long run.

d. Increases in the money supply result in price increases in the long run.

4. Gift cards are a part of:

a. The monetary base.

b. M1.

c. M2.

d. M1 and M2.

e. None of the above.

5. The economy will move to a point on the Phillips curve where unemployment is higher if,

A. the inflation rate increases

B. the government increases its expenditure

C. the Fed decreases the money supply

D. none of above are correct

6. In the long run, which of the following would shift the long run Phillips curve to the right

A. an increase in minimum wage

B. an increase in the money supply

C. an decrease in the money market supply

D. tax cuts

Answer 1

Q1 Option B is correct that is increase, consumption decrease and AD shifts to left

If taxes increases then personal disposable income decreases as a result consumption decreases

As consumption decreases the aggregate demand also decreases and shifts to left .

Q2 option B is correct that is opportunity cost of holding money increases and quantity demanded of money be decrease

As rate of interest increases , people will hold less money in hands so opportunity cost of holding money will increase and as there is inverse relationship between interest and quantity demanded of money

So quantity demanded will decrease

Q3 option D is correct that is increase in money supply result in increase in price in the long run

As money supply increases in the long run , demand also increase more then supply this inflation in the economy

Q4 option A is correct that is monetary base

As gift cards are not consider a part of money suppy measure but they are a form of money asthey can be used for exchange ,store of value and unit of vale

Q5 option c that is fed decreases the money supply

As when decrease in money supply there is less interest rate and unemployment will increase

Q6 option A that is increase in minimum wage rate

As when min. Wage rate increases then supply of labour will increase but producers will demand less labour due to high costs thus unemployment will reduce and Philips curve will shift to right in long run