Question

Which one of the following statements is true?

Select one:

a. Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes.

b. According to Keynesians, fiscal policy is the first line of defense against economic downturns.

c. Advocates of sacrifice ration claim that a zero-inflation target imposes only small costs on society.

d. Sacrifice ration implies that a credible commitment to reducing inflation can lower the costs of disinflation by inducing a rapid adjustment of expectations

According to the crowding out effect, if there is a government deficit, the real interest rate will________ and investment will ________.

Select one:

a. fall; fall

b. rise; rise

c. fall; rise

d. rise; fall

The Law of one price states_______________.

Select one:

a. that under certain conditions, the exchange rates between two countries should be equal.

b. that under certain conditions, the domestic and foreign price of a tradable good should be equal.

c. that under certain conditions, the domestic and foreign price of a tradable good should be somewhat close.

d. that under certain conditions, the domestic and foreign price once converted with exchange rate should be equal.

When the general price level rises, ______.

Select one:

a. investment rises as a result of the multiplier effect

b. consumption increases as a result of the real wealth effect

c. consumption falls as a result of the real wealth effect

d. investment rises as a result of the real wealth effect

Assume that interest rates in South Africa decreases relative to those in the United States. Under a floating exchange-rate system, one would expect the South African Rand (relative to the US$) to__________.

Select one:

a. depreciate due to the increased demand for South African Rand

b. appreciate due to the increased demand for US$.

c. depreciate due to the increased demand for US $.

d. appreciate due to the increased demand for South African Rand

The main argument to justify policymakers should not try to stabilize the economy is _____________.

Select one:

a. monetary and fiscal policy actions put macroeconomic theory to its best use by leading to a more stable economy, which benefits everyone.

b. monetary and fiscal policy affects the economy with a lag and policy makers’ ability to forecast future economic conditions is poor.

c. All of the above

d. monetary and fiscal policy can never be used to stabilize the economy in theory as well as in practice.

Suppose the short-run Philips curve of Brazil is steeper than Argentina (i.e. the Philips curve of Argentina is flatter than Brazil). Which of the following statements is true?

Select one:

a. Argentina has suffered with higher rates of inflation, but enjoy with a relatively lower level of unemployment.

b. Argentina has suffered with higher rates of unemployment and enjoy with a relatively lower level of inflation.

c. Brazil has suffered with higher rates of inflation and also with higher level of unemployment

d. Brazil has suffered with higher rates of unemployment, but enjoy with a relatively better level of inflation.

Which one of the following statements is not true?

Select one:

a. To decrease the money supply, the Fed can conduct open-market sales

b. To decrease the money supply, the Fed can lower the required reserve ratio.

c. To increase the money supply, the Fed can conduct open-market purchases.

d. To decrease the money supply, the Fed can raise the interest rate paid on reserves

When money is used as a standard of value, a person is_____________.

Select one:

a. making a financial transaction

b. earning more money than before

c. making price comparisons among products

d. writing a check for groceries

Suppose most people had anticipated that inflation would be 3% in the coming year because the Fed would increase the money supply by 3%. Instead, the Fed increases the money supply by 5%. In the short run, this would cause actual output to be _____ full-employment output and prices to increase by _____ 3%.

Select one:

a. above; less than

b. above; more than

c. below; more than

d. below; less than

Which of the following is true for the J-curve effect? It:

Select one:

a. Applies to the interest rate effects of currency depreciation

b. Applies to the income effects of currency depreciation

c. Suggests that demand tends to be most elastic over the long run

d. Suggests that demand tends to be least elastic over the long run

A supply shock such as an increase in the price of imported oil would tend to_________.

Select one:

a. increase both equilibrium GDP and the price level.

b. increase unemployment while also raising the price level

c. generate unemployment but lower the price level.

d. reduce equilibrium GDP and the price level

Suppose the government increases expenditure by $ 9 billion to increase aggregate demand in the economy. If the spending multiplier is 3, what will be the total change in demand after the second change in consumption?

Select one:

a. $ 27 billion

b. $ 21 billion

c. $ 15 billion

d. $19 billion

Answer 1

1 - Option B

According to keysians , fiscal policy is the first line of defence against economic downturns.

He advocated the government spending increase to overcome economic downturns

2 - Option D

Rise , fall

In crowding out effect , the interest rates rise due to which the investment falls

3 - Option B

Under certain conditions , domestic and foreign price of a tradable good should be equal

4 - Option C

Consumption falls as a result of real wealth effect

The real wealth declines due to which consumption falls.

5 - Option C

Depreciate due to increased demand for US $