Thursday 15 September 2011

How to solve these questions?

1.Which of the following will reduce the velocity of circulation of the money stock?



a. The inflation rate increases.

b. The interest rate falls.

c. Credit cards are used more frequently.

d. More employees are paid once a week instead of once a month.



2. The inflation rate in May of 1999 as a measure by the CPI was zero. If inflation were to remain at zero for a long period, what would be the effect on velocity?



a. It will decrease.

b. It will increase.

c. It will remain constant.

d. Velocity is unrelated to interest rates.



3. As we approached the end of the millennium, many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters. What effect would this have had on velocity if many people had been foolish enough to follow this advice?



a. It would have decreased.

b. It would have increased.

c. It would have remained constant.

d. Velocity is unrelated to cash balances.



4. Monetarism resembles Keynesian thinking in that they both



a. emphasize supply and ignore demand.

b. integrate supply-side analysis into their models.

c. emphasize demand side effects.

d. emphasize the importance of fiscal policy.



5. Which of the following leads to a fundamental difficulty for stabilization policy?



a. Time lags in policy decisions

b. Presence of shock absorbers in the economy

c. Absence of data on the effectiveness of policy measures

d. Existence of self correcting mechanism

6. How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?



a. The changes make the economy smoother, although it may not look that way to individual firms.

b. The changes make life more difficult and hectic for Congress and the Fed.

c. The changes smooth out the business cycle, making planning easier.

d. The changes cause more instability in the economy and make planning more difficult.



7. How do advocates of discretionary stabilization policy view frequent changes in spending and tax policy?



a. The changes make the economy more difficult to forecast.

b. The changes make life more difficult and hectic for Congress and the Fed.

c. The changes smooth out the business cycle, making planning easier.

d. The changes cause more instability in the economy and make planning more difficult.



8. Suppose that the economy is currently at full employment. All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to



a. increase taxes.

b. reduce government spending.

c. balance the budget.

d. increase a budget deficit.

9. Lowering the budget deficit and then turning it into a surplus between 1992 and 2000 was an effective way to



a. decrease the level of investment spending and inflation.

b. increase the level of the national debt.

c. increase the investment share of GDP.

d. decrease the tax share of GDP

10.If in fiscal year 2001, the federal government receives $1,990 billion in revenues and spends $1,875 billion for goods and services, the national debt will



a. increase by $1,990 billion.

b. increase by $115 billion.

c. decrease by $115 billion.

d. decrease by $1,875 billion.
How to solve these questions?
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