Question # 1

Consider the five panels of the figure on the previous page in which panel would fiscal policy be the strongest.

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Panel b

Panel c

Panel a

Panel d

What happens to the money supply if the deficit is financed by selling bonds to the central bank.

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The money supply increases

The money supply decreases

The money supply is unaffected

We cannot tell what will happen to the money supply

The ratio of debt to GDP will be larger

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The lower the real interest rate

The lower the growth rate of output

The lower the in initial debt ratio

The lower the ratio of the primary deficit to GDP

A state of government bonds by the central bank should cause

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Bond prices to rise

an increase in the supply of money

An increase in chartered banks loans

A decrease in reserves of the banking system.

An increase in the rate of inflation which is not accompanied by any change in the volume of consumer goods sold will automatically increase the.

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Revenue from value added tax

Level of company profits

Level of unemployment

Average level of wages

If the Bank of Pakistan wished to pursue a tight monetary policy is would.

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Sell government securities on the open market.

Reduce the minimum reserve asset ratio

Buy government securities on the open market.

Lower interest rates

"The impact on this monetary aggregate of extensive finance innovation -the changes in the kinds of deposits and services offered by banks led the central bank to drop M1 as a n intermediate target with the changes in the way the public was holding payments balances the M1 aggregate no longer that the same reliable link to.

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Tax rates

The money supply

Aggregate demand

Government spending

The limit of an economy's total productive capacity at any given time is set by

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The amount of money in circulation

Business demand for goods and services

The level of government spending and taxation

the quantity and quality of its productive resources

If Federal reserve conducts open market sales, the money supply ___ shifting the LM curve to the_____

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decreases ; right

decreases ; left

Increases ; right

Increase ; left

When considering any kind of economics indicator, prices are important because.

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They reflect the value of goods and services.

They are established by the government to control population 's needs

They categorize goods and services by their weight

Historically they have proved to the good predictors of futures unemployment.

Believers in the monetarist rule assert that

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Lags are long and variable

the economy cna be stabilized by automatic mechanisms

The central bank should keep the money supply growth constant

All of the above

A decline in taxes __ consumer expenditure and shifts the _ curve shifts to the.

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Raises ; LM; Right

Lowers; IS ; left

raises ; IS; right

Lower ; LM; left

The contractionary effect on private investment spending due to financing requirements of government deficit pushing up interest rates is known by this term.

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Crowding out

Recognition lag

Public sector borrowing requirement

Fiscal drag

A shift in tastes loward foreign goods______ net exports and causes the quantity of aggregate output demanded to.

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decreases ; rise

decreases ; fall

increases ; rise

increases ; fall

In the Keynesian corss diagram, and cline in autonomous consumer expenditure causes the aggregate demand function to shift _____ the equilibrium level of aggregate output to fall, and the IS curve to shift to the.

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up ; left

up ; right

down ; left

down ; right

A decline in planned investment spending unrelated to the interest rate focuses the equilibrium level of aggregate output to ________ and shifts the _ curve to the _______

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rise; Lm ; RIGHT

RISE ; is; right

fall ; IS; Left

rise ; LM; left

Factor that cause the IS curve to shift include.

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Change in autocoups consumer spending

Change in taxes

Change in government spending

All of the above

If the Federal reserve conducts open market __ the money supply __ shifting LM curve to the left.

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Purchases ; decreases

sales ; decreases

purchases ; increases

sales ; increases

The purpose of fiscal policy is to

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Alter the direction of the economy

Change people's attitudes toward governemnt

Educate people as to the importance of economics

Offer insight into the way thing work

During the early years of the Great depression there was a significant decrees n the the money supply that causes. the ______ to shift____

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IS ; Leftward

IS ; rightwards

LM ; Leftward

LM ; rightward

In the Keynesian cross diagram, an increase in autonomous consumer function to shift _______ the equilibrium level of aggregate output to rise and the IS curve to shift to the.

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up ; left

up ; right

down ; left

down ; right

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