Question # 1

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 decrease iin money demand other thing equal shifts the _____ curve to the

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IS ; right

Is ; Left

LM ; Left

LM ; Rfight

As the interest sensitivity of investment spending increase.

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Monetary policy has a larger effect on output

Fiscal policy has a larger effect on output

The multiplier increases

All of the above

Suppose velocity is constant and the real income elasticity of the demand for money is less than one then estimating inflation as money growth rate minus real growth rate.

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Overestimates inflation

Underestimates inflation

Is an erratic estimate of inflation

Remain an accurate estimate of inflation.

A checking deposit held at a commercial bank is considered ______ of that bank.

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An asset

Net worth

a liability

Capital

According to the supply side model a reduction in the tax rate.

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Could reduce the size of any budget deficit

Would have no effect on output

Would have no effect on consumption

None of the above

Weighted monetary aggregates

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Ignore the fact that some assets are more money like than others.

Are constructed by simply adding up the outstanding amounts of various types of asssets

Give greater weight to currency than to savings deposits

Value coins more than currency.

The government performs its redistribution function mainly through.

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Trade practice legislation against anticipative behavior

The provision of public goods

Taxes and transfer payments

Tariffs on imports

Which of the following measures is the best measure of money as a medium of exchange.

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M1

M2

M3

None of the above

An expansionary monetary policy

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Reduces interest rates

Increases real output

Shifts the LM curve to the right

All of the above

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

A Political problem with discretionary fiscal policy is the.

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Contractionary bias

Big state bias

Expansionary bias

Over reaction bias

Over time the wealth of society increases and payments technologies get more efficient What is the effect on money demand of these two changes.

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Money demand rises proportionately to the rise in wealth.

Money demand rises, but less than proportionately to the rise in wealth.

The overall effect in ambiguous

Money demand declines

In the Keynesian cross diagram, an expenditure causes the aggregate demand function to shift _________ and the equilibrium level of aggregate output to.

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up ; rise

up ; fall

down ; rise

down ; fall

Per Capita income is obtained by dividing National income by

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Total labor Force in the country

Unemployed Youth in the country

Total population of that country

None

The rate of which central bank lends to commercial banks is known as

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reserve rate

Discount rate

Open market operation

None

Which of the following would qualify as an aggregate demand shocks.

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An unexpected increase in oil prices

A seasonally expected increase in oil prices

An unexpected reduction in consumer confidence

an anticipated tax cut

An increase in spending those results from expansionary _______ policy cause the interest rate to.

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fiscal ; rise

fiscal ; fall

incomes ; rise

income ; fall

The equilibrium level of income is.

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Rs. 360

Rs.600

Rs.440

Rs.500

An autonomous rise in the value of the Rupee makes Pakistan goods _____ expensive relative to foresight goods which ______ net exports

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Less ; decreases

Less ; increases

More ; decreases

more ; increases

How do the banks gain from this corporate behavior.

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More loans can be made

Tax free profits can be made

Interest rates can be increased

By circumvent banking regulations

If the demand for money increase relative to the supply of money

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Interest rates will trend upward

Interest rates will trend downward

Interest rates are not affected by increases in money demand

Interest rates will behave randomly

You know that all taxes are distortionary under what conditions will this knowledge lead you to appose the imposition of every single tax in the economy.

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If you live in a 1st best world.

If you live in a 2nd best world

If the tax rates on some of the items are prohibitively high

Either of the above

According to the Laffer curve as tax rates increase tax revenues.

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Decrease continuously.

Initially decrease and then increase

Rise continuously

Initially increase and then decrease

An increase in autonomous consumer expenditure causes the equilibrium levelof aggregate output to _______ at any given interest rate and shifts the ____ curve to the

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rise ; LM ;right

rise ; IS ; right

fall ; LM, Left

rise ; IS ; Left

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