Question

of a closed economy. when 6. According to the classical long-run macroeconomic model of a co decrease and government spending is unchanged a consumption and investment both increase b. consumption and investment both decrease c consumption increases and investment decreases d. consumption decreases and investment increases. 7. Suppose a business-friendly billionaire becomes president. As a result, businesses become optimistic about the future and more eager than before to increase their investment spending According to the classical long-run macroeconomic model of a closed economy, the equilibrium of investment spending: a and the real interest rate will both be unchanged. b. Will increase and the real interest rate will rise. c. will decrease and the real interest rate will rise d. Will be unchanged and the real interest rate will rise. 30. D 31. AC and 5. Riscal policy (also called budget policy is said to be expansionary when taxes (T) are government spending (G) is The opposite of expansionary fiscal policy is f iscal policy. a. High: high; contractionary b. Low: low; Inflationary C High: low; Inflationary d. High: low; contractionary e. Low: high; contractionary d. apte 9. Suppose the government of a country wishes to increase investment spending so that the country would have a brighter, more productive future. According to the classical long-run macroeconomic model of a closed economy, its fiscal policy should be: a. Neither expansionary nor contractionary. The government should cut taxes (T) and government spending (G) by the same amount, so that public sector saving stays unchanged. b. Expansionary. This would reduce public sector saving, but that would be OK. C. Contractionary. This would increase public sector saving. d. Expansionary. This would increase public sector saving. Chapter 4 The Monetary System 10. The monetary base of an economy is equal to: a. currency held by the public + the demand deposits of banks b. currency held by the public + reserves of banks C. demand deposits of banks + reserves of banks d. quantity of money – reserves of banks 11. The data in the attached table represents the balance sheet of Bank A. Its leverage ratio is: a. 10 Assets Liabilities and Owners' Equity b. 20 Reserves $400 Deposits $1200 C. 50 Loans $1000 Debt $700 d. 90 Securities $600 Capital (Owners' Equity) $100 Page 2

Answer 1

Ans6 (as when tax d 1, So Is sh income LM t right → IS Q@ Q to it in tax, much of income consumption and investment. is used Due in Ans 7. (B) ro As due to business optimist investment 1, leads to eight shift of IS, hence interest rate also p IS And B. (e) Low, High, contractionary Ansa. (B) if goverment want to a investment, its fiscal policy should be expansiory and as government es spending, public its saving | & hence public sector, savings &

ans 10 LAS Monetary base in cash issued by Currency held by the last the RBI le. public + demand deposit of banks Anell. (B) Leverage ratio – Total abilities Total Equitly Deposits & Debt & Capital AS ay liabilities es! 1200 + 200 lo 2000 Equity & roo Оecifi ly and Leverage ratio a 2000 30