Question

5. MATCHING

Match the terms on the right to the ones on the left by placing the appropriate CAPITAL letter on the space provided. All the phrases are designed to fit; some may fit more than once. In any case, provide only one answer for each term. Illegible answers will be marked as wrong.

1. _____ easy money policy                                A.       increases competition

2. _____   M2+                                                      B.       imports become cheaper

3. _____ C $ depreciates                                     C.       expansionary fiscal policy

4. _____ reduction in Gov. spending                  D.       reduces competition

5. _____ non-tariff barrier                                  E.       used to reduce inflationary pressures

6. _____ C $ appreciates                                     F.       includes notice deposits of banks

7. _____ free trade                                              G.       tight fiscal policy

8. _____ tax reduction                                         H.       Exports become cheaper

9. _____   M 1                                                       I.       interest rates fall

10. ____ tight money policy                                  J.       currency plus demand deposits in banks

Answer 1

1.__I___ easy money policy

An easy money policy is a monetary policy that increases the money supply usually by lowering interest rates. It occurs when a country's central bank decides to allow new cash flows into the banking system.   

2. __F___   M2+

M2 is a calculation of the money supply that includes all elements of M1 as well as "near money." M1 includes cash and checking deposits, while near money refers to savings deposits, money market securities, mutual funds, and other time deposits.

3.__H___ C $ depreciates

When currency depreciates, exports become relatively cheaper due to increased purchasing power of foreign currency.

4.__G___ reduction in Gov. spending

Tight fiscal policy involves increasing the rate of tax and/or cutting government spending.

5.__D___ non-tariff barrier

Non tariff barriers decrease competition.

6.__B___ C $ appreciates

When currency depreciates, imports become relatively cheaper due to increased purchasing power of domestic currency.

7.__A___ free trade   

Free trade increases competition.

8.__C___ tax reduction   

The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses.

9.__J___   M 1

M1 includes cash and checking deposits.

10.__E__ tight money policy

Tight monetary policy controls supply of money and thus is used to reduce inflationary pressures.