Question

Most economic policies are a two-edge sword. The overuse of a policy may cause significant side effects. The side effects of an expansionary fiscal policy include:

• A.

  government budget deficit.

• B.

  potential inflation.

• C.

  that the government may have too much influence on the market economy, and its efficiency is always of question.

• D.

  all of the above.

One year ago, the federal discount rate (a key interest rate) was 2.5%, and the current federal discount rate is 0.5%. Such adjustment aims to:

• A. encourage lending.

• B. decrease the monetary base.

• C. increase the cost for firms to borrow from the Fed.

• D. balance federal budget.

Shannon made $50,000 last year and received a $10,000 raise this year for her excellence at work. With the additional income, she spent $6,000 more this year. What is the marginal propensity to consume (MPC) for Shannon?

• A. 50%

• B. 60%

• C. 40%

• D. 70%

Suppose banks keep cash reserves as much as 5% of their deposits (currency drain ratio), and the current required reserve ratio is 10%. What is the money multiplier?

multiplier = (1 + CDR) / (RRR + CDR)

• A. 4

• B. 6

• C. 3

• D. 7

Suppose the U.S. real GDP in 2008 is $14 trillion, price level is 2, and velocity of circulation is 4. What is the quantity of money in the economy?

• A. 7 trillion

• B. 4 triliion

• C. 28 trillion

• D. 14 trillion

The Short-Run Phillips Curve shows:

• A. that monetary policy has an inverse effect on the unemployment rate and the inflation rate.

• B. monetary policy is effective in moving the real economy in the short run since it can affect the unemployment rate.

• C. There is a negative relationship between the inflation rate and the unemployment rate in the short run.

• D. all of the above.

The government expenditure multiplier refers to:

• A. that government spending leads to less consumer spending.

• B. that each additional dollar spent by the government will lead to a less than one dollar increase in GDP.

• C. that government spending has little impact on national economy.

• D. that government spending has a magnified effect on national economy.

To serve as a commodity money, an object must satisfy which of the following requirements?

• A. It has to be a commodity or token, which can be divided into small parts.

• B. It has to be generally accepted by the market participants to trade for goods and services.

• C. It has to be used as a method of settling a debt or payment.

• D. all of the above.

To serve as a commodity money, an object must satisfy which of the following requirements?

• A. It has to be a commodity or token, which can be divided up into small parts.

• B. It has to be generally accepted by the market participants to trade for anything and everything.

• C. It has to be used as a method of settling a debt or payment.

• D. All of the above.

Tom bought 6 oranges for 3 dollars. Money serves the function of:

• A. store of value.

• B. unit of account.

• C. medium of exchange.

• D. standard of deferred payment.

What is (are) the main objective(s) of fiscal policy:

• A. higher economic growth.

• B. full employment.

• C. low inflation.

• D. all of the above.

Answer 1

Side effects of an expansionary fiscal policy = The correct answer is All the above Because expansionary fiscal policy means reduction in tax rate and increase in the government expenditure. It causes budget deficit, inflation and government influence on the market.

Fedral discount rate reduce from 2.5 to 0.5 it aims = The correct answer is A) encourage lending. Because when central bank reduce interest rate more and more people wants to take credit.

MPC the correct answer is 60% because MPC = change in consumption / change in income = 6000/10000 = 0.6 which is equal to 60%

Multiplier = (1 + 0.5) / (0.5 + 0.10) = 1.05 / 0.15 = 7 so multiplier is 7 correct answer is option D.

Quantity of money in the economy = M * V = P * T here M = money supply , V = velocity P = price level and T = all transcation So put value in formula = 14 * 4 = 2 * T From here we get T = 28 trillion

Phillips curve show There is a negative relationship between the inflation rate and the unemployment rate in the short run. So the correct answer is C.

Government expenditure multiplier refers to that government spending has a magnified effect on national economy.

Tom bought 6 oranges and 3 dollars Money serve the function of medium of exchange. correct option is C

Fiscal policy main objective the correct answer D. all the above.