Question

1. During a recession, fiscal policy measures to bring the economy back to long-run equilibrium can include

Select one:

a. all answers are correct

b. a decrease in interest rate

c. temporary wage subsidy

d. an increase in the exchange rate

2.

The wealth effect that occurs when the price level rises causes the

Select one:

a. real value of household wealth to fall.

b. nominal value of household wealth to rise.

c. real value of household wealth to rise.

d. nominal value of household wealth to fall.

3.

A decrease in real GDP

Select one:

a. decreases the demand for money because there are fewer goods and services to purchase

b. increases the demand for money because there are fewer goods and services to purchase

c. has no effect on the demand for money

d. increases the demand for money because of lower inflation that follows decrease in real GDP

4.

Because Australia is an open economy, RBA policies will have

Select one:

a. a larger impact on the macroeconomic equilibrium compared to a closed economy.

b. no impact on macroeconomic equilibrium because its polices will be offset by the movement in the exchange rate

c. no impact on macroeconomic equilibrium because its polices will be offset by the capital inflows and outflows.

d. a smaller impact on the macroeconomic equilibrium compared to a closed economy.

5.

A country imports $15 billion worth of goods and services, while its sales of goods and services to other country is $18 billion. If it’s net primary income is $4 billion and net secondary income is $1 billion then it has

Select one:

a. $6 billion surplus in its current account.

b. $8 billion surplus in its current account.

c. deficit of $38 billion in its current account.

d. $11 billion surplus in its current account

6.

The inflation rate

Select one:

a. all of the given answers are correct

b. cannot be negative

c. will always be lower during a recession

d. is equal to the percentage change in the price level between time periods.

7.

When interest rates in Australia decrease relative to interest rates in other countries, we may see Australian dollar

Select one:

a. depreciation and a decrease in net exports.

b. appreciation and an increase in net exports.

c. appreciation and a decrease in net exports.

d. depreciation and an increase in net exports.

Answer 1

During recession, AS<AD because price level is less aggregate supply is less , thus production is less unemployment is high and income is less . So expansionary measurescan be used which will increase price level and increase employment thus output.

Increase in exchange rate will depreciate domestic currency against foreign currencies , this means relative price of goods and services of domestic country increase while relative price of foreign currency falls. So this decrease exports and increase imports.

So option D that is exchange rate is correct

Q2 option A

If price level increase then value of wealth accumlated decreases for eg money in bank account can now buy less of goods and services then before

so less consumption due to real wealth value fall.

Q3 option B

Increase in real GDP will increase demand for money because due to increase in real GDP price level has rise so people will demand more money to make transactions.

Q4 option A is correct

Q 5: option B that is 8 billion surplus

Q6 option D

Inflation rate means changes in price level during a period of time

Q7 option D is correct

Interest rate decreases ilthe value of domestic currency thus exports cheaper and imports dearer