Question

1. The crowing out effect of government spending will be less pronounced if

Select one:

a. government borrows mostly in the international financial markets

b. consumption spending is more sensitive to changes in the interest rate

c. none of the answers is correct

d. equilibrium GDP is further below potential GDP

2. Because of lower investment in basic research, the technological change in Australian economy slows down. As a result

Select one:

a. the economy will move down along the long-run aggregate supply curve.

b. the short-run aggregate supply curve will shift to the right.

c. the economy will move up along the long-run aggregate supply curve.

d. the long-run aggregate supply curve will shift to the left.

3. If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to

Select one:

a. appreciation of the Australian dollar

b. none of the answers is correct

c. increase in investment spending by firms

d. negative balance on the Balance of Payments

4.

When considering the trend of an exchange rate over the period of 10-15 years, economist would expect the following variables to be important in explaining this trend

Select one:

a. Preferences for domestic and foreign goods across countries

b. Relative rates of productivity growth across countries

c. Relative price levels across countries

d. All of these answers are correct

5.

Australia’s financial account will not include

Select one:

a. An increase in asset holdings in foreign countries by Australian residents

b. all answers are incorrect

c. An increase in Australian government's asset holdings in foreign countries

d. Income received by Australian residents from investments made overseas

6.

Fiat money

Select one:

a. is the term that originated in Italy to denote banknotes convertible into gold.

b. can serve as a medium of exchange, but not as a store of value.

c. none of the answers is correct

d. is the primary reason why some economies experience deflation

7.

Suppose that the real GDP is $14 trillion, potential GDP is $16 trillion and taxes were cut by 500 billion to bring economy to the full employment. The implied value of the tax multiplier is

Select one:

a. -4

b. 1.6

c. None of these options is correct. Taxes should be increased in this case.

d. 2

Answer 1

Hi,

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Question:

Answer:

1). Answer:

a. government borrows mostly in the international financial markets

Crowing out effect:

This is a macroeconomic theory that arguing that increasing government spending decrease or eliminate private sector investment. When government increase spending then increase budget deficit. Government fulfill this gap through outside borrowing that increase interest rate. When interest rate increase then its reduce private sector spending. Increasing interest rate reduce consumption level also. Crowding out effect get more serious or increase when economy is at potential level.  A growing deficit when the economy is close to full capacity will be more damaging also.

2). Answer:

d. the long-run aggregate supply curve will shift to the left.

Long-run aggregate supply curve is vertical in long run because in long run economy is at full potential and there is no scope for increasing production level. Long-run aggregate supply curve change when technology change or change in size of the workforce, size of capital stock, levels skills set of work force and labour productivity. If there was an increase in these factors would shift the LRAS curve to the right and vice-versa.

Because of lower investment in basic research, the technological change in Australian economy slows down so, d. the long-run aggregate supply curve will shift to the left.

3). Answer:

a. appreciation of the Australian dollar.

If the Reserve Bank of Australia sells bonds and securities in the open market that will increased interest rate and higher interest will attract more foreign investment. Increasing foreign investment will increased the demand for domestic currency(AUD) that will appreciate the AUD.

4). Answer:

d. All of these answers are correct.

When considering the trend of an exchange rate over the period of 10-15 years, economist would expect preferences for domestic and foreign goods across countries, relative rates of productivity growth across countries, relative price levels across countries  to be important in explaining this trend because in long all these affect the demand and supply of currency that affect the exchange rate.

5). Answer:

b. all answers are incorrect

Australia’s financial account follow the same formate that is following by the world. It is Combination of current, capital and financial account. An increase in asset holdings in foreign countries by Australian residents, an increase in Australian government's asset holdings in foreign countries and  income received by Australian residents from investments made overseas the part of Australia’s financial account. These are the part of CA and FA.

6). Answer:

c. none of the answers is correct.

Fiat Currency:

It is a currency that is issued by the government. This currency is not backed by commodity like, gold,silver or platinum etc. But is is as usual as normal currency and the best stores of value. Fiat currency increase inflation in the long-run not deflation.

7). Answer:

a). -4

Because $500 biilion change taxes will increased GDP by $2000 billion.