Question

From the equation of exchange, we know that a change in the money supply changes nominal GDP when we assume that

		money velocity stays the same.
		price level stays the same.
		real GDP stays the same.
		None of the above is correct.

Automatic stabilizers are key elements of

		neither monetary nor fiscal policies.
		both monetary and fiscal policies.
		fiscal policies.
		monetary policies.

State and local tax receipts are dominated by

		personal income taxes and payroll taxes.
		social Security and self-employment taxes.
		property taxes and sales taxes.
		None of the above.

All of the statements below about the liquidity trap are correct, except

		The level of investment does not change in response to monetary policies when there is a liquidity trap.
		There is a liquidity trap if monetary policy has no effect on interest rates.
		There would be a liquidity trap when the interest rate is zero.
		The Federal Reserve should not do anything when there is a liquidity trap.

In the short run, an increase in government purchases,

		shifts the aggregate demand curve to the left.
		increases real GDP.
		decreases the price level.
		shifts the aggregate supply curve to the right.

Answer 1

1.

From the equation of exchange, we know that a change in the money supply changes nominal GDP when we assume that:

money velocity stays the same.

The reason behind this is, the equation of exchange stands for MV = PY.

Where PY stands for nominal GDP, M stands for money supply and V stands for the velocity of money.

So, in order to change the nominal GDP through the change in money supply, V needs to stay unchanged.

2.

Automatic stabilizers are key elements of:

fiscal policies.

This is because automatic stabilizer balances the shocks in the economy through changes in tax rates.

3.

State and local tax receipts are dominated by:

property taxes and sales taxes.

This is because the main contributors to state and local tax collections are through property tax and sales tax.

4.

All of the statements below about the liquidity trap are correct, except:

There would be a liquidity trap when the interest rate is zero.

There would be liquidity trap when the interest rate is close to zero, not zero.

5.

In the short run, an increase in government purchases,

increases the real GDP.

This is because, in the short run, an increase in government purchases will shift the aggregate demand curve to the right. It will result in an increase in real GDP and price level.