Question

Stagflation is a combination of ______ and _______.

Multiple Choice

• monetary policy; fiscal policy

• inflation; recession

• deflation; expansion

• excessive aggregate spending; excessive aggregate supply

If the MPC is 0.6, and the government spends an additional $50b, the overall effect on GDP will be:

Multiple Choice

• an increase of $250b.

• a decrease of $75b.

• an increase of $125b.

• a decrease of $25b.

Money serves as a store of value when:

Multiple Choice

• there is direct trade of goods and services.

• it is used to purchase goods and services.

• it is a basic measure of economic value.

• it is a means of holding wealth.

When there is a recessionary gap, inflation will ______, in response to which the Federal Reserve will ____ real interest rates, and output will _____.

Multiple Choice

• increase; raise; decline

• decline; raise; decline

• decline; lower; expand

• decline; lower; decline

Answer 1

1) Answer is B. Inflation and recession
Stagflation is a situation of economy in which there is higher price level means higher inflation and aggregate demand is lower or output level is lower.
So it happens when Inflation and recession occurs at same time
2) Answer is C. Increase of $125.
Multiplier = 1/1-MPC = 1/1-0.6
= 1/0.4 = 2.5
Change in total output = value of multiplier × additional spending
= 2.5 × 50 = 125

3) Answer is D.
Store of value means we can keep the money for future use. And by holding with us we create our wealth and money works as the store of value because we store it with us for future use

Answer 4 is C. Decline , lower , expand.

In recessionary gap prices goes down due to lower demand and in this federal bank decrease the interest rate in order to induce the investment. Investment will increase and it will increase output of the economy.

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