Question

20) The good feature and the bad feature of expansionary policies, respectively, are

A) controlling inflation, reducing growth

B) increasing GDP, causing inflation

C) increasing GDP, lowering price level

D) decreasing GDP, increasing price level

21) The major shortcoming of a barter economy is

A) the need of a double coincidence of wants

B) the need for specialization and exchange

C) that goods and services cannot be traded

D) that money loses value during inflations

22) Dollar bills in the modern economy serve as money because

A) they are backed by the gold stored in Fort Knox

B) they can be redeemed for gold by central bank

C) people have confidence that others accept it as money

D) they have value independent of their use as money

Answer 1

20. The good feature and the bad feature of expansionary policies are “increasing GDP, causing inflation”

The fiscal policy aims to increase GDP so as it is controlled by government and they always prefer increase in spending to make happy their vote share. But they higher spending causes higher inflation in the economy, which is byproduct of higher growth objective.

21. The major shortcoming of a barter economy is “the need of a double coincidence of wants”, which means that the seller will sell only to that buyer who wanted to purchase the same the seller want and even the buyer too.

22. Dollar bills in the modern economy serve as money because “people have confidence that others accept it as money”

When people have confidence on dollar bills as money, they will use it. But when this confidence is lost the dollar bills will no longer act money as it will not be accepted as a means for payment.