Problems involving Demand & Supply Principle
15) An increase in aggregate demand can be caused by: (A) increase in government expenditures (b) an increase in nominal money supply (c) a decrease in taxes (d) an increase in business and consumer confidence (e) all of the above
16) In the IS-LM model the interest rate serves as a link between (a) household savings & business investments (b) government spending & consumer spending (c) actions of the central bank & changes in consumer spending (d) the foods market & the assets market (e) domestic markets & foreign markets
17) We can expect the IS-curve to get steeper as (a) money demand becomes less sensitive to change in the interest rate (b) the marginal propensity to save increases (c) investment becomes more sensitive to changes in the interest rate (d) the income tax rate decreases (e) expenditure multiplier increases.
18) Assume you depleted your savings to buy a new sofa and some government bonds and then take a vacation in a foreign country. Which of the following is true? (a) consumption will increase (b) net exports will increase (c) government purchases will increase (d) investment will increase (e) all of the above
19) An expansionary US fiscal policy that drives up US interest rates is most likely to (a) decrease the foreign demand for dollars and appreciate the international value of the dollar (b) decrease the foreign demand for dollars and depreciate the international value of the dollar (c) increase the foreign demand for dollars and appreciate the international value of the dollar (d) increase the foreign demand for dollars and depreciate the international value of the dollar
20) The federal reserve system regulates the money supply primarily by: (a) controlling the production of coins at the US mint (b) altering the reserve requirement of commercial banks and thereby the ability of banks to make loans (c) altering the reserves of commercial banks, largely through sales & purchases of government bonds (d) restricting the issuance of federal reserve notes because of paper money is the larges portion of the money
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