1. During a period of expansionary monetary policy, the rate of growth of the mo
ID: 1125682 • Letter: 1
Question
1. During a period of expansionary monetary policy,
the rate of growth of the money supply is reduced, leading to a decrease in the price level.
2.Suppose that a bank has total demand deposits of $1,000,000 and a reserve ratio of 10%. What are the required reserves that this bank must keep?
3.Automatic stabilizers are designed to
stabilize the bi-partisan budget process.
4.When the aggregate demand curve shifts ________ than the long-run aggregate supply shifts rightward, the result will be inflation.
5.A period in which the level of business is consistently less than its long-term trend is known as
6.Which one of the following is TRUE?
7. The North American Free Trade Agreement and the European Union are examples of
the price level is increased, which leads to an increase in the money supply.Explanation / Answer
1 During a period of expansionary monetary policy, the rate of growth of the money supply is reduced, leading to a decrease in the price level. This is because when there is increase in money supply then there will be more money in the hands of people chasing few goods as there will not be increase in production process. So there will b eincraese in demand for goods ; Hence price of good increases.
2. Suppose that a bank has total demand deposits of $1,000,000 and a reserve ratio of 10%. Then the required reserves = 10/100 * 1000000 = $100000 So option B is correct.
3 Automatic stabilizers are designed to simplify the tax system. The main role of automatic stabilizer is to dampen the fluctuations in econoic activity due to government intervention.
4) When the aggregate demand curve shifts _rightward at a faster rate_______ than the long-run aggregate supply shifts rightward, the result will be inflation. This is because with increase in aggregate demand price levl increases and with incraese in aggregate supply price level decreases. So when aggregate demand curve shift rightward at afster rate than aggregate supply curve then the outcome will be inflation.
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