If an economy is experiencing inflation, one fiscal policy that might help reduc

Question

If an economy is experiencing inflation, one fiscal policy that might help reduce inflation is:

A decrease in the discount rate signals that the Fed wants the money supply expanded.

True

False

As aggregate equilibrium income/output in the economy decreases, the trade balance is:

Given a deposit of $10,000 at XYZ Bank and a reserve ratio of 20%, how much money can XYZ Bank initially loan out given this deposit?

$8,000.

$50,000.

The Quantity Theory of Money leads to the conclusion that:

Explanation / Answer

Answer.)

Q1.) a rise in the income tax rate.

in case of infaltionary pressures, contractionary fiscal policy - raising taxes and reducing expenditure , helps the economy.

Q2.) TRUE

Q3.) Completely impossible to tell given this information.

Its not necessary that aggregate equilibrium income/output decreases only due to decrease in net exports that worsens trade balance. It might be the case private expenditure reduced significantly so that  aggregate equilibrium income/output fell.

Q4.) $50,000.

Note credit multiplier = 1 / reserve ratio = 5

Therefore,

The amount Bank initially loan out given that deposit $10,000 is = $10,000 x 5 = $50,000

Q5.) the price level varies in response to changes in the quantity of money.

Quantity theorists assume that velocity and real output are independent of the money supply, so that changes in the money supply can only produce proportional changes in the price level.

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