If the state government allocates additional spending on education, the opportun

Question

If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. only considered if additional taxes need to be raised to fund the spending. measured in terms of the alternative uses for that money. If the economy grew at a 3% rate this year and average prices grew people would be better off this year compared with last year. 3% faster than 3% slower than 3% faster than 10% When the Fed is acting as/heal agent for the Treasure it will: Receive and process bids for Treasury securities in preparation for the Treasury's auction of securities. Serve as a lender of last resort Supply the Treasury with paper money whenever the Treasury docs not have enough funds to meet its bills. Supervise the Treasury by examining its books. Reserve requirements: set the maximum amount of reserves a bank must hold. set the minimum amount of reserves a bank must hold. are established by Congress. are set by the American Bankers Association If the government spends more than it earns it runs a In order to finance its excess spending it can the public by selling Budget surplus, borrow, stocks. Budget deficit, borrow. treasury securities.

Explanation / Answer

Question 11: Opportunity cost is the alternative use of available money. If state government, allocates additional spendings on education, then opportunity cost is the loss in welfare of the society if this amount is put in alternative use.

Thus option (D) is correct.

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Question 12: Growth in economy is beneficial for the economy if price level grows less than it. Here growth is represented by the increase in GDP. It is the value of commodities produced in a year. Value of commodities are ascertained by multiplying quantity and market price. This market price is subject to inflation. An economy will grow only when real income is growing. If GDP is growing at 3% and inflation is less than 3%, then real output of the commodities has improved. So economy is better off.

Answer: Option (C) is correct.

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Question 13: Fiscal policy is observed when government brings some change in the budget. It is carried out either by changing government spendings or by changing tax rate. If it receive and process bids for treasury security, then it is trying to sell securities. In this manner it will collect money to spend in social welfare activities. Thus government spending will increase. It will change fiscal policy of the economy.

Answer: Thus option (A) is correct.

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Question 14: As per monetary policy, each bank has to compulsorily deposit a portion of deposit with central bank. It is known as minimum reserve requirement. By changing this percentage Federal can affect the lending capacity of bank to control money supply of the economy.

Thus option (B) is correct.

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Question 15: Budget is the projection of government income and spendings. If Income from taxes and revenue is more than government spendings, then budget has a surplus balance.

If it spends more than it earns, then budget has deficit. In order to finance this deficit, it can borrow from public by selling bond which is known as treasury security.

Answer: Option B is correct.

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