46. The figure bellow illustrates the reaction of the economy in the AS-AD model
ID: 1215991 • Letter: 4
Question
46. The figure bellow illustrates the reaction of the economy in the AS-AD model for an open economy (initial shift from point (1) to point (2) and subsequent reaction of the economy towards point (3)). Which of following is correct?
a) The figure shows the reaction of the economy to the fiscal expansion under fixed exchange rate regime.
b) The figure shows the reaction of the economy to the fiscal expansion under floating exchange rate regime.
c) The figure shows the reaction of the economy to the monetary expansion under fixed exchange rate regime.
d) At point (2) there is combination of the internal and external imbalance of the economy.
e) When shifting from point (1) to point (2) the exchange rate depreciates.
47. Theory of rational expectation assumes or argues that:
a) Prediction errors are always equal to zero.
b) Errors in prediction (or expectations) of some variable could be on average different from zero only if there is some relevant economic theory that explains developments of this variable.
c) Publicly available recommendations of analysts could be very good guideline for investments on the capital markets (in the case when these markets are efficient).
d) Errors in prediction (or expectations) cannot be correlated with any other information available at the time of construction of the prediction.
e) For any two different future moments the errors in prediction of some variable in those periods positively correlated (if the shock appears in one moment there is positive probability that it appears also in the second).
48.Consider the model of consumption according to Irving Fisher for two periods, income in each period is Y1=20 000 and Y2=15 000, respectively, and the interest rate r is 50%. It therefore holds that:
a) Maximum possible consumption in the first period is in interval [25; 30)
b) Maximum possible consumption in the second period is in interval [25; 30)
c) Maximum possible consumption in the first period is in interval [30; 40)
d) Maximum possible consumption in the second period is in interval [30; 40)
e) Maximum possible consumption in the first period is in interval [40; 50)
c) MPL+MPK units
d) MPL . MPK units
49.For efficiency of fiscal and monetary policies (in the sense of influencing output) in the IS-LM model it holds that:
a) Efficiency of fiscal policy falls with increasing marginal propensity to consume.
b) Efficiency of monetary policy increases with falling tax rate.
c) Efficiency of fiscal policy falls with falling sensitivity of investment to the interest rate.
d) Efficiency of monetary policy increases with increasing sensitivity of the money demand to output.
e) Efficiency of fiscal policy increases with fall of sensitivity of the money demand to the interest rate.
AS Y*Explanation / Answer
46. (a)
47. (b)
48 (b)
49 (b)
50 (d)
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