1 Which of the following is the correct sequence of events when restrictive mone

Question

1 Which of the following is the correct sequence of events when restrictive monetary policy is implemented?

2 If California is required to balance its budget every year, then during a recession the government must:

4 Rosa buys a 10.0 percent bond in the amount of $1000. If the market interest rate decreases to 8 percent Rosa can sell her bond for up to:

5 When the macro equilibrium is above full employment, fiscal policy should be used to shift aggregate demand by the amount of:

6 Suppose a bank has $100,000 in deposits, a required reserve ratio of 10 percent, and total reserves of $10,000. Then the bank can make new loans in the amount of:

Explanation / Answer

1.

C

With decrease in money supply, interest rate increases. It discourages investment and make it to decrease. It leads to decrease in AD.

2.

C

There is a need to increase the tax to raise tax revenue and or decrease the spending so that expenditure level decreases. It will help to get the balanced budget.

4.

C

5.

C

The role of contractionary policy is to bring back the output at the potential output level. So, excess AD over the potential output level, will be decreased.

6.

D

The required reserve = 100000*10% = $10000

It is the level of reserve at present. So, no additional loan can be created at this level of reserve.

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