28. (Figure: Effects of Contract ionary Fiscal Policies) Contractionary fiscal p

Question

28. (Figure: Effects of Contract ionary Fiscal Policies) Contractionary fiscal polickes eul LRAS SRAS AD Aggregate Output (Q) A) B) lead to a higher price level and lower employment C) D) lead to a higher price level. move the economy away from full employment. move the economy to full employment. 29. when goods are sold at lower prices (below cost) abroad than in their home · market A) Dumping is B) Low foreign wages occur C) Consumer protection occurs D) An infant industry situation is 30. What are the primary functions of money? A) unit of account, medium of exchange, store of liquidity B) unit of exchange, medium of account, store of value C) unit of account, medium of exchange, store of value D) unit of liquidity, medium of exchange, store of value 31, Assume that the reserve requirement is 20%. A bank has $20 billion in demand deposits How much money does the bank have to keep in reserves? A) $10 billion B) $2 billion C) $20 billion D) $4 billion

Explanation / Answer

Answer : 28) Contructionary fiscal policy shoul : (A) lead to higher price. Because in contractionary fiscal policy government reduce it's spending and increase tax rate as a result aggregate demand curve shifts to rightward and at new equilibrium price is higher.

29) (A) Dumping is when goods are sold at lower prices (below cost) abroad than in their home market.

30) The primary functions of money are (D) unit of liquidity, medium of exchange, store of value.

31) Given, reserve requirement = 20% ; Demand deposit = $20 billion.

Therefore, reserve = 20% ×20 = $10 billion. Hence the correct answer is (A) $10 billion.

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