while monetary policy determin overnment spending and taxation: the growth of th
ID: 1141074 • Letter: W
Question
while monetary policy determin overnment spending and taxation: the growth of the money supply e ) he te of growth of dhe cemomy, tbhe rate of growth of prices (d ) the infltonat the rate of growth of prices 46 Which of the following fiscal policies do Keynesians recommend so help the economy recover from a (a) an increase in govenment spending (b) an increase in taxes (c ) an increase in the money supply (d ) an increase in saving 47 Which of the lowing is eschaded rom the curne accou fows of in new factories in (C) both and (D) both and 48. Which of the following equations describes a government's budget that is balanced in that it has neither a surplus nor a deficit? a) T-TR-INT -G (b) T-TR-INT>G (c) T+TR+ INT- G (d) T+TR INT> G 49. Which of the following equations describes the 'uses-of-saving identity (a) T-TR-INTG (c) T+ TR+INTG (d)T+ TR +INT>GExplanation / Answer
1) (b) Monetary policy referred to the economic policy related to money supply in the economy. Monetary policy is conducted by the central bank.
2) (a) Fiscal policy refers to the policy of the government in relation to its expenditure and revenues (taxes). Monetary policy referred to the economic policy related to money supply in the economy. Thus Fiscal policy determines government spending and taxation while monetary policy determines the growth of the money supply.
3) (a) Acc. to keynesians, a recession in short run results due to lack of aggregate demand. So keynesians recommend and increase in government spending (which boosts aggregate demand) to help the economy recover from recession.
4) Flows of services and flow of income across national borders are part of current account. WHile investments abroad are a part of capital account. Thus the correct answer here is option (b), investments abroad are excluded from the current account.
5) (a) The balanced budget equation is given as T-TR-INT=G.
6) Uses of savings identity states that the private savings should equal the sum of investments, government budget defict and current account. Thus option (c) Spvt=I+(-Sgov) + CA is the answer.
7) A budget surplus is the situation when the government revenues are greater thant its expenditure. This is shown by option (b) T-TR-INT>G
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