Suppose there is a simultaneous fiscal expansion and monetary expansion. We know

Question

Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that the interest rate will increase. output will increase. both output and the interest rate will increase. the interest rate will decrease. output will decrease. Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence. We know with certainty that these two simultaneous events will cause an increase in the interest rate (i). a reduction in Y. an increase in output (Y). a reduction m i. An increase in the money supply must cause which of the following? no change in output if investment is independent of the interest rate no change in the interest rate if investment is independent of the interest rate an increase in investment and a rightward shift in the IS curse A reduction in the interest rate and ambiguous effects on investment a leftward shift in the IS curve A reduction in consumer confidence will likely have which of the following effects? an upward shift in the I.M curve a rightward shift in the IS curve a leftward shift in the IS curve a downward shift in the LM curve A bed purchase of securities will most likely have which of the following effects? a leftward shift in the IS curve a downward shift in the LM curve a rightward shift in the IS curve an upward shift in the I.M curse The IS curve will NOT shift when which of the following occurs? a reduction in consumer confidence. a reduction in government spending. a reduction in the interest rate. all of the above none of the above If government spending and taxes increase by the same amount, the IS curve shifts rightward the IS curse shift leftward the LM curve shifts downward the IS curve does not shift A reduction in the reserve deposit ratio. will most likely have which of the following effects? a downward shift in the LM curve a leftward shift in the IS curve an upward shift in the LM curve rightward shift in the IS curve Which of the following is NOT an asset on a bank s balance sheet? loans reserves checkable deposits all of the above none of the above

Explanation / Answer

14) The answer is B. The output will increase. The reason is in monetary expansion the interest rates will be reduced to kick start investment cycle. The business will be able to borrow at cheaper rates and the money supply will increase. Simultaneouly due to fiscal expansion there are lesser taxes and government spending will increase. Hence, purchasing power of people increase and there will be greater demand for goods. Hence,The output of goods will increase.

16) The answer is D. As oney supply increase, there are more lender willing to lend money. Hence, due to basic supply and demand rule as supply inreases demand value decreases. Hence, due to increase in money supply interest rates will decreases. Ideally reduction in interest rates should increase investment. But, due to lower interest rates foreign capital investment might reduce depending upon interest rates in other countries. Hence, there will be ambiguous impact on investment.

18) The answer is B. AS fed purchases securities the money supply will increase. Hence, there will be reduction in interest rates. Hence, there will be downward shift in LM curve.

22) The answer is C. Checkable deposits are deposits where depositors can withdraw the money at thier will. Hence, they are liability on bank's balance sheet.

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