The equilibrium output level is determined in the goods market and the equilibri

Question

The equilibrium output level is determined in the goods market and the equilibrium interest rate is determined in the money market.

True

False

Which statement is false? Ceteris paribus,

A. an increase in the money supply will lead to an increase in output.

B. an increase in the money supply will lead to a decrease in output

C. an increase in the interest rate will lead to a decrease in investment.

D. an increase in inflation will cause the value of the dollar to decrease.

A decrease in taxes would be described as

A. contractionary fiscal policy

B. expansionary monetary policy

C. contractionary monetary policy

D. expansionary fiscal policy

Explanation / Answer

True

Explanation: Demand and supply determines equilibrium level in each market. ( Even though these markets could be inter-related)

           2. Which statement is false? Ceteris paribus,

B. an increase in the money supply will lead to an increase in output

Explanation: (increase in money supply increases Aggregate Demand which leads to rise in prices and in turn increases Aggregate supply)

3. A decrease in taxes would be described as

           D. expansionary fiscal policy

Explanation: Taxation is a matter of the Budgeting process of the government. Which is called Fiscal policy? Monetary policy deals with increase and decrease of money suppl. Lower taxes increase the disposable incomes, leading to expansion of the aggregate demand.

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