Section 1: Multiple Choices 50x1-50 Marks 1. All of the following, except one, w

Question

Section 1: Multiple Choices 50x1-50 Marks 1. All of the following, except one, would cause the aggregate demand curve to shift to the right. Which is the exception? A) An increase in taxes B) An increase in government spending on goods and services C) An increase in the money supply D) A decrease in the exchange rate 2. What is the crowding-out effeet? A) The idea that when a government borrows to finance a deficit, it crowds out private investment because it causes interest rates to fall. B) The idea that when a government borrows to finance a deficit, it crowds out private investment because it causes interest rates to rise. C) The idea that fiscal policy crowds out economic growth. D) The idea that balanced budgets crowd out economic growth 3. Graphically, what would cause the aggregate demand curve to shift to the right? A) An increase in taxes. B) A decrease in government spending on goods and services. C) An increase in net tax revenues D) Counter-cyclical fiscal policy and a recessionary gap. E) Counter-cyclical fiscal policy and an inflationary gap. 4. How might the crowding out effect be avoided? A) B) C) By the central bank contracting the money supply at the same time that the fiscal authorities increase spending. By the central bank expanding the money supply at the same time that the fiscal authorities increase spending. By the fiscal authorities lowering taxes as spending increases. By the fiscal authorities raising taxes as spending increases. D)

Explanation / Answer

a) an increase in tax would decrease the aggregate demand

b) The idea that the govt borrows to finance its debt leading to crowding out of pvt investment due to high interest rates.

c) Counter cyclical fiscal policy and inflationary gap would lead to increase in aggregare demand

d) crowding out effect can be avoided by expanding the money supply by the central bank.

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