SAMPLE MULTIPLE-CHOICE QUESTIONS FOR EF 210: SEMESTER 1 2001 QUESTIONS 11 - 20

11. Imagine that the Federal Government decided to increase its expenditures by $200 million and finances the resulting budget deficit by selling government bonds. As a result the ! curve "ill #A$ shift to the right #%$ shift to the left #&$ become relatively flatter or more elastic #'$ none of the above.

A()*+,12. *hich of the follo"ing statements "ould be true of an economy that can be described as being to the right of the relevant I) curve. #A$ /here is insufficient demand for products0services at the corresponding interest rate #%$ /here "ill be a tendency for production or output to increase #&$ /here "ill be an insufficient level of production0output at the corresponding interest rate #'$ /here "ill be a tendency for interest rates to increase.

A()*+,11. If there is unplanned inventory or stoc2 dis3investment or stoc2 run3do"n then this indicates an excess #A$ demand for bonds #%$ supply of bonds #&$ demand for goods and services #'$ supply of goods and services A()*+,14. A decrease in the money supply "ill #A$ decrease the 5uantity of money held at every interest rate #%$ increase the 5uantity of money held at every interest rate #& $ shift the ! curve to the right #'$ none of the above.

A()*+,-

16.

A flat or relatively elastic ! curve implies that #A$ #%$ #&$ an increase in autonomous government expenditure "ill have a relatively small impact upon output a decrease in taxes "ill change output by a relatively small amount changes in both government spending and taxation "ill have a large multiple effect on output

#'$ both A and % A()*+,17. A steep or relatively inelastic I) curve implies that #A$ an increase in money supply "ill change output by a relatively small amount #%$ a decrease in taxation "ill change output by a relatively small amount #& $ changes in the money supply "ill have a large multiplier effect upon output #'$ both A and % A()*+,18. !onetary policy "ill have a small income effect provided the #A$ I) curve is flat #%$ ! curve is steep

#&$ I) curve is steep #'$ ! curve is flat

A()*+,19. If spending is not responsive or sensitive to interest rate variations then the #A$ ! curve is vertical

#%$ I) and ! curves are vertical #&$ I) curve is vertical #'$ I) curve is vertical and the ! curve is hori:ontal A()*+,-

1;.

If expenditure is not responsive to changes in the interest rate then #A$ the &entral %an2 is <"ea2= in monetary policy effectiveness terms #%$ taxation policy is <"ea2= in fiscal policy terms #& $ overall fiscal or budgetary policy is "ea2 or impotent #'$ the &entral %an2 is <strong= in monetary policy effectiveness terms A()*+,-

20.

/he effect on the I) curve of an increase in taxation "ill be greater the #A$ flatter is the ! curve

#%$ steeper is the ! curve #& $ greater is the extent of <cro"ding out= #'$ greater is the marginal propensity to save.

A()*+,-