Which of the following is the path through which contractionary monetary policy works

| November 24, 2016

1.Which of the following is the path through which contractionary monetary policy works?

Money down implies interest rate down implies investment up implies income down.

Money down implies interest rate up implies investment up implies income down.

Money down implies interest rate up implies investment down implies income down.

Money down implies interest rate down implies investment down implies income down.

2.According to the Classical growth model, an economy that increases its saving will grow:

Slowly because consumption and aggregate demand will be reduced.

Slowly because interest rates will fall, causing investment to decline.

Quickly since the increase in saving will permit greater investment.

Quickly since the increase in saving will permit more rapid technological progress.

3.U.S. imports involve an:

Outflow of dollars from the United States to foreigners

Inflow of dollars from foreigners to the United States economy

Outflow of foreign currency from the United States to foreigners

Inflow of foreign currency from foreigners to the U.S. economy

4.Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:

An increase in the minimum wage.

A decline in the level of aggregate demand.

An increase in the bargaining power of labor unions.

A decline in aggregate supply.

5.If a country wants to prevent its exchange rates from falling, it could:

Remove restrictions on imports

Place restrictions on imports

Remove any subsidies on exports

Pursue easier monetary policy

6.According to Keynes, why might deflation create problems for an economy?

People would drop out of unions because unions would become ineffective at keeping wages of members high.

Consumers might expect prices to fall further and cut back consumption now.

In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail.

The cost of repricing goods would increase costs, and therefore reduce profits, for businesses and they would cut production

7.The government of Crossland wants to influence its exchange rate. It will do so by buying and selling:

Currencies in its official reserves

Commodities

Transfers

Goods and services from the current account

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