PART (i) What is the effect of a decrease in both government spending and taxes by the same amount?
A. GDP will fall but unemployment will rise.
B. GDP will rise and unemployment will fall.
C. Both GDP and unemployment will fall.
D. Both GDP and unemployment will rise.
E. There will be no effect on GDP or unemployment.
PART (ii): What will an increase in the money supply tend to do?
A. Increase interest rates and lower the equilibrium GDP.
B. Increase the interest rates and increase the equilibrium GDP.
C. lower interest rates and increase equilibrium GDP.
D. lower interest rates and lower the equilibrium GDP.
E. Interest rate and equilibrium GDP does not change
PART (i) What is the effect of a decrease in both government spending and taxes by the same amount?
A. GDP will fall but unemployment will rise.
B. GDP will rise and unemployment will fall.
C. Both GDP and unemployment will fall.
D. Both GDP and unemployment will rise.
E. There will be no effect on GDP or unemployment.
PART (ii): What will an increase in the money supply tend to do?
A. Increase interest rates and lower the equilibrium GDP.
B. Increase the interest rates and increase the equilibrium GDP.
C. lower interest rates and increase equilibrium GDP.
D. lower interest rates and lower the equilibrium GDP.
E. Interest rate and equilibrium GDP does not change
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6) According to Classical theory, the economy is self-regulating. If it is in a recessionary gap, what happens? Question options:
Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise.
Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises.
Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls.
none of the above
7) According to the classical economists, which of the following statements is true?
Question options:
| Financial markets ensure that S will equal I.. | |||||||||||
| Interest rate flexibility will ensure that planned saving is equal to planned investment. | |||||||||||
| There is a direct relationship between the amount individuals plan to save and the interest rate - higher rates cause people to save more and lower rates reduce savings. | |||||||||||
| Interest rates determine how much business firms invest - higher interest rates reduce investment and lower rates increase investment. | |||||||||||
| All of the above are true. 10) If actual Real GDP is greater than the full employment Real GDP, then the (actual) unemployment rate is Question options:
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