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- 13. When the government uses its overdraft facilities at the central bank, it ___________ the quantity of moneyin the economy. This is called ___________________ financing. A Increases; deflationaryB Decreases; inflationaryC Decreases; deflationaryD Increases; inflationary8. Which sentence is wrong about business cycle? It is the change in the GDP in the short run between recession and expansion. b. Taxes increases in periods of expansion. Deficit decreases in periods of depression d. The interest rate is higher in periods of expansion. 9. Assume that Y* 1? a. If Ps increases then product i will be exported. b. If P decreases then product i will be exported. c. If e increases and P³ decreases at the same rate then it will be indifferent between trading the product overseas and manufacturing it at home. d. If e decreases then product i may be exported. 12. Assume that Y*-Yfull and that the global interest rate (r) has increased. Which of the following is true in the long run? Inflation rate will necessarily increase. The local interest rate (r) will necessarily increase. Investments will necessarily decrease. All the above. i. iii. iv. 11. i. ii. iii. iv.Assuming a tax rate of 40 percent, compute thebefore-tax real interest rate and the after-tax realinterest rate for each of the following cases.a. The nominal interest rate is 10 percent, and theinflation rate is 5 percent.b. The nominal interest rate is 6 percent, and theinflation rate is 2 percent.c. The nominal interest rate is 4 percent, and theinflation rate is 1 percent.
- 5. What is the real interest rate if Mr. Nasser took a loan of OMR 10000 and the nominal interest rate is 15%, the inflation rate is 10? a.2% b.3% c.5% d.6% 6. Which of the following defines a contractionary policy? a.Monetary and fiscal policy that speeds up the economy b.Monetary and fiscal policy that slows down the economy c.Unemployment and tax policy that speeds up the economy d.Exchange and wage policy that speeds up the economy5. The Aggregate Demand Curve is downward sloping due to A. the impact on inflation on the purchasing power of the public's financial assets B. changes in the demand for money leading to an increase in the interest rate C. the relationship between the price level in the U.S. relative to the price level in other countries D. all the above 6. TRUE or FALSE As GDP rises, personal income tax collections and corporate income tax collections automatically rise and transfer payments and subsides automatically decline. 7. Federal Fiscal policy is primarily carried out by A. only state governments B. the Federal Reserve System C. Congress (Legislative Branch) and the Executive Branch D. only local governments 8. TRUE or FALSE A $20 bill is a note of the United States Treasury.Suppose that a borrower and a lender agree on thenominal interest rate to be paid on a loan. Theninflation turns out to be higher than they bothexpected.a. Is the real interest rate on this loan higher or lowerthan expected?b. Does the lender gain or lose from thisunexpectedly high inflation? Does the borrowergain or lose?c. Inflation during the 1970s was much higher thanmost people had expected when the decade began.How did this unexpectedly high inflation affecthomeowners who obtained fixed-rate mortgagesduring the 1960s? How did it affect the banks thatlent the money
- 4the money supply in freedonia this year is $150 billion Nominal GDP is $750 billions and real GDP is $250 billion. assuming that velocity of money is stable real GDP grows by 2%this year and the money supply does not change. what are the velocity price level and inflation rate15. When an SME’s functional currency is the currency of a hyperinflationary economy, a. all amounts in the financial statements shall be stated in terms of the measuring unit current at the end of the reporting period. b. some amounts in the financial statements shall be stated in terms of the measuring unit current at the end of the reporting period. c. all amounts for monetary assets and liabilities in the financial statements shall be restated using the general price index, rather than the specific price index. d. none of these. The PFRS for SMEs does not address this matter.The _demand for money arises from the need to hold money as a medium of exchange. This demand for money is a function of Select one: a. transaction; interest rates O b. precautionary; national income O c. transaction; national income O d. speculative; interest rates
- nics Problem 2: Given the following data about the monetary sector of the economy M.-04Y-801 (Money demand where i is interest rate) M-1200 (Money Supply) 2. Derive the IM Equation and represent it graphically When 1-5%, find the level of the national income (Y). 3. When Yis 4400, what is the interest rate level?During hyperinflations A. The value of money rises rapidly B. Money no longer functions as a good store of value and people may resort to better transactions on a much larger scale C. Middle class savers benefit as prices rise D. All of the above occurIS-MP Analysis: Interest Rates and Output -End of hapter Problem Use the chart to answer the questions. Year Potential GDP Real GDP 2017 $18.17 trillion S18,05 trillion 2018 $18.51 trillion $18.56 trillion Be sure to put your answer in percentage form, and round answers to two decimal places. a. Calculate the output gap for 2017. b. Calculate the output gap for 2018. Be sure to put your answer in percentage form, and round answers to two decimal places. a. Calculate the output gap for 2017. b. Calculate the output gap for 2018. c. From 2017 to 2018, the output gap became more
