MACRO DOUBTS !!!!!!!

[Anjali]

1. The inflation rate is 1% and the unemployment rate is 14%. What would a Keynesian economist recommend for economic policy?  a) increasing the money supply c)  increasing federal spending  b)  decreasing the money supply d) decreasing the discount rate

2. Which one of the following monetary policies would be appropriate for the central bank of a country during an inflationary period?   a) Decrease the required reserve ratio   c) Sell by the central bank government bonds on the open market.   b) Decrease the bank rate.  d) Increase the money supply

3. Which of the following statements is NOT a difference between the classical and Keynesian monetary theories?
 a) Keynes emphasized the role of the speculative demand for money, whereas classical economists focused on the transactions demand.
  b) Classical economists use the quantity theory channel, while Keynesians use the interest rate channel.
 c) Keynesian analysis emphasizes the long run, whereas the classical economists focus on the short run.
  d) The classical approach says that monetary changes directly affect the price level, while the Keynesian approach states that changes in money affect the economy only indirectly through changes in interest rates and investment.

4.  Which of the following is NOT  the function of the RBI in India?  a) Regulator of currency and lender of last resort c) Custodian of excess reserve of the commercial banks  b) Fiscal Agent and Advisor to the Govt. of India d) Clearing house for Transfer and settlement  

 5.  Keynes was especially interested in explaining movements of _____ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase _____in a similar economic situation.  

a) aggregate output; wages                       c) wage rates; wages  

b) aggregate output; employment              d)  wage rates; employment    

6. Monetarists and Keynesians disagree on which aspect of the money transmission mechanism  

a) effect on investment c) effect of prices  b) effect of the interest rate d) effect on aggregate demand

7.  Economists define investment as the purchase of  
a) a new physical asset such as a new machine or a new house.
  b) any physical asset, whether new or not, used by business to increase production.
  c)  any physical asset used by business to increase production and the repurchase of common stock.  
d) business spending on capital and household spending on durable goods.

8. Under the Cash Balance Approach, Cambridge economists stated that when demand for money increases, people will -------------expenditure on goods and services, which will in turn bring ------------ the general price level and ---------- value of money.

 a) Reduce, down, raise              c) Reduce, down, decline  
b) Increase, up, decline               d) Reduce, up, raise

9. The Ricardian law of rent implies that
 a) Rent is not a part of price                                   c) Rent is not a cause of price  
b) Rent is charged over and above the price.         d) Rent has to be subtracted to arrive at price

[Granpa Simpson]

Q1) c.
Q2) c.
Q3) c.
Q4) b.
Q5) b.
Q6) d.

[Anjali]

@ Subhayu , please explain ques 1 and 2

[Granpa Simpson]

1) Keynesian School of thought relies on Govt's role on increasing employment in an economy by govt expenditure policies...out of the four options option c is the only one which affects Govt expenditure or spending.
2) During an inflationary period the most appropriate step by the Central bank would be to decrease the money supply and thus bring down the price levels...by selling Govt Bonds the central bank can reduce the amount of money circulating in the economy and thus reduce the money supply...this is sometimes known as open market operation.

[Anjali]

But Subhayu , for second , shouldn't the govt increase money supply , to keep the real money supply constant ?

[Akshay Jain]

@anjali....during inflation period increasing money supply means that shiftin the AD curve to the  right which means that rising prices.....
the best thing among the available options is to use open mkt operations