According to Keynesians, which of the following is/are true?
Answer(s): D
Keynesian economics maintains that businesses produce only the quantities consistent with anticipated demand. Thus, expected aggregate expenditures are crucial to determining the state of the economy. If the planned expenditures exceed the anticipated demand, then the economy will expand and vice versa.Equilibrium will be attained where output equals the spending level. Hence, in Keynesian economics, equilibrium can occur at any level of output and employment rate, even if that level is less than the potential GDP. Further, only changes in demand will fuel changes in output; changes in prices will not be capable of moving an economy toward equilibrium.
If the Fed starts following a contractionary monetary policy:
Answer(s): B
When the Fed institutes a contractionary monetary policy, the real interest rates rise because money supply falls. This makes the opportunity cost of current consumption higher, reducing consumer demand and spending. This lower demand leads to lower production and higher unemployment. Further, the U.S. dollar tends to strengthen because foreign investments in U.S. increase due to higher real interest rates. The exports fall due to this. The effect on imports is more ambiguous since reduced consumer spending decreases imports but a stronger dollar increases them. The net effect is usually seen to be an increase in trade deficit due to a larger fall in exports.
In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by an increase in
Changes in long run aggregate supply affect the economy's long run potential output. Changes in short run aggregate supply do not affect the long run potential of the economy.
An increase in the discount rate makes it more expensive for banking institutions to fall below the ________ ratio.
Answer(s): E
The required reserve ratio is the ratio of reserves to deposits that the Fed requires all banks to meet. If a bank fails to meet its required reserve ratio is must borrow funds from the Fed or from the federal funds market to meet the ratio. The bank can borrow funds from the Fed at the discount rate; thus if this rate increases, it becomes more expensive for banks to fail to meet the required reserve ratio.
Post your Comments and Discuss Test Prep CFA-Level-I exam with other Community members:
To protect our content from bots for real learners like you, we ask you to register for free. Sign in or sign up now to continue with the CFA-Level-I material!