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Free CFA-Level-I Exam Braindumps (page: 365)

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In Keynesian view, the best macroeconomic policy is to:

  1. increase government investment expenditures during economic booms to offset effects of reduced capacity during the recession to follow.
  2. regulate aggregate expenditures to match output capacity.
  3. regulate wages to control inflation and promote full employment.
  4. control government expenditures to control inflation.

Answer(s): B

Explanation:

In Keynesian economics, fluctuations in aggregate demand are a major source of movements in the economy.
Equilibrium occurs at any output level which equals the spending level. To maintain an equilibrium at the maximum sustainable real GDP, Keynesians prescribe regulating the planned aggregate expenditures to equal the potential real GDP.



If the Fed introduces an expansionary monetary policy:

  1. real interest rates fall.
    II. the U.S. dollar appreciates.
    III. the U.S. exports increase relative to imports.
  2. II & III
  3. I, II & III
  4. I & II
  5. I & III

Answer(s): D

Explanation:

When the Fed introduces an expansionary monetary policy, the money supply increases, causing the real interest rate to fall. This leads to a flow of funds out of the U.S. and into economies with higher real rates. The decreased demand for the U.S. dollar causes it to depreciate. This, in turn, makes the U.S. goods cheaper relative to foreign goods, increasing the U.S. exports and decreasing its imports. Note that this offsetting increase in the demand for U.S. dollar works more slowly than the initial depreciation caused by the outflow of monetary funds.



The nation of Myopia is having a massive inflation problem. To stabilize prices, the Myopian Central Bank decides to acquire large numbers of Capitalian Dollars (a very stable currency) and offer to exchange five Myopian Pesos for one Capitalian Dollar on demand. How does this impact the monetary base and the effective money supply for the nation of Capitalia?

  1. both decrease
  2. no change, decrease
  3. decrease, increase
  4. no change, increase
  5. no change for either
  6. both increase
  7. increase, decrease

Answer(s): B

Explanation:

The monetary base is made up of currency and bank reserves. In this case, Myopia has taken large amounts of currency out of circulation in Capitalia, but the expatriated currency is technically still part of the monetary base.
Therefore the base has not changed, but the effective money in circulation has decreased. This is one of the problems economists face in attempting to measure the real money supply.



Which one of the following will most likely cause a future increase in the growth rate of real output?

  1. an increase in income redistribution payments from high- to low-income recipients
  2. discovery of a new low-cost method of converting oil shale into petroleum
  3. higher marginal tax rates
  4. a decrease in the economy's net investment rate

Answer(s): B

Explanation:

Improvements in technology that permit us to squeeze a larger output from a specific resource supply enhance our productivity and thereby shift the long run aggregate supply curve to the right.






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