Tuesday, February 9, 2010
Monday, February 8, 2010
Mrs Tan's help to mock test
HEY GUYS, indeed the mcqs are confusing - the topics are rather rusty with me esp when we don't cover the IS/LM model at Ngee Ann .. my help is rather limited
1. i think ans is b - reduce b surplus involves increasing G and or reducing T. Both will lead to increase in spending thro' the mulitplier effects will lead to increase in private spending - level of econ activity is high with large private sector
2. d - M ss contracts - interest rate rise and if investment sensitivity is high, there will be a sharp drop in private investments and thru' multiplier effect, private sector will shrink
3. answer is d MSS falls, i/r rises, Investment n consumption falls (AD falls), output fall - lowwer level of activity and private sector shrinks
4. ans is c : deflation - adopt expansionary MP - Mss increases, i/r falls, Investment shd rise, Investment shd be interest sensitive so that Investment will rise sharply and have a greater direct lst round impact on the economy since multiplier is low.
5.Ans is cExport led growth is sustainable only if the goverment adopts an expansionary MPolicy under a flexible exchange rate : Export promotion - increase exports - increase AD - increase income - increase spending including import spending and will put pressure on i/r. if interest rises, it will dampen investment and negate the increase in ouput due to exports growth. Interest rate rise also lead to exchange rate apprec and dampen export growth. So the govt must adopt expansonary to leave interest rate at previous level to sustain the initial impact of export increase
6. ans is d - argument along same line as in Q5. FP changes eventually impact interest rate and exchange rates in the opposite direction which then negate the effect of the policy. Eg. If an expansionary FP is adpted, eg thro increasing G, - AD rises, Income rises s, spending increases and push up i/r. Capital inflow occurs leading to B/p surplus - exchange rate appreciates and renders exports expensive - so X fall and M rises - fall in AD /income
7. ans is c - if investment has a zero interest sensitivity - i.e IS curve is vertical so that a reduction in money ss (contractionary )(LM shiftsUP)will lead to a rise in interest rate but no change to output/income - hence ineffective in cooling down economy. I don't think it's (a) bcos, a zero mulitplier is a meaningless concept
8.ans is c, i think , since crowding out effects usually happen during a fiscal policy and usually an expansionary MP is adopted to reduce the crowding out effects. I hope i was of some help - it's a very general approach explanation as i don't have your lecture notes and is not sure how you are taught.
good luck mrs tan
1. i think ans is b - reduce b surplus involves increasing G and or reducing T. Both will lead to increase in spending thro' the mulitplier effects will lead to increase in private spending - level of econ activity is high with large private sector
2. d - M ss contracts - interest rate rise and if investment sensitivity is high, there will be a sharp drop in private investments and thru' multiplier effect, private sector will shrink
3. answer is d MSS falls, i/r rises, Investment n consumption falls (AD falls), output fall - lowwer level of activity and private sector shrinks
4. ans is c : deflation - adopt expansionary MP - Mss increases, i/r falls, Investment shd rise, Investment shd be interest sensitive so that Investment will rise sharply and have a greater direct lst round impact on the economy since multiplier is low.
5.Ans is cExport led growth is sustainable only if the goverment adopts an expansionary MPolicy under a flexible exchange rate : Export promotion - increase exports - increase AD - increase income - increase spending including import spending and will put pressure on i/r. if interest rises, it will dampen investment and negate the increase in ouput due to exports growth. Interest rate rise also lead to exchange rate apprec and dampen export growth. So the govt must adopt expansonary to leave interest rate at previous level to sustain the initial impact of export increase
6. ans is d - argument along same line as in Q5. FP changes eventually impact interest rate and exchange rates in the opposite direction which then negate the effect of the policy. Eg. If an expansionary FP is adpted, eg thro increasing G, - AD rises, Income rises s, spending increases and push up i/r. Capital inflow occurs leading to B/p surplus - exchange rate appreciates and renders exports expensive - so X fall and M rises - fall in AD /income
7. ans is c - if investment has a zero interest sensitivity - i.e IS curve is vertical so that a reduction in money ss (contractionary )(LM shiftsUP)will lead to a rise in interest rate but no change to output/income - hence ineffective in cooling down economy. I don't think it's (a) bcos, a zero mulitplier is a meaningless concept
8.ans is c, i think , since crowding out effects usually happen during a fiscal policy and usually an expansionary MP is adopted to reduce the crowding out effects. I hope i was of some help - it's a very general approach explanation as i don't have your lecture notes and is not sure how you are taught.
good luck mrs tan
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