1) Fiscal Policy: Use of government spending and taxes to regulate economic activity. All levels of government conduct fiscal policy. The two main instruments of fiscal policy are government spending and taxation.
The main objective of fiscal policy is to move the economy towards its full employment level of income without inflation.
Following are the economic goals of fiscal policy:
1. To combat Inflation: If the economy is experiencing inflation without unemployment, the appropriate fiscal policy is to decrease government spending or increase taxes, or a combination of two actions. This type of fiscal policy is called contractionary fiscal policy.
2. To combat unemployment: If ...view middle of the document...
This is appropriate fiscal policy to eliminate the recessionay gap.
4) Following are the three functions that a commodity must fulfill to be useful as money:
1. Medium of Exchange: Any item that is used to effect a purchase or a sale. Without money, exchange would take place by means of barter, which is the direct exchange of goods and services for other goods and services, without the use of money. Under a barter exchange of system, a double coincidence of wants is a precondition for exchange to occur. Double Coincidence of wants is a situation in which a buyer finds a seller who has what the buyer wants and who wants what the buyer has.
2. Unit of Account or measure of value: the common unit for expressing the value of goods and services. For ex: a pair of shoes with a price tag of $149.99.
3. Store of Value: Money or other assets put away for future use. For Ex: money we deposit in a saving account serve as a store of value. Real estate, paintings and other non-monetary assets also serves as store of value.
3) When a chartered bank buys government securities from public, chartered banks will have more excess reserves .Banks lend the...