An economist who favors smaller government would recommend: A tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation. QUESTION 42 If the reserve requirement ratio is 10% and a deposit of $50,000 is made, then the excess amount is: A $5,000 O B. $10,000 C. $45,000 D. $50.000 QUESTION 43 State and local governments face constitutional or legal requirements to: A have a budget surplus. B. have a budget deficit @ C. have a balanced budget QUESTION 44 The value of the monetary multiplier is: A 1/MPS B. W/excess reserves C. 1/MPC @ D. 1/reserve requirement ratio45. What does it mean for a country that is on a fixed exchange-rate system to have a balance of payments surplus? A) The quantity supplied of its currency on the international money market will exceed the quantity demanded B) The exchange rate is overvalued. C) There is an inflow of foreign currencies into the country D) The balance of payments surplus is matched by a balance of trade deficit. E) There is an outflow of foreign currencies from the country. 46. The country of Lancore, which was on a fixed exchange-rate system and had an undervalued currency, has just adopted a flexible exchange-rate system. Which of the following statements is correct? A) Lancores's currency will depreciate and its exports will increase as a result B) Lancores's currency will appreciate and its exports will increase as a result () Lancores's currency will depreciate and its exports will decrease as a reach DJ Lancores's currency will appreciate and its exports will decrease as a result 47. Assuming flexible exchange rates, which of the following would result in an increase in a country's exchange rate? A) The purchase by the central bank of its own currency. B) The purchase by the central bank of foreign currencies. () The sale by the central bank of its own currencies. D) The central bank decreasing the country's interest rates. E) The government imposing an export tax. 48. What is the long-term result of a central bank fixing an exchange rate below the equilibrium market rate? A) The money supply will have to decrease resulting in inflation. B) The money supply will have to decrease resulting in deflation C) The money supply will have to increase resulting in inflation. D) The money supply will have to increase resulting in deflation. E) The money supply will decrease but the price level will be unaffected. 49, Why are governments often reluctant to announce that they may devalue a currency? A) Because it will result in a higher exchange rate. B) Because devaluation is only possible with flexible exchange rates. () Because devaluation is only possible under the gold standard. D) Because it implies a lack of confidence which will discourage poople from bolding the currency. E) All of the above 50. Which of the following statements is true? A) Inflows of foreign investment are necessary to prevent future balance of payments deficits B) A current account surplus is always the result of a capital account deficit. () A current account surplus is always the result of a trade account surplus. D) A capital account surplus may cause outflows of foreign investment income in the future. E) All of the above.Suppose a representative consumer has preference over consumption (c) and leisure (1). His indifference curve is described by the following function: u(c, I) = 3 In(c) + 2 In(!). His endowment over time is given by h = 1. His wage rate is 2 in terms of consumption goods. Suppose he has 2 units of dividend income from firm and 1 unit of lump-sum tax from the government. (2) Compute this consumer's optimal choice over consumption, leisure and working time. (15 points) Suppose a representative consumer has preference over consumption (c) and leisure (). His indif- ference curve is described by the following function: u(c, l) = 31n(c) + 21n(1). His endowment over time is given by h = 1. His wage rate is 2 in terms of consumption goods. Suppose he has 2 units of dividend income from firm and 1 unit of lump-sum tax from the govern- ment. (2) Compute this consumer's optimal choice over consumption, leisure and working time. (15 points) (3) Now suppose there is an increase in the lump sum tax. Diagram the effects on consumer's optimal consumption and labor supply. Explain your results. (15 points) Note: under the above utility function, du/al MRSl,c= du/ac (3) Now suppose there is an increase in the lump sum tax. Diagram the effects on consumer's optimal consumption and labor supply. Explain your results. (15 points) Note: under the above utility function, MRSI,c = au/81 au/ac