Explanation​:
Choice A is the correct answer by definition. Quantitative easing is a process where a central bank buys long-term government bonds (and other financial assets) from commercial banks (other financial institutions) and credits their accounts with electronic reserves as digital entries held by the commercial banks at the central bank.

Explanation​:
On a Keynesian AS curve, supply is perfectly elastic when there are many unused resources in the economy. The curve becomes perfectly inelastic as factors of production become increasingly scarce.

The more excess capacity there is (Point $A$), the more impact expansionary fiscal policy will have on real output.

Choices B and C show increased competition for economic capacity, so expansionary fiscal policy increases real output by a smaller amount.

Choice D shows no excess economic capacity, so expansionary fiscal policy will not increase real output.

Explanation​:
In the Keynesian model, wages are assumed to be downwardly inflexible: they may rise in times of inflation, but rarely fall in times of recession. For this reason, the economy could get stuck in a recessionary gap if the government does not intervene. This is because production costs will not fall, and so, aggregate supply will not increase.

Choices A, B, and C are all associated with the new classical/monetarist model, which assumes that recessionary gaps are not persistent.

Explanation​:
Interventionist supply-side policies may be a burden on the government budget but they often lead to a more equitable distribution of income, and less economic inequality.

Choices A, C, and D are possible drawbacks of such policies: they are expensive and may place an unsustainable burden on national debt, they involve long time-lags, and the increased government spending may create inflationary pressures in the economy.

Explanation​:

Choice B

• If the ECB purchases government securities (bonds), it increases the money supply as it pays bondholders.
• If the ECB lowers the reserve requirement, commercial banks have more excess reserves for more loanable funds that increase credit creation and the money supply.
• If the ECB decreases the interest rate that it charges commercial banks (minimum lending rate or discount rate), banks borrow more and can lend more, increasing the money supply.

Choices A, C, and D include actions that decrease the money supply

• selling securities
• raising the reserve requirement
• increasing the minimum lending rate

Explanation​:
The MPI was developed by the UNDP and the Oxford Poverty and Human Development Initiative, and it includes three dimensions.

Options A, B, and C are the three dimensions in which poverty is measured using MPI

Explanation​:
Choice D incorrectly describes speculative demand for money. It suggests that money has inherent value and that people speculate on the appreciation of money itself. However, speculative demand for money occurs when people anticipate a change in interest rates and prefer to hold money over interest-bearing assets.
Choice A describes the transactions motive.
Choice B describes the precautionary motive.
Choice C describes the speculative motive.

Explanation
The HDI is a composite indicator measuring economic development across three dimensions:

• Standard of living, measured by GNI per capita (PPP) (Choice B)
• Education, measured by mean years of schooling (Choice C) and expected years of schooling
• Health, measured by life expectancy at birth (Choice D)

Explanation​:
An excise tax is a tax paid on specific commodities like cigarettes or petrol. It is a tax on expenditure, therefore it is an indirect tax.

Options A, B, and D are examples of direct taxes.

• Option A: as it is a tax on the wealth of an individual.
• Option B: as it is a tax on the income of companies.
• Option D: as it is the tax on the income of individuals.

Explanation​:
Expansionary fiscal policy can decrease net exports (X-M) as increases in the price level can make exports less competitive, and rising incomes will increase spending on imports.

Choice B is wrong, as fiscal policy has no direct relationship with the money supply.

Choices C and D are wrong, as expansionary fiscal policy stimulates economic activity, increasing the employment and inflation rates.

Explanation​:
Short-run equilibrium occurs at the intersection of AD and SRAS. Long-run equilibrium occurs when AD = SRAS = LRAS. Therefore, at point $A$, the economy is in short-run equilibrium only.

Explanation​:
An increase in the corporate tax rate will decrease AD by decreasing investment in the economy.

Choices B and D redistribute income in a way that should increase consumption, as the marginal propensity to consume for lower-income households tends to be higher.

Choice C is wrong, as increasing government spending directly increases AD.

Explanation​:
Statement I is incorrect because an increase in interest rates will lead to higher borrowing costs and a higher reward for saving, resulting in decreased investment expenditure and consumption, thus decreasing AD, not SRAS.

Statement II is incorrect because lower consumer confidence will lead to lower consumption expenditure and decreased AD, not SRAS.

Statement III is correct because higher costs of production across the economy will shift the SRAS curve to the left.

Statement IV is correct because an increase in indirect taxes will also raise the costs of production for businesses and thus shift SRAS to the left.

Explanation​:
Statement I is incorrect. Discretionary spending refers to changes in spending that require a decision to be made by the government. Such changes are not automatic.

Statement II is correct. Progressive taxation and unemployment benefits act as automatic stabilisers. In countries with a more progressive income tax and a larger welfare state, the impact of automatic stabilisers will be more significant.

Statement III is correct. Automatic stabilisers make the business cycle less volatile, keeping the growth rate lower in $\text{‘}$boom$\text{’}$ periods.

Explanation​:
To determine GDP, the expenditure approach sums the expenditure of all sectors of the economy: spending on capital by firms, plus spending on domestic goods and services by households, the government, and foreign consumers, minus domestic spending on foreign goods and services.

$GDP=C+I+G+(X-M)$

Choices A and D are incorrect because saving and taxes are never included in GDP. Choice B is incorrect because the equation calculates net exports incorrectly.

Explanation​:
A fall in interest rates will make borrowing cheaper, and so encourage investment expenditure: aggregate demand (AD) will increase in the short-run.

Moreover, investment is the spending on the creation or replacement of capital, so in the long run, the quantity of capital will increase, leading to an increase in long-run aggregate supply (LRAS).

Choices A, C, and D will lead to an increase in AD in the short run, but are unlikely to cause an increase in LRAS in the long run.

Explanation​:
A shift of the SRAS curve to the left constitutes a negative supply shock and will push the economy into a period of stagflation, where the economy is experiencing both inflation and recession. As a result, the inflation rate rises and the unemployment rate rises as well.

Choice A would be the result of AD shifting rightward.

Choice B would be the result of AD shifting leftward.

Choice D would be the result of SRAS shifting rightward.

Statement II is incorrect because personal income tax cuts fall under market-based supply-side policies relating to incentives, rather than encouraging competition.

Statement III is correct because removing barriers to trade will allow foreign businesses to compete with domestic businesses. This competition incentivises domestic firms to be more efficient.

Statement IV is incorrect because abolishing minimum wages falls under market-based supply-side policies that are aimed at making the labour market more flexible rather than policies to encourage competition.

Explanation​:

The AS curve shifts when there are changes in the costs of factors of production or indirect taxes (VAT). The AD curve shifts when there is a change in domestic consumption, investment, government spending, or net exports.

A cut in income tax would increase AD (AD1​ to AD2​), increasing disposable income and domestic consumption. A rise in indirect taxes would decrease AS (AS1​ to AS3​), as it would increase production costs across the economy.

Explanation​:
When AD decreases (AD to AD1​), the economy will be producing below its full-employment level of output: this is known as a recessionary gap.

During a recessionary gap, unemployment rises as businesses lay off workers in response to decreasing aggregate demand.

Choice A would be correct if AD shifted rightward.

Choice C would be correct if SRAS shifted leftward.

Choice D is not possible, as rising unemployment is a defining characteristic of a recession.

Explanation​:
The goals of a central bank are focused on achieving short-term economic stability. These objectives include achieving low and stable inflation, implementing inflation targeting (choice A), reducing unemployment rates (choice B), and minimizing fluctuations in the business cycle (choice D).

Choice C is the correct answer because it is usually attributed to the goal of the executive branch of government and not the central bank.

Explanation​:
Statement I is correct because a fall in consumer confidence will lead to a decrease in consumption expenditure and a decrease in AD, thus creating a deflationary gap.

Statement II is incorrect because a fall in interest rates will make borrowing cheaper (increasing consumption and investment expenditures) thus leading to an increase in AD, creating an inflationary gap.

Statement III is correct because a rise in taxes on corporate profits will lead to a decrease in investment expenditure and a decrease in AD, thus creating a deflationary gap.

Explanation​:
A decrease in sales taxes will lower production costs for businesses across the economy, which increases short-run aggregate supply, reducing inflationary pressure.

Choice A will cause demand-pull inflation. Choices B and C will cause cost-push inflation. Therefore, choices A, B, and C are causes of inflation.