INFOTANIA

A state of knowledge

COURSE: Economics

STAGE 2

For The Year 2021

(BEST OF LUCK)
Contents
ACKNOWLEDGEMENT ............................................................................................................................................................. 3
PART 1: INTRODUCTION TO ECONOMICS ............................................................................................................................... 4
PART 2: NATIONAL INCOME AND DEMOGRAPHY .................................................................................................................. 8
PART 3: INFLATION................................................................................................................................................................ 10
PART 4: UNEMPLOYMENT .................................................................................................................................................... 10
PART 5: TRADE BALANCE AND EXCHANGE RATE .................................................................................................................. 12
PART 6: MONEY..................................................................................................................................................................... 13
PART 7: DEMAND AND SUPPLY OF MONEY .......................................................................................................................... 13
PART 8: MONETARY POLICY .................................................................................................................................................. 14
PART 9: FISCAL POLICY .......................................................................................................................................................... 15
PART 10: TRANSMISSION MECHANISM OF MONETARY POLICY AND THE IMPACT OF BANKING SECTOR CREDIT .............. 15
PART 11: CENTRAL BANKS AND MONETARY POLICY REGIMES ............................................................................................ 16
PART 12: IMPACT OF FISCAL AND MONETARY POLICIES ON EQUILIBRIUM ......................................................................... 17
PART 13: THE WORLD ECONOMY: IMTERNATIONAL MONETARY INSTITUTIONS ................................................................ 17
THE UNFOLDING OF GLOBAL ECONOMIC CRISIS: ................................................................................................................. 18
ACKNOWLEDGEMENT

This is to acknowledge that Ms. Shaher Bano has been working as a lead and
founder of INFOTANIA, a platform that is solely made for helping students around
the country, Pakistan is preparation of JAIBP, AIBP, CSS, BBA, MBA, MA,
Intermediate, Matriculation etc.

She has been putting efforts to team up with different professionals around the
country to provide students with the best quality online lectures, classes and
preparatory material.

We are proud to have her leading us!

Regards,
Team INFOTANIA
PART 1: INTRODUCTION TO ECONOMICS
1. ………………….. Is the study of how people chose to use their resources? Ans) Economics
2. Economics has …………… sub branches or major divisions. Ans) 2
3. The most famous book in economics is the inquiry into the Nature and Cause of the wealth of Nations written by
………………… Ans) Adam smith
4. The most famous book in economics is the inquiry into the Nature and Cause of the wealth of Nations written by
Adam Smith and published in ………………. In Scotland. Ans) 1776
5. ………………….. economics is about individual decision making. Ans) Micro economics
6. ………………….. economics is about larger phenomenon about making decisions on a bigger scale. Ans) Macro
economics
7. GDP is ……………… Ans) Gross Domestic Product
8. ………………….. deals with larger issues like inflation, unemployment, economic growth and the measurement of
these. Ans) Macroeconomics
9. Microeconomics deals with ……………… issues which include consumer behavior, cost of a business etc. Ans)
Smaller
10. Demand and ………………… are perhaps one of the most fundamental concepts of economics and it is the
backbone of a market economy. Ans) Supply
11. The relationship between price and …………………….. is known as the demand relationship. Ans) Quantity
demanded
12. ………………… represents how much of the market can offer. Ans) Supply
13. The relationship between demand and supply underlie the forces behind the …………………. Ans) allocation of
resources
14. The law of ……………… states that if all other factors remain equal, the higher the price of a good, the less people
will demand that good. Ans) demand
15. Like the law of demand, …………………..demonstrates the quantity that will be sold at a certain price. Ans) law of
supply
16. Under law of supply, producers supply more at a higher price because selling a higher quantity at higher price
increases ………………. Ans) Revenue
17. ………………. Is important to supply because suppliers must, but cannot always, react quickly to a change in
demand or price. Ans) Time
18. When supply and demand are equal, the economy is said to be at ……………… Ans) equilibrium
19. In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are
constantly changing in relation to ……………….. in demand and supply. Ans) Fluctuations
20. …………………. Occurs whenever the price or quantity is not equal to P* or Q*. Ans) Disequilibrium
21. If the price is set ………………., excess supply will be created within the economy and there will be allocative
inefficiency. Ans) Too high
22. Excess demand is created when price is set below the ……………. Ans) equilibrium price.
23. A ………………. Refers to a change along a curve. Ans) movement.
24. On the ………………, a movement denotes a change in both price and quantity demanded from one point to
another on the curve. Ans) demand curve
25. A movement occurs when a change in the quantity demanded is caused only by a change in ………………., and vice
versa. Ans) price
26. A shift in the ……………… or supply curve occurs when a good’s quantity demanded or supplied changes even
though price remains constant. Ans) demand curve
27. If the price for a bottle of juice was Rs 20/- and the quantity supplied decreased from Q1 to Q2, then there
would be a ……………. in the supply of juice. Ans) Shift
28. The degree to which a demand or supply curve reacts to a change in price is the curve’s ……………. Ans) elasticity
29. Elasticity varies among products because some products may be more ……………………… to the customer. Ans)
essentials
30. A good or service is considered to be ……………….. if a slight change in price leads to a sharp change in the
quantity demanded or supplied. Ans) highly elastic
31. If elasticity is greater than or equal to one, the curve is considered to be ……………… Ans) elastic
32. If elasticity is less than one, the curve is said to be …………………. Ans) inelastic
33. The flatter curve means that the good or service in question is ………………. Ans) elastic
34. Inelastic demand is represented with an upright curve as quantity changes little with a large movement in
……………. Ans) price
35. If a change in price results in a big change in the amount supplied, the ……………….curve appears flatter and is
considered elastic. Ans) supply curve
36. There are ……………. Main factors that influence a demand’s price elasticity. Ans) 3
37. ……………………. Is probably the most important factor influencing the elasticity of a good or service. Ans)
availability of substitute
38. A product within an industry is elastic due to the availability of substitute, the industry itself tends to be
………………. Ans) inelastic
39. Unique goods such as ……………….. are inelastic because they have few if any substitutes. Ans) diamonds
40. The third influential factor affecting demand elasticity is …………….. Ans) time
41. Income elasticity of demand was calculated by dividing percentage change in quantity demanded by percentage
change in ……………….. Ans) income
42. The ………………………. Of demand is the ratio of the percentage change in the quantity demanded of some good X
to a percentage change In the price of some other good Y. Ans) cross-price elasticity
43. ……………………. Is a theory of microeconomics that relate preferences for consumption goods and services to
consumption expenditure and ultimately to consumer demand curves. Ans) consumer choice
44. ………………… are the desires by each individual for the consumption of goods and services that translate into
choices based on income or wealth for purchases of goods and services. Ans) preferences
45. …………………. Analysis begins with the utility function. Ans) indifference curve
46. The theory of consumer choice examines the …………………. and decisions people make in their role as consumers
as prices and their income changes. Ans) tradeoff’s
47. Increasing the income will shift, the budget constraint right since more of both can be bought, and deceasing
income will shift it ………………. Ans) left
48. The ……………………. Effect is the one observed with changes in relative price of goods. Ans) substitution
49. The substitution effect basically affects the movement …………..the curve. Ans) along
50. The …………………. Shift in the demand curve causes a movement (expansion) along the supply curve and a rise in
the equilibrium price and quantity. Ans) outward
51. The ……………… in the demand curve does not cause a shift in the supply curve. Ans) shift
52. …………………. Means a state of equality or a state of balance between market demand and supply. Ans)
equilibrium
53. Changes in the conditions of demand or supply will shift the demand or …………….. curves. Ans) supply
54. The ………………… shift of the supply curve increases the supply available in the market at each price and with a
given demand curve. Ans) outward
55. A fall in supply might also be caused by the exit of firms from an industry perhaps because they are not making a
sufficiently …………………… by operating in a particular market. Ans) high rate of return
56. Changes in equilibrium prices and quantities do not happen …………….. Ans) instantaneous
57. The ………………… of demand will influence the effects of shifts in supply on the equilibrium price and quantity in a
market. Ans) price elasticity
58. The ………………… is a mathematical expression which relates the quantity of factor inputs to the quantity of
outputs that result. Ans) production function
59. The …………………. Is defined in economics as a period of time where at least one factor of production is assumed
to be in fixed supply. Ans) short run production function
60. What happens to ………………… is linked directly to the productivity of each extra worker employed. Ans)
marginal product
61. …………………… measures the cost of any choice in terms of the next best alternative foregone. Ans) opportunity
cost
62. When economists refer to the “opportunity cost” of a resource, they mean the value of the ………………………. Use
of the resource. Ans) next-high-valued alternative
63. MC is …………………….. Ans) marginal cost
64. The relation between marginal cost and the quantity of production can represent by a ………….. Ans) curve
65. The key feature of …………………. Is the shape. Ans) marginal cost curve
66. ………………… is the slope of the total cost curve. Ans) marginal cost
67. As the total cost curve is parallel to the total variable cost curve, marginal cost is also the slope of the
…………………… curve. Ans) total variable cost
68. LRMC is ……………………. Ans) long-run marginal cost curve
69. SRMC is …………………… Ans) short run marginal cost curve
70. ATC is ……………………. Ans) average total cost
71. AVC is …………………… Ans) average variable cost
72. AFC is ……………………. Ans) average fixed cost
73. ………………….. costs include material costs, rent costs, wage cost, etc. Ans) production costs
74. ……………………. Costs includes transportation, marketing and selling costs. Ans) selling costs
75. ………………….. costs include insurance charges. Ans) sundry costs
76. GNP is …………………. Ans) gross national product
77. The amount of ………………. Refers to all those spending on currently produced final goods and services only. Ans)
expenditures
78. GNP at market prices= C+I+G+X-……………… Ans) M
79. ………………….. is a factor more important for nations with little natural resources. Ans) technology
80. ……………………… is best defined as a sustained increase in the general price level leading to a fall in the purchasing
power or value of money. Ans) inflation
81. When …………………. Occurs, the value of money becomes worthless and people lose all confidence in money.
Ans) hyperinflation
82. Inflation can come through several sources and some come directly through ……………… Ans) domestic economy
83. ……………… occurs when firms respond to rising costs, by increasing prices to protect their profit margins. Ans)
cost push inflation
84. A tightening of monetary policy involves higher interest rates to reduce consumer and investment …………………..
Ans) spending
85. How many types of unemployment are there? Ans) 4
86. Frictional unemployment is ……………… unemployment due to people moving between jobs. Ans) voluntary or
transitional.
87. ………………….. unemployment occurs when people are made jobless because of “capital-labour substitution”
which reduces the demand for labor in an industry. Ans) structural
88. ………………….unemployment is involuntary or “demand deficient” unemployment due to a lack of aggregate
demand Ans) cyclical
89. ……………………. Changes can affect the relative prices, and there by the competitiveness, of domestic and foreign
producers. Ans) Exchange rate
90. EER index is ……………………… Ans) effective exchange rate
91. ……………………….. accounts are an accounting record of all monetary transactions between a country and the rest
of the world. Ans) balance of payments
92. BOP is ………………….. Ans) balance of payments
93. How many are the major objectives of macroeconomic policy?................ Ans) 4
94. ILO is …………………..Ans) International labor organization
95. RPI is …………………….. Ans) retail price index
96. Economic growth tends to be measured in terms of the rate of change of ……………….. Ans)real GDP
97. GNP is …………………… Ans) gross national product
98. How many are the macro-economic policies in practice? Ans) 4
99. ……………….. contains of government expenditures and taxation. Ans) fiscal policy
100. Economic policy is ……………………Ans) marginal policy
101. Marginal benefit usually decreases as ……………….. of a good or service increases. Ans) consumption
102. ……………….. Influences the relative size of collective as opposed to personal consumption. Ans)
government expenditure
103. ……………….. is a measure of the welfare that people gain from the consumption of goods and services, or
a measure of the benefits they derive from the exchange of goods. Ans) consumer surplus
104. When the demand of a good or service is perfectly elastic, consumer surplus is ………….. because the
price that people pay matches precisely the price they are willing to pay. Ans) zero
105. Demand is totally invariant to a ………… change. Ans) price
106. When there is a shift in the demand curve leading to a change in the equilibrium market price and
quantity, then the level of ……………………. Will alter. Ans) consumer surplus
107. Producers often take advantage of ………………. While setting prices. Ans) consumer surplus
108. …………………… is a measure of producer welfare. Ans) producer surplus
109. DWL is …………………… Ans) dead weight loss
110. DWL is also known as …………………. Ans)excess burden or allocative inefficiency
111. A ……………. Is a loss economic efficiency that can occur when equilibrium for a good or service is not
pareto optimal. Ans) DWL
112. ………………. Loss created by a binding price selling. Ans) dead weight loss
113. ………………., over supply or excess of supply refers to excess of supply over demand of products being
offered to the market. Ans) over production
114. Any reduction in production implies a reduction in ………………. Ans) employment
115. The over production of commodities forces businesses to reduce production in order to ……………… Ans)
clear inventories
116. Any reduction in production implies a reduction in ……………. Ans) employment
117. A reduction in employment, in turn, reduces ……………. Ans) consumption
118. General reduction in the level of prices is called……………… Ans) deflation
119. ………………… refers to the excess of demand of products as compared to their supply in the market. Ans)
under production
120. In many sectors of the economy, markets are best described by the term …………….. where a few
producers dominate the majority of the market and the industry is highly concentrated. Ans) oligopoly
121. In a ………………. Two firms dominate the market although there may be many smaller players.
Ans)duopoly
122. In the short run the equilibrium ………………… is determined by the interaction between market demand
and market supply. Ans) market price
123. MRC is …………………. Ans) marginal revenue curve
 124. A firm maximizes profits when marginal revenue is equal to ……………… Ans) marginal cost
125. An ……………….. is a market dominated by a few large suppliers. Ans) Oligopoly
126. ……………….. firms compete on price so that the price and profits will be the same same as a competitive
industry. Ans) oligopoly
127. How many are the key characteristics of monopoly. Ans) 4
128. The four characteristics of monopoly mean that a monopoly has extensive ………………… Ans) market
control
129. A monopolist will seek to maximize profits by setting output where ………………. Ans) MC=MR
130. A ………………. Firm often has specialized information, such as patents and copyrights, which are not
available to other potential producers. Ans) monopoly
131. ………………… approximates most of the characteristics of perfect competition. Ans) monopolistic
characteristics
132. Demand is relatively ………………. In monopolistic competition because each firm faces competition from
a large number of very close substitutes. Ans) elastic
133. The basic elements of any theory are its ………………… Ans) variables.
134. A ………………….. is a magnitude that can take on different possible values. Ans) variable
135. …………………… are needed to test the predictions of economic theories. Ans) real world observations
136. In economics there is a division of labor between collecting data and using it to generate and
……………….. Ans) test theories.
137. Comparisons of relative changes can be made by expressing each price series as a set of …………………….
Ans) index numbers
138. Index numbers are calculated by dividing the current price by the base-year price and multiplying the
result by …………………. Ans) 100
139. A single …………………. Such as unemployment or GDP can come in two basic forms. Ans) economic
variable
140. …………………… data means a number of different observations on one variable taken in different places
at the same point in time. Ans) cross sectional data
141. ……………………….. type of data involves surveillance on one variable at successive points in time. Ans)
time series
142. A …………………….. is a scale is a scale of measurement using the logarithm of a physical quantity instead
of the quantity itself. Ans) Logarithmic scale
143. ……………….. Theories are constructed on the basis of assumptions about relationships between the
variables. Ans) graphing economic theories
144. …………………… shows the rate of change in one variable with respect to another variable. Ans) slope
145. ……………………. Relationships are more common than linear ones. Ans) non-linear

PART 2: NATIONAL INCOME AND DEMOGRAPHY

1. Income is derived from ……………. Main sources. Ans) 2
2. ……………………. Of income arises from differences in payments made for personal services and differences in the
amount of property owned by individuals. Ans) Inequality
3. Inequalities in income and wealth can be reduced by ……………………….. Ans) progressive taxation
4. National income is equal to total production and is equal to ……………… Ans) total expenditure
5. ………………… is money spent by firms in acquiring additional means of production? Ans) investment
6. ………………… includes spending on defense, education, health and social services etc is largely financed from
taxation and not from charging a price in the market place. Ans) government expenditures.
7. …………………money received for selling goods and services to foreign countries. Ans) Export
8. Output is calculated as consumer goods plus …………………….. Ans) investment
9. The national income figures are measured in ………….. separate forms. Ans) 3
10. The …………………….. is measured in order to assist governments with their economic policy of making and thus
hopefully attaining full employment and economic growth Ans) national income
11. For comparisons to be meaningful over a specific period of time inflation must be taken into account and so
national income must be measured in real …………….. Ans) prices
12. More plant and machinery per head generally results in a higher level of ………………….. in an economy. Ans)
output per head
13. How many classes of consumption are there ? ………………. Ans) 2
14. Household consumption is also known as ……………………. Ans) consumer expenditure
15. ………………….. is expenditure undertaken by government and other agencies on behalf of the citizens. Eg defense
or education. Ans) community consumption
16. ………………….. Consumption is assumed to be purely economic in nature and responsive to economic pressures.
Ans) personal consumption
17. ………………… is income not consumed. Ans) saving
18. The ………………….. is that proportion of any change in disposable income that will be spent on consumption of
goods and services. Ans) marginal propensity to consume
19. …………………. Is influenced by a range of factors such as utilization of existing productive capacity, expected
future levels of demand, new technology and the availability /cost of finance. Ans) investment expenditure
20. Aggregate demand = C+I+G+(X-M) = ……………………. Ans) national income
21. The income approach is the reverse of ………………… Ans) expenditure approach
22. The ………………………. To calculate GDP is to add together the total value of all the goods and services produced in
an economy. Ans) the output approach
23. GDP at market price is calculated by subtracting value of output in an economy in a particular year by
………………………. Ans) intermediate consumption
24. Any increase in government spending will result in a more than propotitionate change in national income is
known as ……………… Ans) the income multiplier
25. The degree of inequality can be shown by a widely used curve named the ………………… which is used to analyze
income and wealth inequality. Ans) Lorenz curve
26. The population of Pakistan ca be classified as rural and urban on the basis of ……………….. Ans) location
27. A common way of assessing income distribution is by using the …………………… Ans) Lorenz Curve
28. An important index of economic power is ………………. Ans) wealth
29. …………….. is much more unequally distributed in market economies than income. Ans) wealth
30. The earnings of labor constitute ……………….. % of factor incomes. Ans) 80%
31. Education and training also play a vital role in creating differences/disparity among …………………. Ans) income
classes.
32. Poverty is a condition in which people have inadequate incomes to fulfill ………………….. Ans) basic needs
33. NGO is ………………………. Ans) non-governmental organizations
34. PRSP is ……………………… Ans) poverty reduction strategy papers
35. IMF is …………………….. Ans) international monetary funds
36. JSA is ………………………. Ans) joint staff assessments
37. Social safety nets are also called as ……………………… Ans) socio-economic safety nets
38. Cash transfers and fee waivers and exemptions for health care are included in …………………. Ans) safety net
transfers
39. The …………………… households are poor even in good times. Ans) the chronic poor
PART 3: INFLATION
1. ………………….. is the rise in the general level of prices and a fall in the value of money over a period of time. Ans)
Inflation
2. Inflation is considered as the ………………… in the price level over time. Ans) increase
3. Keynesian economists identify……………. Types of inflation. Ans) 2
4. Demand pull inflation and cost push inflation are both identified by ………………. Economists. Ans) Keynesian
5. ……………….. occurs when total spending in the economy exceeds the total value at current prices of what the
economy is able to produce. Ans) demand pull inflation
6. The …………………….. shows that low rates of unemployment are associated with higher rates of inflation and low
rates of inflation are associated with higher rates of unemployment. Ans) Phillips curve
7. Pricing power is considered as one of the rise in sectoral ……………….. Ans) inflation
8. ………………… is also called a falling price level. Ans) deflation
9. ……………….. occurs due to decline in the rate of inflation. Ans) Disinflation
10. ……………….. is the opposite of Disinflation. Ans) reflation
11. ………………… is generally used by governments to induce economic activity in the country. Ans) Reflation
12. The economy is hit by …………………. During recession. Ans) Depression
13. ……………….. occurs when the economy is moving from recession to depression. Ans) Stagflation
14. ……………….. occurs when a government’s spending exceeds its income it creates a budget deficit. Ans) fiscal
inflation
15. ……………….. is the idea that if government starts borrowing money and spending it on development hence
raising outputs and reducing unemployment and so it would raise the over all state of the economy. Ans) Fiscal
stimulus
16. ……………….. is a state where inflation runs out of control. Ans) Hyperinflation
17. The highest rate of hyper inflation was witnessed in ……………… in 1946, after world war II. Ans) Hungary
18. CPI is …………………… Ans) consumer price index
19. A ………………. Is a weighted average of the prices of a number of goods and services. Ans) price index
20. The ………..is an average showing what has happened to the general level of prices. Ans) CPI
21. When calculating CPI, any particular year is made a base year, also called the ………………….. Ans) Index reference
period
22. ……………………. Are not included in CPI computerization. Ans) Taxation
23. ……………….. is a measure of the price of all the goods and services included in GDP. Ans) GDP deflator
24. ……………………. Is the month on month or year on year change in inflation. Ans) Inflation rate
25. RPI is ……………………… Ans) retail price index
26. Redistribution of income and wealth is a problem of ………………….. Ans) Inflation
27. PNSP is …………………. Ans) Public sector net borrowing
28. Cost push and demand pull inflation may occur …………………. Ans) together
29. The impact of the PNSB on money supply growth and inflation in the economy depends on how it is …………………
Ans) financed
30. Debt sales by the treasury includes national savings instruments and ………………(gilts) Ans) government stocks
31. SPI is …………………….. Ans) sensitive price index
32. WPI is …………………….. Ans) wholesale price index
33. ………………. Is the most commonly used indicator of inflation in most countries including Pakistan as it covers the
widest range of inputs . Ans) CPI
34. Pakistan has suffered from consistently high inflation rates in recent years , peaking at 25.33% in ………………..
Ans) August 2008

PART 4: UNEMPLOYMENT
1. ………………… occurs when there are qualified individuals and skilled workers who are willing to work at the wage
rates prevailing in the labor market but are unable to find jobs. Ans) Unemployment
2. ……………….. refers to the temporary unemployment people may experience when changing jobs. Ans) Frictional
unemployment
3. …………………… levels of unemployment benefit reduce the incentive to find work and may add to search
unemployment Ans) high
4. …………………….. is a much more serious form of unemployment and is the result of long-term changes in the
structure of the economy. Ans)Structural unemployment
5. …………………. Refers to unemployment caused by the seasons of the year. Ans) Seasonal unemployment
6. The residual unemployment are all those people who, on account of physical or mental disability, are unable to
find ……………….. Ans) employment
7. In recent years, government have attempted to reduce ……………….. Which is also called voluntary
unemployment by withdrawing or reducing some state benefits. Ans) Residual Unemployment
8. This type of unemployment is associated with the trade or business cycle in a market economy. Ans) cyclical
unemployment
9. Demand deficiency is also called…………………… Ans) cyclical employment
10. During a recession, the general deficiency in ………………… affects nearly all industries. Ans) Demand
11. Neo- classical economists are from………………….. Ans) 1920’s to 1930’s
12. The theory “ general theory of unemployment, interest and money” published in 1936 was offered by
…………………… Ans) Keynes
13. …………………… take a different view of unemployment from Keynesians. Ans) Monetarists
14. ……………….. accepts that the economy does not automatically produce full employment. Ans) Monetarists
15. ILO is ……………….. Ans) international labor standards.
16. ……………….. include the monthly statistics of the unemployed individuals who visit different organizations in
search of a job. Ans) employment office statistics
17. ....................survey is considered to be the most effective hence it is the most preferred method of measuring
unemployment. Ans) Labor force sample survey
18. ……………. Are determined by combining two or more than two methods of measuring unemployment. Ans)
Official estimates
19. Calculation of unemployment rate is by dividing unemployed workers divided by ……………… Ans) total labor
force
20. The relationship between unemployment and inflation was discovered by ……………………… Ans) Arthur Okunin
21. The law proposed by Arthur Okunin is called……………….. Ans) Okun’s law
22. ……………………..law describes a relationship between the change in the rate of unemployment and the difference
the actual and potential real GDP. Ans) Okun’s law
23. A typical ………………. Occurs when aggregate demand starts declining relative to aggregative supply. Ans)
Recession
24. …………………… is an economist who quantified the determinants of age inflation, developed a useful way of
representing the process of inflation. Ans) Phillips’s curve
25. The …………………. Is used to analyze the short-run movements in unemployment and wage inflation. Ans)
Philips’s curve
26. Rate of …………………. is calculated by subtracting rate of wage growth by rate of productivity growth. Ans)
Inflation
27. The natural rate of ……………. Is that rate at which the upward and downward forces on price and wage inflation
are in balance? Ans) Unemployment
28. When the unemployment rate deviates from the natural rate of unemployment, the inflation rate will tend to
…………………… Ans) change
29. AD is …………………… Ans) aggregate demand
30. LAS is ……………… Ans) Long run aggregate supply
 31. A movement along the aggregate supply curves can be seen due to the price level but it does not change
………………. Ans) aggregate supply
32. SAS is ………………….. Ans) short run aggregate supply
33. The quantity of capital increases and technology advances are reasons for the increase of …………………. Ans) GDP
34. Increased production over the past two centuries has occurred due to an important source which is
…………………… Ans) technological advances
35. The reason for the decrease in the short-run aggregate supply due to rise in money wage rate is the increase in
firm’s ………………... Ans) costs

PART 5: TRADE BALANCE AND EXCHANGE RATE

1. The ………………….. of a country shows the relationship between the total payments into an out of that country in
a given period. Ans) Balance of payment
2. Balance of payment accounts are divided into ………………….broad parts. Ans) 2
3. ………………………account deals with payments of goods and services, interest and transfers. Ans) Current account
4. Capital account deals with transaction in …………………… Ans) assets
5. ……………..should increase if domestic GDP increases and domestic GDP decreases. Ans) Current account
6. CAB is………………… Ans) current account balance
7. NCT is ………………….. Ans) Net current transfers
8. ………………… records the inflow and outflow of capital and incorporates capital movements by private
individuals, institution, corporations and government. Ans) Capital account
9. FDI is …………………. Ans) foreign direct investment
10. ………………… is an attempt to reduce the level of import demand in an economy by fiscal and monetary
measures. Ans) Deflation
11. A reduction in economic activity will generally involve a rise in ……………. Ans) unemployment
12. AD is …………………. Ans) Authorized dealers
13. Transactions under the ………………. Consist of payments/receipts on account of shipment, transportation, travel,
investment income and other services. Ans) Services account
14. NRI is……………… Ans) non-repatriable investment
15. Transactions which involve no financial compensation, the balance of payments methodology includes a
category called …………….. Ans) Transfers
16. FEBC is ………………… Ans) foreign exchange bearer certificates
17. VCBC is…………………… Ans) foreign currency bearer certificates
18. ……………………. Is one of the largest and most important components of the county’s balance of payments. Ans)
balance of trade
19. The goods that Pakistan exports are…………….. Ans) rice, future, fiber, cement etc
20. The major imports of Pakistan are ………………. Ans) petroleum, machinery, plastics, transportation
equipment, edible oils etc
21. ………………….. can be defined as the foreign currency price of a unit of the domestic currency. Ans) Exchange rate
22. What does free float means…………… Ans) no central bank intervention
23. Under a …………….. the exchange rate is always changing to a new equilibrium rate. Ans) free float
24. ……………… has provided no real freedom for domestic economic policy actions. Ans)floating
25. .................. theory combines the investment demand curve with the supply of savings cuve. Ans) classical
theory
26. The equilibrium interest rate is the rate at which savings and investment are …………. For a particular time
period. Ans) Equal
27. RIR is ……………….. Ans) real interest rate
28. NIR is ……………….. Ans) nominal interest rate
 29. The pattern of …………….. is the result of factors such as risk, maturity and competition. Ans) interest rates
30. An economy In which international trade is allowed and individuals and businesses trade goods and services
with the individual and businesses in other countries are termed as ………………. Ans) open economy
31. A………………….. Exists when a country can continue to survive without external existence. Ans) Closed economy
32. KIBOR is …………………. Ans) Karachi interbank offer rate

PART 6: MONEY
1. ………………. Is anything that can be traded for goods and services. Ans) Money
2. ………………. Cheques mean that the transaction was not fully carried out and for this reason cheques cannot be
counted as money. Ans) outstanding cheques.
3. MV = ………………. Ans) PT
4. According to ……… there are 3 motives which determine a person’s demand for liquidity. Ans) Keynes
5. The …………….theory is an investment theory which, for a given amount of portfolio risk, , aims at maximizing
portfolio expected return. Ans) portfolio management theory
6. ………………. Theory has suffered much criticism including the fact that financial returns do not follow any kind of
symmetric pattern. Ans) portfolio management theory.
7. ………………….. fundamentally differs from commodities and goods. Ans) money
8. In P=M/kR , ‘p’ stands for……………………… Ans) price level
9. John Maynard Keynes in his book …………………….., talked about liquidity preference theory. Ans) the geneal
theory of employment, interest and money
10. The rate of interest of money is determined at the level where demand and supply curve of money are
……………… Ans) interacting

PART 7: DEMAND AND SUPPLY OF MONEY

1. The ………………. Can be describes as the total amount of wealth in an economy that everyone is wishing to hold
in the form of money. Ans) Demand for money
2. As a caution against cash crises, when disbursements are abnormally high, firms and individuals carry
…………………. Ans) cash balances
3. The characteristics of money mean that it can be held as an ……………… Ans) asset
4. Real money equals to ………………………… divided by price level. Ans) nominal money
5. If at any interest rate, the nominal price of the goods and services increase, the demand for money will be
………………. Or vise versa. Ans) increase
6. The increase in the total output results in real GDP and this in turn increases the demand for …………….. in the
economy. Ans) Money
7. When the economy is growing, people get better ……………….., thus at the same price level they can consume
more goods. Ans) Incomes
8. The rise in the nominal interest rate ………………….. the quantity of money demanded. Ans)decreases
9. Higher interest rates, indicate higher return on the …………………… Ans) savings
10. ……………….. depreciates the value of money. Ans) inflation
11. The higher is the expected interest rate, the ………………. Is the nominal interest rate. Ans) Higher
12. Technological advancements in banking and introduction of new financial products have changed the quantity of
……………….. held by people. Ans) money
13. The demand of money is explained by the relationship between the nominal interest rate and the quantity of
……………… demanded. Ans) money
 14. The change in price level, GDP or financial innovation has a direct relationship with ………………… Ans) quantity
demanded.
15. The central bank controls the supply of money by using …………………….. Ans) monetary policy
16. OCD is ……………………….. Ans) other checkable deposits
17. ATS is…………………………. Ans) Automatic transfer service
18. M1 is on the ………………………… function of money. Ans) medium-of-exchange
19. ………………….. occurs when the quantity of money demanded equals the supply of money Ans) money market
equilibrium
20. Banks create …………….. by creating deposits for savers and by making loans to the borrowers. Ans) money
21. The …………………. Is also called high power money. Ans) monetary base
22. The monetary base which includes notes and coins in a bank’s vault and the deposits it has in the central bank
are the bank’s actual …………………. Ans) reserves
23. As per central bank regulations, banks are required to maintain a specified percentage of total deposits as
………………….. Ans) reserves
24. A banks ……………… reserves are its actual reserves minus its desired reserves. Ans) excess reserves
25. A factor that limits the money supply is the desire of indivisuals to hold money in the form of ………………….. Ans)
currency
26. ………………….. can be created when the monetary base increases and there is excess reserves in the banking
system. Ans) money
27. The …………… reserves also increase by the same amount as the increase in the deposits. Actual
28. What does ‘L’ signifies in the formula of money multiplier? Ans) Fraction of money
29. The money introduced into the system …………………… when it is circulated around. Ans) increases
30. The ………………….. of money multiplier depends on the desired reserve ratio and the currency drain ratio Ans)
magnitude
31. Change in quantity of money = change in monetary base X …………………….. Ans) money multiplier
32. The ……………………. Is the magnification effect of a change in government expenditure in goods and services on
aggregate demand. Ans) government expenditure multiplier
33. The autonomous tax multiplier is the magnification effect of a change in autonomous taxes on ……………….. Ans)
aggregate demand
34. The ………………….. is the magnification effect on aggregate demand of a simultaneous change in government
expenditure and taxes. Ans) Balanced budget multiplier
35. When government expenditure and taxes increases by a rupee, aggregate demand ………………… Ans) increases.

PART 8: MONETARY POLICY

1. ………………….. is the use of interest rates and level of money supply to manage the economy. Ans) monetary
policy
2. Monetary policy is usually set by ………………… Ans) central bank
3. Monetary policy has …………………..main objectives. Ans) 4
4. Economic growth and reasonable stability of the price level are objectives of …………………… Ans) monetary policy
5. Monetary policy is based on the view that money supply, bank credit and interest rates influence the behavior of
………………………. Ans) real economy
6. The objective of monetary policy has always been to create a …………………….. economy. Ans) financially stable
7. Direct instruments are …………………. Of the financial prices(interest rates) Ans) Direct control
8. OMO is …………………… Ans) open market operations
9. The central bank is responsible for setting short-term interest rates in order to keep inflation within the
government’s …………………. . Ans) inflation target
10. CDR is ………………………. Ans) credit deposit ratio
 11. A number of policy changes have been made since ………………. To move towards indirect and market based
monetary management. Ans) 1990-91
12. OMO is ……………………… Ans) open market operations
13. The central bank uses ……………………. To influence the price of gilts and interest rates. Ans)open market
operations
14. The central bank also influences long-term interest rates by buying and selling long-term government securities
(t-bill edged) on the …………………….. Ans) stock exchange
15. The ………………… is the largest dealer in the market to t-bills edged securities on the stock exchange. Ans) central
bank
16. A repo is a ………………….. Ans) sale and repurchase agreement
17. The central bank uses …………………….. to increase investment and consumption in an economy by increasing
money supply which in return reduces interest rates. Ans) expansionary monetary policy
18. …………………….policies are about cutting interest rates and allowing money supply to increase. Ans) expansionary
policies
19. The central bank uses …………………….. to decrease consumption by reducing money supply in the economy which
results in higher interest rates. Ans) contractionary monetary policy
20. ……………………… policy deals in increasing interest rates and reducing money supply. Ans) contractionary
monetary policy

PART 9: FISCAL POLICY

1. ………………….. is the use of the government budget to affect an economy. Ans) fiscal policy
2. The federal budget is built on ………………….primary objectives. Ans) 2
3. The two main components of budget are tax revenues and ………………………. Ans) outlays
4. Outlays are classified into …………………. Categories. Ans) 3
5. Budget balance = tax revenues - ……………….. Ans) outlays
6. How many types of budget are there ? Ans) 3
7. …………………… budget records actual rupee expenditures. Ans) actual budget
8. ……………………. Budget calculates the government expenditures Ans) structural budget
9. Cyclical budget calculates the impact of ………………….. on the budget. Ans) business cycle
10. ……………………. Plays a vital role in shaping government expenditures and taxation. Ans) fiscal policy
11. ……………….policy can be used as a supply-side tool and demand-side tool Ans) Fiscal policy
12. The most immediate impact of fiscal policy is to change the aggregate …………………… Ans) demand for goods and
services.
13. Fiscal policy has an influence on both aggregate demand and ………………… Ans) aggregate supply
14. One form of counter cyclical fiscal policy is known as ……………………….. Ans) automatic stabilizers
15. Business cycle ………………..may continue even after using automatic stabilizers. Ans) swings
16. A discretionary fiscal policy is one in which the government changes ………………. or spending programs. Ans)tax
rates
17. The country’s total saving is composed of ……………… Ans) two parts

PART 10: TRANSMISSION MECHANISM OF MONETARY POLICY AND THE IMPACT OF

BANKING SECTOR CREDIT
1. ……………………… refers to the level of loans required by firms and individuals. Ans) credit
2. Bank ………………. channel refers to the supply of loan-able funds available to banks deposits. Ans) lending
3. TFC is ……………………. Ans) term finance certificates
 4. …………………… refers to the impact monetary policy can have through the balance sheets of corporate entities.
Ans) balance sheet channel
5. KIBOR is …………………… Ans) Karachi interbank offer rate
6. SBP focuses on …………………… specifically to deal with the demand for commodities other than necessities. Ans)
market interest rates
7. When SBP changes the …………….., it may also affect the exchange rate of the Pak Rupee relative to other
currencies. Ans) discount rate
8. An increase in SBP’s discount rate affects ………………… Ans) financial assets
9. The central bank uses ………………… to decrease consumption by reducing money supply in the economy . Ans)
contractionary monetary policy
10. The government or central bank can also try to cut the level of money supply growth to cut ……………….. Ans)
inflation

PART 11: CENTRAL BANKS AND MONETARY POLICY REGIMES

1. During the …………….., many central banks thought that a change in monetary policy strategies is necessary to
control inflation and unemployment more efficiently. Ans) 1970’s
2. One important monetary policy strategy is to set …………….via focusing on different variables. Ans) economic
targets
3. Monetary targeting refers to the setting of a rate of growth of money (usually M2) by the ……………….. for the
next year. Ans) central bank
4. Du to financial innovations, financial systems around the world changed rapidly during the ……………….. and
1980’s. Ans) 1970’s
5. To keep interest rates at the targeted level, the central bank has to increase or decrease ………………. Ans) money
supply
6. Encyclopedia of macroeconomics(Edward Elgar: Cheltenham U.K 2002) identifies …………………. key elements of
inflation targeting as a monetary policy. Ans) five
7. The central bank of ……………………. Was the first bank to publically announce a set inflation targets in 1990 and is
the prime example of the success of inflation targeting Ans) New Zealand
8. In ………………….. targeting, the central bank directly targets the ultimate goal (inflation), instead of first setting
targets for intermediate goals. Ans) Inflation
9. A quality of inflation targeting is its ……………………… Ans) flexibility
10. The central bank becomes more accountable for its actions as transparency increases, though the level of
………………. Differs across economies. Ans) accountability
11. The strongest case of central bank accountability is ……………… Ans) New Zealand
12. …………………. Targeting refers to policy where the central focuses on exchange rate as the monetary policy
anchor in order to target imported inflation. Ans) Exchange Rate
13. The government/ central bank may choose to tie the value of …………………….. with a commodity such as gold.
Ans) Domestic currency
14. A ………………… rate regime can also take the form of managed float. Ans) floating exchange rate
15. The most important advantage of exchange rate targeting is its control over …………………. Ans) imported inflation
16. Exchange rate targeting also influences ……………………. Ans) interest rates
17. A fixed exchange rate will require interest rates to be flexible in order to control capital inflows/outflows and
……………………….. Ans) domestic economic activity
18. One analysis of ………………… conduct is based upon the Mundell Fleming model. Ans) Monetary policy
PART 12: IMPACT OF FISCAL AND MONETARY POLICIES ON EQUILIBRIUM
 Least important for MCQ’s
1. Economies use policy mix to address unemployment, inflation and ……………… Ans) aggregate demand
2. Government’s expansionary ………………….. policy increases the demand for goods and services and pushes the IS
curve to the right. Ans) fiscal
3. A rise in the interest rate will bring about a reduction in ……………………… Ans) investment
4. The flow of ……………………. Will improve Pakistan’s balance of payments. Ans) foreign capital
5. MFPCB is …………………… Ans) monetary and fiscal policies coordination board
6. Increase in international oil price and other commodity prices also passed on what we call …………………….. Ans)
Imported Inflation

PART 13: THE WORLD ECONOMY: IMTERNATIONAL MONETARY INSTITUTIONS

1. The modern history of international monetary institutions can be traced back to ………………… Ans) 1944
2. The modern history of international monetary institutions can be traced back to to formation of
…………………………. Ans) Bretton Woods System
3. IMF is ……………………. Ans) International monetary Fund
4. IBRD is …………………………. Ans) International Bank for reconstruction and development
5. IBRD is now known as a part of the ……………………group. Ans) world bank group
6. IMF was established in …………………………. Ans) 1945
7. IMF became operational in March ……………………… Ans) 1947
8. The basic function of the IMF is to provide loans to enable countries to meet short and medium term balance of
……………………. Ans) payments problems
9. A country’s …………………….. quota (or contribution) determines its voting power and rawing rights (borrowing
power) within the IMF. Ans) IMF
10. …………………….. is a scheme of IMF where no conditions are set on its use except balance of payments needs and
no interest is payable when a country uses this scheme. Ans) Reserve tranche (25% of member’s quota)
11. ……………….. is a medium term facility was established to provide members with financial assistance to overcome
structural , deep rooted balance of payments. Ans) Extended fund (or Arrangement Facility)
12. CCF is ………………………… Ans) Compensatory financing facility
13. SRF is ………………………… Ans) supplemental reserve facility
14. PRGF is ………………………. Ans) poverty reduction and growth facility
15. The world bank became operational in ………………. With thirty eight member country shareholders. Ans)
December 1945
16. The former name of World Bank is ……………….. confirmed its initial concern with postwar reconstruction in
Europe. Ans) IBRD
17. The demise of European empires in Africa and Asia is called …………………… Ans) decolonialisation
18. LDC is …………………….. Ans) lesser developed countries
19. The …………………….makes loans to member nations were private capital is not available to finance reproductive
investments. Ans) World bank
20. IBRD is ……………………….. Ans) International Bank for reconstruction and development
21. IDA is …………………… Ans)International development association
22. The …………………… was established to make loans to low income LDC’s at a concessionary interest rate. Ans) IDA
23. The IDA ‘s are known as ………………….. Ans) development credits
24. IFC is …………………….. Ans) international finance corporation
25. MIGA is ……………………. Ans) multilateral insurance gurantee agency
26. MIGA provides insurance against ……………….. specific types of risk. Ans) 4
27. ICSID is ………………… Ans) international center for settlement of investment disputes
 28. Bank charges interest rates on its ……………….. Ans) loans
29. ADB is ……………………. Ans) Asian development Bank of Pakistan
30. ADP was established in ……………………. Ans) 1996
31. OCR is ………………………. Ans) Ordinary Capital Resources
32. BIS is …………………… Ans) Bank for international settlements
33. …………………….. was created by German War repatriations after the first world war. Ans) BIS
34. The ,…………………………. of 2008 was a severe economic down turn characterized by an acute liquidity shortfall in
the US and European banking system Ans) Global financial crisis

THE UNFOLDING OF GLOBAL ECONOMIC CRISIS:

Following is a timeline of major events during the financial crisis, including government responses, and the subsequent
economic recovery:

 May 19, 2005: Fund manager Michael Burry closed a Credit Default Swap against subprime mortgage bonds
with Deutsche Bank valued at $60 million – the first such CDS. He projected they would become volatile within two
years of the low "teaser rate" of the mortgages expiring.
 2006: After years of above-average price increases, housing prices peaked and mortgage loan delinquency rose,
leading to the United States housing bubble. Due to lax underwriting standards, one-third of all mortgages in 2006
were low or no-documentation loans (stated income loans) or subprime loans, which were 17-20% of loan
originations.
 February 27, 2007: Stock prices in China and the U.S. fell by the most since 2003 as reports of a decline in home
prices and durable goods orders stoked growth fears, with Alan Greenspan predicting a recession. Due to increased
delinquency rates in subprime lending, Freddie Mac said it will stop investing in certain subprime loans.
 April 2, 2007: New Century, an American real estate investment trust specializing in Subprime
lending and securitization, filed for Chapter 11 bankruptcy protection. This propagated the subprime mortgage
crisis.
 June 20, 2007: After receiving margin calls, Bear Stearns bailed out two of its hedge funds with $20 billion of
exposure to collateralized debt obligations including subprime mortgages. Bear Stearns said that the problem was
contained.
 July 31, 2007: Bear Stearns liquidated the two hedge funds.
 August 6, 2007: American Home Mortgage filed bankruptcy.
 August 9, 2007: BNP Paribas blocked withdrawals from three of its hedge funds with a total of $2.2 billion in assets
under management, due to "a complete evaporation of liquidity", making valuation of the funds impossible – a clear
sign that banks were refusing to do business with each other.
 September 14, 2007: Northern Rock, a medium-sized and highly leveraged British bank, received support from
the Bank of England. This led to investor panic and a bank run.
 September 18, 2007: The Federal Open Market Committee began reducing the federal funds rate from its peak of
5.25% in response to worries about liquidity and confidence.
 September 28, 2007: NetBank suffered from bank failure and filed bankruptcy due to exposure to home loans.
 October 9, 2007: The Dow Jones Industrial Average (DJIA) hit its peak closing price of 14,164.53.
 October 15, 2007: Citigroup, Bank of America, and JPMorgan Chase announced plans for the $80 billion Master
Liquidity Enhancement Conduit to provide liquidity to structured investment vehicles. The plan was abandoned in
December.
 December 17, 2007: Delta Financial Corporation filed bankruptcy after failing to securitize subprime loans.
 December 12, 2007: The Federal Reserve instituted the Term auction facility to supply short-term credit to banks
with sub-prime mortgages.
 January 11, 2008: Bank of America agreed to buy Countrywide Financial for $4 billion in stock.
 January 18, 2008: Stock markets fell to a yearly low as the credit rating of Ambac, a bond insurance company was
downgraded.
 January 2008: U.S. stocks had the worst January since 2000 over concerns about the exposure of companies that
issue bond insurance.
 February 13, 2008: The Economic Stimulus Act of 2008 was enacted, which included a tax rebate.[92][93]
 February 22, 2008: The nationalization of Northern Rock was completed.
 March 5, 2008: The Carlyle Group received margin calls on its mortgage bond fund.
 March 17, 2008: Bear Stearns, with $46 billion of mortgage assets that had not been written down and $10 trillion in
total assets, faced bankruptcy; instead, in its first emergency meeting in 30 years, the Federal Reserve agreed to
guarantee its bad loans to facilitate its acquisition by JPMorgan Chase for $2/share. A week earlier, the stock was
trading at $60/share and a year earlier it traded for $178/share. The buyout price was increased to $10/share the
following week.
 March 18, 2008: In a contentious meeting, the Federal Reserve cut the federal funds rate by 75 basis points, its 6th
cut in 6 months. It also allowed Fannie Mae & Freddie Mac to buy $200 billion in subprime mortgages from banks.
Officials thought this would contain the possible crisis. The U.S. dollar weakened and commodity prices soared.
 Late June 2008: Despite the U.S. stock market falling to a 20% drop off its highs, commodity-related stocks soared as
oil traded above $140/barrel for the first time and steel prices rose above $1,000 per ton. Worries
about inflation combined with strong demand from China encouraged people to invest in commodities during
the 2000s commodities boom.
 July 11, 2008: IndyMac failed.
 July 30, 2008: The Housing and Economic Recovery Act of 2008 was enacted.
 September 7, 2008: The Federal takeover of Fannie Mae and Freddie Mac was implemented.
 September 15, 2008: After the Federal Reserve declined to guarantee its loans as it did for Bear Stearns,
the Bankruptcy of Lehman Brothers led to a 504-point drop in the DJIA, its worst decline in seven years. To avoid
bankruptcy, Merrill Lynch was acquired by Bank of America for $50 billion in a transaction facilitated by the
government. Lehman had been in talks to be sold to either Bank of America or Barclays but neither bank wanted to
acquire the entire company.
 September 16, 2008: The Federal Reserve took over American International Group with $85 billion in debt and
equity funding. The Reserve Primary Fund "broke the buck" as a result its exposure to Lehman Brothers securities.
 September 17, 2008: Investors withdrew $144 billion from U.S. money market funds, the equivalent of a bank
run on money market funds, which frequently invest in commercial paper issued by corporations to fund their
operations and payrolls, causing the short-term lending market to freeze. The withdrawal compared to $7.1 billion
in withdrawals the week prior. This interrupted the ability of corporations to rollover their short-term debt. The U.S.
government extended insurance for money market accounts analogous to bank deposit insurance via a temporary
guarantee and with Federal Reserve programs to purchase commercial paper.
 September 18, 2008: In a dramatic meeting, United States Secretary of the Treasury Henry Paulson and Chair of the
Federal Reserve Ben Bernanke met with Speaker of the United States House of Representatives Nancy Pelosi and
warned that the credit markets were close to a complete meltdown. Bernanke requested a $700 billion fund to
acquire toxic mortgages and reportedly told them: "If we don't do this, we may not have an economy on Monday.”
 September 19, 2008: The Federal Reserve created the Asset Backed Commercial Paper Money Market Mutual Fund
Liquidity Facility to temporarily insure money market funds and allow the credit markets to continue operating.
 September 20, 2008: Paulson requested the U.S. Congress authorize a $700 billion fund to acquire toxic mortgages,
telling Congress "If it doesn't pass, then heaven help us all."
 September 21, 2008: Goldman Sachs and Morgan Stanley converted from investment banks to bank holding
companies to increase their protection by the Federal Reserve.
 September 22, 2008: MUFG Bank acquired 20% of Morgan Stanley.
 September 23, 2008: Berkshire Hathaway made a $5 billion investment in Goldman Sachs.
 September 26, 2008: Washington Mutual went bankrupt and was seized by the Federal Deposit Insurance
Corporation after a bank run in which panicked depositors withdrew $16.7 billion in 10 days.
 September 29, 2008: By a vote of 225–208, with most Democrats in support and Republicans against, the House of
Representatives rejected the Emergency Economic Stabilization Act of 2008, which included the $700
billion Troubled Asset Relief Program. In response, the DJIA dropped 777.68 points, or 7%, its largest point drop in
history. The S&P 500 Index fell 8.8% and the Nasdaq Composite fell 9.1%. Several stock market indices worldwide
fell 10%. Gold prices soared to $900/ounce. The Federal Reserve doubled its credit swaps with foreign central banks
as they all needed to provide liquidity. Wachovia reached a deal to sell itself to Citigroup; however, the deal would
have made shares worthless and required government funding.
 September 30, 2008: President George W. Bush addressed the country, saying "Congress must act. ...Our economy
is depending on decisive action from the government. The sooner we address the problem, the sooner we can get
back on the path of growth and job creation." The DJIA rebounded 4.7%.
 October 1, 2008: The U.S. Senate passed the Emergency Economic Stabilization Act of 2008.
 October 2, 2008: Stock market indices fell 4% as investors were nervous ahead of a vote in the U.S. House of
Representatives on the Emergency Economic Stabilization Act of 2008.
 October 3, 2008: The House of Representatives passed the Emergency Economic Stabilization Act of 2008. Bush
signed the legislation that same day. Wachovia reached a deal to be acquired by Wells Fargo in a deal that did not
require government funding.
 October 6–10, 2008: From October 6–10, 2008, the Dow Jones Industrial Average (DJIA) closed lower in all five
sessions. Volume levels were record-breaking. The DJIA fell over 1,874 points, or 18%, in its worst weekly decline
ever on both a points and percentage basis. The S&P 500 fell more than 20%.
 October 7, 2008: In the U.S., per the Emergency Economic Stabilization Act of 2008, the Federal Deposit Insurance
Corporation increased deposit insurance coverage to $250,000 per depositor.
 October 8, 2008: The Indonesian stock market halted trading after a 10% drop in one day.
 October 11, 2008: The head of the International Monetary Fund (IMF) warned that the world financial system was
teetering on the "brink of systemic meltdown".
 October 14, 2008: Having been suspended for three successive trading days (October 9, 10, and 13), the Icelandic
stock market reopened on October 14, with the main index, the OMX Iceland 15, closing at 678.4, which was about
77% lower than the 3,004.6 at the close on October 8, after the value of the three big banks, which had formed
73.2% of the value of the OMX Iceland 15, had been set to zero, leading to the 2008–2011 Icelandic financial
crisis.The Federal Deposit Insurance Corporation created the Temporary Liquidity Guarantee Program to guarantee
the senior debt of all FDIC-insured institutions through June 30, 2009.
 October 16, 2008: A rescue plan was unveiled for Swiss banks UBS AG and Credit Suisse.
 October 24, 2008: Many of the world's stock exchanges experienced the worst declines in their history, with drops
of around 10% in most indices.[132] In the U.S., the DJIA fell 3.6%, although not as much as other
markets.[133] The United States dollar and Japanese yen and the Swiss franc soared against other major currencies,
particularly the British pound and Canadian dollar, as world investors sought safe havens. A currency
crisis developed, with investors transferring vast capital resources into stronger currencies, leading many
governments of emerging economies to seek aid from the International Monetary Fund. Later that day, the deputy
governor of the Bank of England, Charlie Bean, suggested that "This is a once in a lifetime crisis, and possibly the
largest financial crisis of its kind in human history." In a transaction pushed by regulators, PNC Financial
Services agreed to acquire National City Corp.
 November 6, 2008: The IMF predicted a worldwide recession of −0.3% for 2009. On the same day, the Bank of
England and the European Central Bank, respectively, reduced their interest rates from 4.5% to 3%, and from 3.75%
to 3.25%.
 November 10, 2008: American Express converted to a bank holding company.
 November 20, 2008: Iceland obtained an emergency loan from the International Monetary Fund after the failure of
banks in Iceland resulted in a devaluation of the Icelandic króna and threatened the government with bankruptcy.
 November 25, 2008: The Term Asset-Backed Securities Loan Facility was announced.
 November 29, 2008: Economist Dean Baker observed:
There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their
homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression.
This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit
card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On
the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their
creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in
November 2007... While many banks are obviously at the brink, consumers and businesses would be facing a much
harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the
loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth.

 December 6, 2008: The 2008 Greek riots began, sparked in part by economic conditions in the country.
 December 16, 2008: The federal funds rate was lowered to zero percent.
 December 20, 2008: Financing under the Troubled Asset Relief Program was made available to General
Motors and Chrysler.
 January 6, 2009: Citi argued Singapore in 2009 would experience "the most severe recession in Singapore’s history".
In the end the economy grew in 2009 by 3.1% and in 2010
 January 20–26, 2009: The 2009 Icelandic financial crisis protests intensified and the Icelandic government collapsed.
 February 13, 2009: Congress approved the American Recovery and Reinvestment Act of 2009, a $787 billion
economic stimulus package. President Barack Obama signed it the same day.
 February 20, 2009: The DJIA closed at a 6-year low amidst worries that the largest banks in the United States would
have to be nationalized.
 February 27, 2009: The DJIA closed its lowest value since 1997 as the U.S. government increased its stake in
Citigroup to 36%, raising further fears of nationalization and a report showed that GDP shrank at the sharpest pace
in 26 years.
 Early March 2009: The drop in stock prices was compared to that of the Great Depression.
 March 3, 2009: Obama stated that "Buying stocks is a potentially good deal if you've got a long-term perspective on
it".
 March 6, 2009: The Dow Jones hit its lowest level of 6,443.27, a drop of 54% from its peak of 14,164 on October 9,
2007, over a span of 17 months, before beginning to recover.
 March 10, 2009: Shares of Citigroup rose 38% after the CEO said that the company was profitable in the first two
months of the year and expressed optimism about its capital position going forward. Major stock market indices
rose 5-7%, marking the bottom of the stock market decline.
 March 12, 2009: Stock market indices in the U.S. rose another 4% after Bank of America said it was profitable in
January and February and would likely not need more government funding. Bernie Madoff was convicted.
 First quarter of 2009: For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany,
15.2% in Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for Mexico.
 April 2, 2009: Unrest over economic policy and bonuses paid to bankers resulted in the 2009 G-20 London summit
protests.
 April 10, 2009: Time magazine declared "More Quickly Than It Began, The Banking Crisis Is Over."
 April 29, 2009: The Federal Reserve projected GDP growth of 2.5–3% in 2010; an unemployment plateau in 2009
and 2010 around 10% with moderation in 2011; and inflation rates around 1–2%.
 May 1, 2009: People protested economic conditions globally during the 2009 May Day protests.
 May 20, 2009: President Obama signed the Fraud Enforcement and Recovery Act of 2009.
 June 2009: The National Bureau of Economic Research (NBER) declared June 2009 as the end date of the U.S.
recession. The Federal Open Market Committee release in June 2009 stated:
...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent
months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower
housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making
progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain
weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions,
fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth
in a context of price stability.

 June 17, 2009: Barack Obama and key advisers introduced a series of regulatory proposals that addressed consumer
protection, executive pay, bank capital requirements, expanded regulation of the shadow banking
system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important
institutions.
 December 11, 2009: United States House of Representatives passed bill H.R.4173, a precursor to what became
the Dodd–Frank Wall Street Reform and Consumer Protection Act.