1. If the Fed conducts open-market sales, which of the followingquantities increase?
a. interest rates, prices, and investment spending
b. interest rates and prices, but not investment spending
c. interest rates and investment, but not prices
d. interest rates, but not investment or prices

2. A tax cut shifts aggregate demand
a. by more than the amount of the tax cut
b. by the same amount as the tax cut
c. by less than the tax cut
d. None of the above is necessarily correct.

3. A reduction in US net exports would shift US aggregatedemand
a. rightward. In an attempt to stabilize the economy, thegovernment could increase expenditures.
b. rightward. In an attempt to stabilize the economy, thegovernment could decrease expenditures.
c. leftward. In an attempt to stabilize the economy, the governmentcould increase expenditures.
d. leftward. In an attempt to stabilize the economy, the governmentcould decrease expenditures

4. Critics of stabilization policy argue that
a. “animal spirits” must be offset by active monetary policy.
b. active monetary policy is necessary for steady economicgrowth.
c. the lag problem ends up being a cause of economicfluctuations.
d. active fiscal policy is required for steady economic growth.

5. If people anticipate higher inflation, but inflation remainsthe same then
a. the short-run Phillips curve would shift right and unemploymentwould rise.
b. the short-run Phillips curve would shift right and unemploymentwould fall.
c. the short-run Phillips curve would shift left and unemploymentwould rise.
d. the short-run Phillips curve would shift left and unemploymentwould fall.

6. If a central bank increases the money supply in responseto an adverse supply shock, then which of the following quantitiesmoves closer to its pre-shock value as a result?
a. both the price level and output
b. the price level but not output
c. output but not the price level
d. neither output nor the price level

7. Suppose the budget deficit is rising 3 percent per yearand nominal GDP is rising 5 percent per year. The debt created bythese continuing deficits is
a. sustainable, but the future burden on your children cannot beoffset.
b. sustainable, and the future burden on your children can beoffset if you save for them.
c. not sustainable, and the future burden on your children cannotbe offset.
d. not sustainable, but the future burden on your children can beoffset if you save for them.

8. Which of the following could the government do to decreasethe costs of inflation without lowering the inflation rate?
a. Avoid unexpected changes in the inflation rate.
b. Rewrite the tax laws so that nominal gains were taxed instead ofreal gains.
c. Make policy that would discourage firms from issuing indexedbonds.
d. All of the above are correct.

9. Real interest rates
a. cannot be negative.
b. can be negative only if inflation is negative.
c. can be negative only if inflation is zero.
d. can be negative only if inflation is greater than zero.