1) If the Federal Reserve buys bonds on the open market, how are the purchases of U.S. financial assets by foreigners and the international value of the dollar impacted?

Financial Assets / International Value of Dollar

Increase / Increase

Increase / Decrease

No Change / Decrease

Decrease / Decrease

Decrease / Increase

2) When the Fed uses expansionary monetary policy, which of the following is true?

Consumer spending and autonomous government spending increase while investment spending decreases.

Consumer spending, investment spending, and autonomous government spending decrease

Interest sensitive consumer spending, investment spending, and autonomous government spending increase

Interest sensitive consumer spending, investment spending, and autonomous government spending increase while net exports decreases due to the change in the value of the dollar

Interest sensitive consumer spending, investment spending, and autonomous government spending decrease while net exports increases due to the change in the price level

3)Which of the following is consistent with advocates of rational expectations? If consumers fully anticipate an increase in interest rates, then

real GDP will increase by the value of the multiplier.

real GDP will decrease by the value of the multiplier.

real GDP will not change.

price level will increase.

unemployment will increase.

4)

Fiscal policy is limited when the slope of the

AS curve is more vertical so the multiplier is more effective.

AS curve is more vertical so the multiplier is less effective.

AS curve is more horizontal so the multiplier is more effective.

AD and AS curves are more horizontal to the multiplier is more effective.

AD curve is more vertical so the multiplier is more effective.

5) If government spending increases or personal income taxes decrease, what are the likely effects on output, price level, and interest rates?

Price Level / Output / Interest Rates

Increase / Increase / Increase

Increase / Increase / Decrease

Decrease / Increase / Decrease

Decrease / Decrease / Increase

Decrease / Decrease / Decrease