1. What is the effect of a contractionary fiscal policy on aggregate demand curve and short run aggregate supply curve? * a) AD shifts right, SRAS shifts right b) AD shifts right, SRAS stays unchanged c) AD shifts left, SRAS shifts right d) AD shifts left, SRAS stays unchanged 2. What would be the effect of a contractionary fiscal policy on the output level, price level and unemployment rate? * a) RGDP decreases, price level decreases and unemployment rate increases b) RGDP decreases, price level increases and unemployment rate decreases c) RGDP decreases, price level decreases and unemployment rate decreases d) RGDP increases, price level decreases and unemployment rate increases 3. If the government records $80 million of government spending and $72 million of tax revenues. Which of the following best describes the situation? * a) The government has a budget surplus and is likely to suffer from crowding out effect b) The government has a budget surplus and is not likely to suffer from crowding out effect c) The government has a budget deficit and is likely to suffer from crowding out effect d) The government has a budget deficit and is not likely to suffer from crowding out effect 4. Controlling the quantity of money and interest rates to influence aggregate economic activity is called * a) Foreign policy b) Monetary policy c) Fiscal policy d) Bank antitrust policy 5. If the central bank authorities were attempting to reduce inflationary pressures, the proper policies would be to ______ government securities _____ required reserve ratio and ______ discount rate * a) Sell; rise; lower b) Buy; rise; rise c) Sell; rise; rise d) Sell; lower; lower 6. Assume an economy is in an inflationary gap and that the central bank decreases the money supply form $700 billion to $600 billion. What is the effect on interest rate and real GDP respectively? * a) Decrease; increase b) Decrease; decrease c) Increases; increase d) Increase, decrease 7. Assume an economy is in an inflationary gap and that the central bank decreases the money supply form $700 billion to $600 billion. What is the effect on MS curve and AD curve respectively? * a) Right; right b) Right; left c) Left; right d) Left; left 8. During a(n)______ gap, the ______ implement a(n)_________ * a) Recessionary, government, expansionary monetary policy b) Recessionary, central bank, expansionary monetary policy c) Inflationary, central bank, contractionary fiscal policy d) Inflationary, government, contractionary monetary policy 9. An expansionary fiscal policy is represented by * a) An increase in taxes b) A decrease in real output c) A leftward shift in the aggregate demand curve d) An increase in the price level 10. The Lebanese central Bank (BDL) sells $10 million of government securities on open market to bank ABC to get rid of * a) Recession b) Inflation c) Recession and inflation d) None of the above 11. Which of the following sequence of events follows a contractionary monetary policy? * a) r I AD Y b) r I AD Y c) r I AD Y d) r I AD Y 12. If excess reserves are $50,000, demand deposits are $1,000,000, and the required reserve ratio is 20%, then actual reserve are: * a) $50,000 b) $250,000 c) $150,000 d) $200,000 13. If a deposit of $100 in the banking system can lead to a total expansion in bank deposits of $400, then the required reserve ratio must be: * a) 40% b) 25% c) 4% d) 2.5%