1.

Which of the following is true concerning the real value of the United States dollar?

I. It is determined by the federal government.

II. It is determined by the value of goods and services it will buy.

III. It is determined by the U.S. and foreign investors in the foreign exchange market.

I only.

II only.

III only.

II and III only.

I, II, and III only.

2.

During the contractionary phase of the business cycle,

RGDP and unemployment increase.

RGDP and unemployment decrease.

RGDP increases and unemployment decreases.

RGDP decreases and unemployment increases.

inflation increases and unemployment decreases.

3.

Which of the following fiscal policy actions will result in the greatest increase in Real GDP?

A $500 tax cut and a $500 increase in government spending

A $500 tax cut and a $500 decrease in government spending

A $500 tax increase and a $500 increase in government spending

A $500 tax cut.

A $500 tax increase

4.

Which of the following combinations of fiscal policy will create the greatest increase on total spending in the economy?

Government Spending / Taxes

Decrease / Increase

Decrease / No change

Increase / Increase

Increase / Decrease

No change / Increase

5.

A major advantage of automatic stabilizers is that they

are promoted by lobbyists.

do not impact the budget.

make Congress aware of problems.

require government action.

do not require government action.

6.

Monetary policy is made by which part of the Federal Reserve?

the Board of Governors.

the Federal Open Market Committee.

the Federal Securities Commission.

the Chairman of the Fed.

the Securities and Exchange Commission.

7.

The discount rate is

the rate the Fed charges member banks to borrow money.

set directly by the Fed through monetary policy.

the rate banks charge each other to borrow money.

set directly by the Fed through fiscal policy.

the rate banks charge their best customers to borrow money.

8.

Which of the following combinations of fiscal and monetary policies will cause the greatest increase in real GDP?

Fiscal Policy / Monetary Policy

Increase personal income taxes / Buy bonds

Increase government spending / Buy bonds

Decrease personal income taxes / Increase the discount rate

Decrease government spending / Increase the discount rate

Decrease personal income taxes / Sell bonds

9.

If Congress engages in contractionary fiscal policy, we can expect that

the short-run Phillips curve will shift left.

the short-run Phillips curve will shift right.

the long-run Phillips curve will shift right.

there will be a movement to the right along the short-run Phillips curve.

there will be a movement to the left along the short-run Phillips curve.

10.

Assume the United States is operating below full employment.

a) Identify one monetary policy tool that will solve the problem.

b) Using a correctly drawn and labeled AD/AS graph and money market graph, show and explain how the policy you identified in (a) will affect each of the following in the short-run:

• output and employment
• price level
• interest rates

c) Explain how the policy you identified in a will affect each of the following:

• International value of the dollar
• American exports (based on the changing value of the dollar)