1. Which of the following statements is true concerning the "monetary base"?

	The monetary base equals the sum of the value of circulating cash and demand deposits.
	The monetary base represents the estimate of liquidity available for consumers to spend.
	The monetary base is the sum of the value of currency in circulation and bank reserves.
	The monetary base in the United States represents the amount of liquidity issued by the Congress.
	The monetary base plus time deposits equals M2.

2. Which of the following statements about the multiplier is true? (1 point)

	The tax multiplier is less than the expenditure multiplier since there is initially some savings with a tax change.
	The tax multiplier equals 10 when the marginal propensity to consume is 9/10 (or 90%).
	Given the values of the multipliers, an equal increase in government spending and taxation will not change aggregate demand.
	The tax multiplier is greater than the expenditure multiplier, since the private sector spends the funds when taxes are reduced.
	Given the values of the multipliers, an equal increase in government spending and taxation will reduce aggregate demand.

3. If the marginal propensity to consume is 9/10 (or 90%), what is the maximum combined change in aggregate demand that a $500 increase in government spending and a $300 decrease in taxes could cause? (1 point)

	$800
	$2,300
	$2,700
	$7,700
	$8,000

4. Following an increase in government spending within the AD-AS framework, which of the following will occur in the short-run to the price level, employment, and real GDP? (1 point)

Price Level	Employment	Real GDP
Increase	Increase	Indeterminate

Price Level	Employment	Real GDP
Decrease	Increase	Increase

Price Level	Employment	Real GDP
Increase	Indeterminate	Indeterminate

Price Level	Employment	Real GDP
Decrease	Decrease	Decrease

Price Level	Employment	Real GDP
Increase	Increase	Increase

5. Assume good Z is an inferior good sold in a perfectly competitive market. If the average income of consumers increases and the number of sellers increases, which of the following should occur? (1 point)

	The equilibrium price and equilibrium quantity will decrease.
	The equilibrium price will fall, and the impact on quantity is indeterminate.
	The equilibrium quantity will decrease, and the impact on price is indeterminate.
	The equilibrium price will fall, and the equilibrium quantity will increase.
	The impact on both price and quantity must be indeterminate.

6. Assume that the United States stimulates its economy with expansionary monetary policy. Which of the following statements describes the effect of this decision in the market for euros? (1 point)

	An increased supply of euros to acquire dollars.
	A decreased demand for euros as U.S. investors increase their bond holdings in the United States.
	An increased demand for euros as investors seek higher relative real returns in Europe.
	The euro will depreciate, the dollar will appreciate, and the net exports of the United States will fall.
	A decreased demand for euros and decreas

7. Within the money market, if the quantity demanded of money exceeds the quantity supplied of money, which of the following is true? (1 point)

	The real interest rate should decrease.
	The price level in the economy should increase.
	The nominal interest rate should increase.
	The money supply will decrease.
	The monetary authorities will lower all interest rates.

8. Which of the following tends to increase productivity per worker? (1 point)

	Higher inflation
	Education and training
	Reduced unemployment
	Increased government spending
	Higher labor force participation rate

9. Assume that the economy is always at full employment with a constant velocity of money. If the money supply increases by 5 percent and potential real GDP grows by 2 percent, which of the following is true? (1 point)

	The price level should increase by 5 percent.
	Nominal GDP will increase by 7 percent.
	The increase in the price level should be 3 percent.
	Nominal GDP will increase by 3 percent.
	Real GDP must increase by more than 2 percent.

10. Which of the following contributes to the unemployment rate understating the impact of labor market deficiency in the society? (1 point)

	Part-time workers who desperately need full-time employment are not signaled as a problem
	Unemployed people seeking work are counted as fully unemployed
	Those without previous employment experience but without work are not counted as unemployed
	The unemployment rate counts the very hard to employ, often called structurally unemployed
	Those who retired with pensions are not counted as unemployed

11. Which of the following policies should increase aggregate demand, short-run aggregate supply, and long-run aggregate supply? (1 point)

	Reduction in the corporate profits tax
	Higher transfer payments for retirees
	Central bank sells government bonds
	Reduced taxes on low-income households
	Reduced government spending on infrastructure

12. Assume a binding price floor on an agricultural product is removed, which of the following should happen? (1 point)

	The product price should fall, and the quantity supplied should increase.
	The product price should rise, and the quantity demanded should decrease.
	The product price should fall, and the quantity sold in the market should increase.
	There will no longer be a shortage in the market, as quantity supplied increase.
	The product price will remain the same, but the quantity demanded will now equal the quantity supplied.

13. Assume that the dollar price of a euro increases from $1.10 to $1.20. Which of the following statements could explain this change? (1 point)

	The demand for euros decreased, and the dollar appreciated.
	The supply of dollars increased, and the dollar depreciated.
	The supply of euros increased, and the dollar depreciated.
	The demand for dollars increased, and the dollar appreciated.
	The demand for dollars increased, the supply of euros increased, and the dollar depreciated.

14. Which of the following activity generates new production but is not counted in the GDP of country X? (1 point)

	The value of second-hand goods sold at a garage sale
	Mr. Jones and his sons build a new deck at their house
	A firm in country X produces automobiles that are sold to foreign citizens, not from country X
	Ms. Smith sends $100 to each of her grandchildren as a holiday present
	Interest on the government debt of country X is paid to citizens

15. Which of the following effects would be associated with a law requiring an annually balanced budget for the central government? (1 point)

	There would be no inflation.
	The money supply could not change.
	Automatic stabilizers with spending and taxation changes would no longer be effective.
	The economy would be at full employment with no cyclical unemployment.
	Any existing government debt would automatically be eliminated.

16. Within the circular flow of the economy, which of the following statements is true? (1 point)

	Firms are suppliers of goods and suppliers of inputs.
	Individuals are suppliers of goods and suppliers of inputs.
	Firms are demanders of goods and suppliers of inputs.
	Individuals are demanders of goods and suppliers of inputs.
	Individuals are suppliers of goods and demanders of inputs.

17. Which of the following statements relating to aggregate supply is true? (1 point)

	With flexible wages and prices in the long run, aggregate supply is vertical at full-employment real GDP.
	The long-run aggregate supply curve is upward sloping, a higher price level is needed to increase real GDP.
	With wages downwardly rigid in the long run, unemployment increases as the quantity of long-run aggregate supply decreases.
	An increase in the wage rate will tend to reduce the price level in the long run, but not change the quantity of real GDP supplied.
	Along the long-run aggregate supply curve, cyclical unemployment varies directly with the price level.

18. Which of the following sequences is normal for the business cycle? (1 point)

	Trough, expansion, peak, recession
	Expansion, recession, trough, peak
	Peak, recession, expansion, trough
	Recession, peak, expansion, trough
	Expansion, peak, trough, recession

19. Which of the following statements about financial assets is true? (1 point)

	The basic money supply, M1, includes only demand deposits and time deposits.
	The basic money supply includes cash issued by the central bank, demand deposits, and time deposits.
	The most liquid financial assets are cash and government bonds.
	As nominal interest rates increase, the price of previously issued bonds falls.
	As interest rates increase, the opportunity cost of holding cash decreases.

20. Which of the following individuals benefits from unexpected inflation? (1 point)

	A worker whose hourly wage is exactly indexed to the change in the price level
	An individual who loaned his co-worker money to buy a car
	An individual who has a fixed rate mortgage on her new house
	A holder of a government bond who receives a fixed dollar interest payment every year
	A retiree who has a fixed monthly pension from the government