1.Policy CANNOT offset the effects of a:

Select one:

a.positive demand shock by increasing taxes.

b.positive demand shock by decreasing government spending.

c.negative supply shock by increasing money supply.

d.negative demand shock by cutting taxes.

2.Suppose that a typical basket of goods is now more expensive than it used to be. All else equal, we would expect:

Select one:

a.the demand for money to shift outward.

b.an upward movement along a fixed money demand curve.

c.a downward movement along a fixed money demand curve.

d.the demand for money to shift inward.

3.If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, the quantity of money demanded is _____ than quantity of money supplied.

Select one:

a.less than

b.equal to

c.It is impossible to predict which is greater, money demanded or money supplied.

d.greater than

4.Which example of bank regulations is NOT designed to prevent bank runs?

Select one:

a.reserve requirements

b.the federal funds rate

c.capital requirements

d.deposit insurance

5.In the income-expenditure model, expansionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

Select one:

a.lower; decrease; increase

b.higher; increase; increase

c.lower; increase; increase

d.higher; decrease; decrease

6.Between 1864 and 1913, American banking was dominated by:

Select one:

a.European banks that supplied coins and paper money for the U.S. economy.

b.a federally regulated system of national banks.

c.an unregulated system of state banks, each issuing its own currency.

d.the Federal Reserve System in Washington, D.C

7.Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

Select one:

a.had little effect on prices.

b.caused large decreases in real GDP.

c.caused large increases in real GDP.

d.and increases in the price level were roughly proportional.

8.Nominal wages are sticky because:

Select one:

a.in the long run all wages are adjusted for inflation.

b.wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is significant.

c.wages are slow to fall when there are labor shortages and slow to rise even when the level of unemployment is significant.

d.wages remain fixed in the long run, increasing the profitability of the firms.

9.If the Federal Reserve conducts an open-market purchase, bank reserves _____ and the money supply _____.

Select one:

a.decrease; decreases

b.increase; decreases

c.decrease; increases

d.increase; increases

10.Suppose that the government increases spending more than is necessary to close a recessionary gap. What is the MOST likely result?

Select one:

a.The equilibrium real GDP will fall short of potential GDP.

b.The price level will decline.

c.Inflation will increase.

d.The equilibrium real GDP will fall.

11.According to the liquidity preference model:

Select one:

a.the demand for money curve is a vertical line.

b.an increase in the money supply lowers the equilibrium rate of interest.

c.the money supply curve is a horizontal line.

d.a decrease in the money supply lowers the equilibrium rate of interest

12.An inflationary gap caused by a demand shock can be addressed by _____ to _____.

Select one:

a.lowering government spending; lower the aggregate price level

b.raising taxes; lower the unemployment rate

c.lowering taxes; lower the aggregate price level

d.raising government spending; lower the unemployment rate

13.If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

Select one:

a.prevent the aggregate demand curve from shifting.

b.shift both aggregate demand and short-run aggregate supply to the left.

c.shift aggregate demand to the left.

d.shift aggregate demand to the right.