1.What is meant by the business cycle? Use the Aggregate demand and supply model to explain the causes of the business cycle.

2.The federal government tends to increase their spending to get the economy out of recessions. Explain the expected impact on each of the components of aggregate demand due to this and the mechanism through which this operates.

3.Most economies in the real world are mixed combining aspects of command and market economies. Towards the end of this spectrum would you prefer the United States economy to be? Provide your reasons for this. Also explain when or why you might not want it to be so.

4.Give two reasons that support the independence of the Federal Reserve Bank and two reasons against such independence.

5.Money is created when:

a.loans are repaid.

b.the net worth of the banking system is increased.

c.banks exchange some of the state and local bonds in their portfolio for federal government bonds

D.banks make additional loans.

6.Net exports will be positive:

a.at the equilibrium level of GDP.

b.whenever GDP is below its equilibrium level

c.whenever GDP exceeds its equilibrium level

D.if exports exceed imports.

7.Inflation affects:

a.both the level and the distribution of income.

b.neither the level nor the distribution of income.

c. the distribution, but not the level, of income.

D. the level, but not the distribution, of income.