1.Which of the following is an example of fiscal stimulus?

Multiple Choice

• an increase in government spending on new military jet fighters
• an increase in consumption because of improved consumer confidence
• an increase in personal income taxes for families with children
• an increase in the purchase of office buildings by foreign investors

2.If consumers spend 98 cents out of every extra dollar received, the

Multiple Choice

• marginal propensity to consume is 98.
• marginal propensity to save is 1.02.
• marginal propensity to consume is 0.98.
• marginal propensity to consume is 0.02.

3.Suppose government spending increases, which causes producers to hire more workers. As a result, households have more income to spend, which causes aggregate demand to increase even more, this is known as the

Multiple Choice

• magnifying process.
• multiplier process.
• saving effect.
• fiscal effect.

4.The multiplier is equal to

Multiple Choice

• 1 Marginal propensity to save.
• Marginal propensity to save Marginal propensity to consume.
• 1 Marginal propensity to save.
• 1 Marginal propensity to consume.

5.Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by

Multiple Choice

• $1 million.
• $20 million.
• $40 million.
• $2 billion.

6.The buying and selling of government bonds to influence reserves in the banking system is the responsibility of the

Multiple Choice

• twelve regional Federal Reserve banks.
• executive Branch of the government.
• board of Governors of the Federal Reserve.
• federal Open Market Committee.

7.By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves.

Multiple Choice

• reserve ratio
• discount rate
• money multiplier
• yield