2) The massive increase in government expenditures to bail out the economy must, at some point, be

financed. Some argue that when the government sells its debt it "crowds out" private sector borrowers,

like firms and corporations seeking funds to operate or expand. One outcome of crowding out is the

increase in market rates of interest. If crowding out exists and if the effects on rates are as presumed, the

current intervention by the government may

A) slow the economic recovery due to rising interest rates, which negatively affect

aggregate demand.

B) speed the recovery as increases in interest rates are known to spur investment activity.

C) have no affect on the recovery, because interest rates play a minor role in explaining

aggregate demand.

D) shift the long-run aggregate demand curve to the left.

3) Which of the following is a legislated objective of macroeconomic policy?

A) Achieving a low rate of unemployment

B) Achieving a low rate of inflation

C) Stabilizing economic activity (minimizing the variation in real GDP around potential GDP)

D) all of the above

E) none of the above

4) One stage of a financial crisis is when there is a bank run. Why do bank runs occur?

A) Depositors do not have enough information to know if their bank is solvent or not.

B) There is too little competition among banks, thus leading to interest rate volatility.

C) Because there are too few banks to promote competition for deposits.

D) None of the above.