28) Savings and money market accounts are not included in: A) MI. B) M2. c) M3. D) L. 29) If inflation increases unexpectedly, then: A) neither borrowers nor lenders tend to lose. C) borrowern tend to lose. B) lenders tend to lose. D) lenders and borrowers tend to gain. 30) Assuming the Fed is following the Taylor Rule, if inflation is 3 percent, target inflation is 2 percent, and output is 1 percent above potential, what would you predict would be the Fed funds rate target? A) 6 percent B) 4 percent C) 5 percent D) 5.5 percent 31) The theoretical proposition that government deficits do not affect the level of output because individuals realize that they have to pay the deficits in the future, and therefore increase their savings now, is called: A) sound finance. C) purchasing power parity. B) functional finance. D) the Ricardian equivalence theorem. 32) Asset inflation: A ) is the rise in asset prices that exceed the rise in the real value of assets. B) is the rise in the physical increase in assets. C) is equal to goods inflation. D) does not occur when the economy faces globalization because prices are capped. 33) Frictional unemployment: A) refers mainly to unemployment resulting from fluctuations in output. B) refers to unemployment caused by friction between labor and management. C) comes from people entering the labor force and changing jobs. D) is undesirable and should be eliminated at all costs. 34) If the economy falls into a recession, automatic stabilizers will cause: A) both tax receipts and government spending to fall. B) tax receipts to rise and government spending to fall. C) tax receipts to fall and government spending to rise. D) both tax receipts and government spending to rise. 35) According to the quantity theory of money, if the money supply is 500 and velocity is 6 , then nominal GDP: A) is 3,000 . C) is 83.33 . B) is 500 . D) cannot be determined. 36) Unemployment compensation is: A) an automatic stabilizer because it falls as income decreases, slowing an economic contraction. B) not an automatic stabilizer. C) an automatic stabilizer because it falls as income increases, slowing an economic expansion. D) an automatic stabilizer because it rises as income increases, slowing an economic expansion. 37) Workers at a car-manufacturing plant are replaced by automated machinery. What type of unemployment best describes the workers' situation? A) Frictional unemployment C) Full unemployment B) Structural unemployment D) Cyclical unemployment 5