Explanations are not needed.

16.When the federal government is running a budget deficit,

a. the economy must be in an economic recession.

b. government revenues exceed government spending.

c. the size of the national debt will decline.

d. government spending exceed government revenues.

17.Federal budget deficits generally grow during recessions because

a. both tax revenues and transfer payments increase.

b. both tax revenues and transfer payments decrease.

c. tax revenues decrease while transfer payments increase.

d. tax revenues increase while transfer payments decrease.

18.What is the multiplier?

a. 1/(MPS+MPC)

b. 1/MPS+1

c. 1/MPS

d. 1/MPC

19.Mortgage loans that are given to "at-risk" borrowers are called

a. Subprime loans

b. Normal loans

c. Hazardous loans

d. Freedom loans

20.If the Federal Reserve buys treasury bonds, the short-run effects will be

a. an increase in the money supply and lower real interest rates.

b. an increase in the money supply and higher real interest rates.

c. a decrease in the money supply and higher real interest rates.

d. a decrease in the money supply and lower real interest rates.

21.Which of the following will raise interest rates in the short run?

a. a decrease in real GDP

b. an reduction in reserve requirements

c. a decrease in government spending

d. the sale of bonds by the Federal Reserve in the open market

22.If the Federal reserve reduces short-term rates, then this will

a. promote foreign investment and boost aggregate supply

b. raise the reserve requirement

c. decrease aggregate supply through household consumption and investment

d. increase aggregate demand through household consumption and investment

23.Fannie Mae and Freddie Mac are

a. Grandparents

b. Central bank warehouses

c. Government sponsored enterprises

d. Commercial banks

24.Refer to Figure: Monetary Policy 2. If an economy operates in the short run at point a, then if the government were to raise the required reserve ratio, then we should expect a/an

\fPrice level Potential output SRAS AD Rea GDP