For the next 5 questions, assume that the economy starts in equilibrium: -the output is 1 million -the equilibrium price of a one-year, $1000 bond is $950 -the money supply is 1 trillion -the price level is 150

1) What is the interest rate in this economy?

2) The Federal Reserve decides to buy bonds and there is a change in the equilibrium bond price. What bond price is most likely?

3) After the bond price change in the previous question, the interest rate will _, causing the aggregate expenditure curve to _ because _ will __. a) increase , decrease , autonomous consumption and planned investment spending , increase b) decrease , increase , autonomous consumption and planned investment spending , increase c) decrease , increase , government expenditures and net exports , increase d) increase , decrease , autonomous consumption and planned investment spending , decrease

4) The Federal Reserve decided to buy bonds in order to bring the economy back to full employment. This must mean that the Federal Reserve believes that the full employment level of output is a) not enough information b) below 1 million c) exactly 1 million d) above 1 million

5) After the Federal Reserve buys bonds, the interest rate changes and aggregate expenditures change, the following will most likely occur A) the price level in the economy will fall and money demand will decrease D) the price level in the economy will rise and the money demand will decrease C) the price level in the economy will fall and money demand will increase D) the price level in the economy will rise and the money demand will increase