If the marginal propensity to consume is 80%, and the government increases spending by $75 million what will be the effect on GDP? Impossible to tell Y increases by $75 million Y decreases by $75 million Y increases by $375 million 6. Federal Reserve is the lender of last resort to which of the following institutions? a. Banks b. Investment Banks c. Insurance Companies d. Financial Advisors 7. Assume the economy is at full employment level of output, if the government increases government spending how will this impact the economy? a. Increases Y with inflation b. Decreases Y with inflation c. No effect d. Decreases Y with deflation 8. In the United States the dollar is a. Backed by Silver b. Backed by Gold c. Commodity Money d. Fiat Money 9. During a recession the budget balance tends to ____________, because of ___________. a. increase, contractionary fiscal policy b. increase, expansionary fiscal policy c. increase, contractionary monetary policy d. Decrease, expansionary fiscal policy 10. The long run supply curve is: a. Horizontal b. Vertical c. Negatively sloped d. Positively sloped 11. Assume the economy is in a recession, the Federal Reserve decides to increase the interest rates, how will this impact the economy? a. Increases Y to Y* b. Decreases Y to Y* c. Deepens the recession d. Eliminates the recession 12. What is the output gap? a. A clothing store in the mall b. the difference between real gdp and nominal gdp c. the difference between actual gdp and potential gdp d. stagflation 13. Which of the following is a fiscal policy appropriate to combat inflation? 1. a. Decreasing taxes b. Decreasing government spending c. Increasing taxes d. Increasing government spending e. B&C only 14. If the reserve ratio is 10% and deposits are $200 billion, what is the total amount of liquidity in the banking system? a. $200 billion b. $400 billion c. $1 Trillion d. $2 Trillion 15. What are the 3 main roles or functions of Money? a. Gold, Silver and Sand. b. Medium of exchange, Store of Value and Unit of Account. c. Medium of exchange, fiat, and commodity d. Unit of account, Store of Value and paper 16. Which of the following government or monetary policies will shift the aggregate demand curve to the left? a. A decrease in Money Supply b. An increase in government purchases of goods and services c. A decrease in taxes d. A decrease in interest rates 17. Which of the following is not a role of the Federal Reserve? a. Controlling bank reserves b. Supervising and regulating banks c. Carrying out Monetary policy d. Printing US currency 18. Which of the following is not an example of monetary policy? a. Increasing the reserve ratio b. Buying and Selling US Bonds c. Decreasing taxes d. Decreasing Federal Funds Rate 19. What is the shape of the Money Supply curve? Horizontal Vertical Upward Sloping Downward sloping 20. If the country is in a recession, what policy and tool should the Federal Reserve use to return to full employment level of output? a. Contractionary increases taxes b. Expansionary increases government spending c. Contractionary increases reserve ratio d. Expansionary increases money supply 21. Which of the following cases is fiscal policy and is considered to be expansionary: 1. a. Several military bases around the country, that employ thousands of people, are closing. b. The federal tax on gasoline in increased c. The number of weeks of unemployment benefits are increased d. All of the above