ollowing sequences of events would 11. The Federal Reserve decreases the federal funds 16. When the central bank sells government bonds on ilibrium interest rate occur if the Federal Reserve implemented rate by the open market, which of the following will most ange in which of the contractionary monetary policy? (A) decreasing the reserve requirement likely increase? following ways? Interest rates increase, investment and (5) decreasing the discount rate Interest Rate Quantity of Money (A) Bank reserves consumption spending decrease, aggregate (B) Price of bonds Increase Decrease (C) increasing the discount rate demand decreases, and output and prices D) selling government bonds on the open market (C) Money supply Increase Not change decrease E) buying government bonds on the open market D) Nominal interest rates Decrease Decrease B) Interest rates increase, investment and E) The required reserve ratio Decrease Increase consumption spending decrease, aggregate Decrease Not change 12. Which of the following is NOT a function of fiat demand increases, and output and prices money? 17. Which of the following is a determinant of the decrease A) A standard of deferred payment amount of money the commercial banking system . If an economy is operating with significant (C) Interest rates increase, investment and By A unit of account can create? unemployment, an increase in which of the consumption spending increase, aggregate C) A source of intrinsic value (A) The marginal propensity to consume following will most likely cause employment to demand decreases, and output and prices D) A store of value (B) The marginal propensity to save Increase and the interest rate to decrease? decrease (E) A medium of exchange C) The total number of banks A Purchases of government bonds by the central D) Interest rates decrease, investment and D) The size of the federal debt bank consumption spending decrease, aggregate 13. Suppose that the government decreases taxes and [) The reserve requirement (B) Transfer payments demand decrease, and output and prices at the same time the central bank decreases the (C) Reserve requirements discount rate. The combined actions will result in 18. The money demanded for the purpose of (D) Government expenditures (E) Interest rates decrease, investment and A) an increase in unemployment and a decrease in purchasing goods and services is known as (E) Investment in basic infrastructure consumption spending decrease, aggregate the interest rate A) an asset demand demand decreases, and output and prices B) an increase in unemployment and an increase 3) a derived demand 3. Which of the following is most likely to occur if the increases in the interest rate C) excess reserves Federal Reserve engages in open market C) an increase in the real gross domestic product D) a transactions demand operations to reduce inflation? 8. Suppose that the Federal Reserve buys $400 billion and a decrease in the interest rate E) balance of payments (A) A decrease in interest rates worth of government securities from the public. If D) an increase in the real gross domestic product B) A decrease in reserves in the banking system the required reserve ratio is 20 percent, the and an increase in the interest rate 19. With an upward-sloping aggregate supply curve, C) A decrease in the government deficit maximum increase in the money supply is E) an increase in the real gross domestic product an increase in the money supply will affect the D) An increase in the money supply (A) $1,600 billion and an indeterminate change in the interest price level and real gross domestic product (GDP) E) An increase in exports B) $1,800 billion rate n the short run in which of the following ways? (C) $2,000 billion Price Level Real GDP 4. Which Federal Reserve action can shift the (D) $2,200 billion 14. Suppose that all banks keep only the minimum Decrease Decrease aggregate demand curve to the left? E) $2,400 billion reserves required by law and there are no currency Decrease Increase (A) Lowering the federal funds rate drains. The legal reserve requirement is 10 Increase Decrease B) Lowering income taxes 9. When an economy is operating below the full percent. If Maggie deposits the $100 bill sh Increase ncrease C) Lowering reserve requirements employment level of output, an appropriate received as a graduation gift from her No change No change Dy Raising the discount rate monetary policy would be to increase which of the grandmother into her checking account, the (E) Raising government spending on national following? maximum increase in the total money supply will 20. A bank has $800 million in demand deposits and defense A) The discount rate be $100 million in reserves. If the reserve B) The required reserve ratio A) $10 requirement is 10 percent, the bank's excess 5. Crowding out refers to the decrease in (C) The international value of the dollar B) $100 reserves equal (A) national output caused by higher taxes (D) Open market purchases of government bonds () $900 (A) $10 million B) domestic production caused by increased (E) Government expenditure on goods and services (D) $1,000 (B) $20 million imports (E) $1,100 C) $80 million C) private investment due to increased borrowing 10. Assume that the economy is at full employment. (D) $100 million by the government Policymakers wish to maintain the price level but 15. If nominal gross domestic product in a country is (E) $200 million (DDemployment caused by higher inflation want to encourage greater investment. Which of $1,600 and the money supply is $400, what is the (E) exports caused by an appreciating currency of a the following combinations of monetary and fiscal velocity of money? (A) 400 country policies would best achieve this goal? Monetary Policy Fiscal Policy (B) 10 6. Which of the following policy choices represents a No change Contractionary C) 4 Expansionary No change ( D) 2 combination of fiscal and monetary policies (E) 0.5 designed to bring the economy out of a recession? Expansionary Contractionary A) Decreasing both taxes and the money supply Expansionary Expansionary (B) Increasing both taxes and the money supply Contractionary Expansionary C) Increasing government spending and decreasing the federal funds rate (D) Increasing both taxes and the discount rate (E) Engaging in deficit spending and government bond sales