Part 1: Directions: Select the best answer to each question. (3 points each)

1.If actual GDP is below potential GDP, then the unemployment rate is _____________ the natural rate.A) belowB) aboveC) right atD) cannot be determined without inflation rate

2.Fiscal policy affects the economy through: A) TaxesB) Government SpendingC) Interest RatesD) Taxes and Government Spending

3.The Federal Reserve Bank's decisions on monetary policy are made by the:

A)Board of GovernorsB) FOMCC) Reserve BanksD) Federal Reserve Bank of New York

4.One of the FED's responses to the COVID crisis has been to:

A)Lower the federal funds rate to zeroB) sell US Treasuries C) Authorize over $3t in additional federal government spendingD) All of the above are correct

5.If C=450+0.9Y, then the marginal propensity to consume is:

A)0.1B) 0.9C) 10D) Unknown, because we do not know GDP

6.The most important function of money is that it serves as a:

A)Store of valueB) standard of valueC) Medium of ExchangeD) Measure of Inflation

7.If there is more spending in the Income-Expenditures Model, the 45-degree line will:

A) shift upB) shift downC) never shiftD) be parallel to the spending line

8.The following is true: A) NX = X + MB) Y = SPC) C + I = G + NXD) GDP = Y

9.The natural rate of unemployment is when it is just:

A)0B) lowC) cyclical unemploymentD) frictional and structural unemployment

10.Keynes publishes ________________ in _________________.

A)The Wealth of Nations, 1776B) Billy, My Goat and My Friend, 1875C) Poverty and Inequality, 1907D) The General Theory of Employment, Interest, and Money, 1936

11.The goals of the FED are:

A)Strong stock market and unemployment at the natural rateB) zero inflation and 4% GDP growthC) Sustainable economic growth and price and financial stabilityD) inflation greater than 3% and unemployment at the natural rate

12.There are __________Reserve Banks in the Federal Reserve System.

A)7B) 10C) 12D) 14

13.Fiscal policy has _____________ inside lags.A) longB) shortC) noD) 30 day

14.The Chair of the FED today is: A) Hans ColeB) Janet YellenC) Jerome PowellD) JR Ewing

15.The following is false: A) M2 is larger than M1B)Currency is not the only financial asset considered moneyC) The FED does not create moneyD) All of these are true

16.Investment spending depends mainly on: A) interest rates and return on invested funds

B)Income and SavingsC) foreign exchange rates and tastes and preferencesD) imports and unemployment

17.Keynes believed that: A) Wages could be stickyB) Economies gets stuck in undesirable equilibriaC) Government can make up for a shortfall in consumer and investment spending

C)All the above

18.Expansionary Fiscal policy means: A) Increasing government spending and raising taxesB) lowering taxes and lowering government spendingC) lowering interest ratesD) none of the above are correct

19.The US will remain in recession until: A) spending substantially increases B) savings substantially increasesC) the stock market gains more than 10% in valueD) we balance our budget deficit

20.The Sasquatch, Bigfoot, and the Yeron are all possibly descendants of:

A) GigantopithecusB)PlesiosaurC) PterodactylD) Gigliosaurus

Part 2: Directions: Select 2 out of 3 questions (20 pts. Each)

1. For all your graphs, label your axes and label GDPa and GDPp, and the spending line and 45-degree line.Show an income expenditure diagram where:

A) The economy is at full employment

B) The economy is in a recession

C) The economy has overshot potential GDP.

D) Re-draw your graph in Part (B) and show how the graph shifts as the economy recovers from recession.

2. A) What are three major functions of money?

B) How does the FED increase the amount of money in the banking system?

C) What are the three main parts of the FED?What does each do?

D) Explain the meaning of central bank independence.

3. A) What are two major differences between fiscal and monetary policies?

B) What is he FED's inflation target?

C) What is the LOLR function of the FED?

D) What would you recommend for the government to do today during the COVID crisis?

How will this help the economy?