Q1 : If a government were to find that it cannot raise taxes any further, and it cannot borrow any further from financial markets, the government

Multiple Choice

• is in default.

• cannot increase its spending any further.

• can increase spending by having the central banks purchase its bonds.

• can decrease the amount of money in circulation.

Q2: The expectations hypothesis suggests the

Multiple Choice

• yield curve should usually be upward-sloping.

• slope of the yield curve reflects the risk premium associated with longer-term bonds.

• slope of the yield curve depends on the expectations for future short-term rates.

• yield curve should usually be downward-sloping.