Q1. In the shortrun, decreases in government spending will

A.

increase the level of prices.

B.

decrease the level of GDP.

C.

increase the level of prices and GDP.

D.

have no effect on either the level of prices or GDP.

Q 2. Money is

A.

anything that is regularly used and generally accepted in economic transactions or exchanges.

B.

necessary to conduct economic transactions.

C.

facilitates specialization in production.

D.

anything the government declares to have value.

Q3. An increase in the price level causes an increase in money demand because

A.

people need more money to purchase the same level of goods and services.

B.

people need less money to purchase the same level of goods and services.

C.

changes in the price level have no effect on money demand.

D.

people have unlimited wants.

Q4. One of the essential functions that a bank performs is that of

A.

creating deposits by lending required reserves.

B.

owning assets like real estate.

C.

purchasing government bonds.

D.

transferring money from savers to borrowers.

G5.If potential output is________ than the current level ofGDP, the unemployment rate is________ the natural rate.

A.

greater; below

B.

less; at

C.

less; above

D.

greater; above

Q6. The quantity equation is expressed as

A.

MV= Py.

B.

M/V= P/y.

C.

M+V= P+y.

D.

MP= Vy.

Q7. At higher interest rates the

A.

quantity of money demanded is higher.

B.

money supply is indeterminate.

C.

money supply is higher.

D.

quantity of money demanded is lower.

Q8. The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

A.

liquidity demand for money.

B.

speculative demand for money.

C.

transaction demand for money.

D.

real demand for money.

Q9. In the shortrun, increases in the money supply will

A.

increase real interest rates.

B.

have no effect on real interest rates.

C.

decrease real interest rates.

D.

may increase or decrease real interest rates.

Q10.Which of the following individuals is NOT considered a classicaleconomist?

A.

John Stuart Mill

B.

Jean-Baptiste Say

C.

John Maynard Keynes

D.

Adam Smith

Q11. If the banking system has a required reserve ratio of 40percent, then the money multiplier is

A.

2.

B.

2.5.

C.

4.

D.

8.

Q12. Which action could the Fed use to decrease the moneysupply?

A.

an open market purchase

B.

an increase in the required reserve ratio

C.

a tax increase

D.

a decrease in the discount rate

Q13. If GDP is above potentialoutput, then we expect to see

A.

increasingwages, causing the shortrun aggregate supply curve to shift down.

B.

increasingwages, causing the shortrun aggregate supply curve to shift up.

C.

fallingwages, causing the shortrun aggregate supply curve to shift down.

D.

fallingwages, causing the shortrun aggregate supply curve to shift up.

Q14. In the long run

A.

prices and output have fully adjusted to economic changes.

B.

prices have fully adjusted to economic changes while output is constant.

C.

prices and output are constant.

D.

output has fully adjusted to economic changes while prices are constant.

Q15. A decrease in the inflation rate is likely to be associated with

A.

an increase in the unemployment rate.

B.

decreased unemployment benefits.

C.

less unemployment benefits being paid.

D.

a decreased in the unemployment rate.

Q.16

When monetary authorities are deemed as"conservative," they are more likely to implement policies that

A.

increase unemployment.

B.

decrease unemployment.

C.

strengthen the value of their currency.

D.

decrease inflation.

Q17. The doctrine that states that"supply creates its owndemand" is called________ law.

A.

Keynes's

B.

Malthus's

C.

Smith's

D.

Say's

Q18. According to the rational expectations theory

A.

only central bankers form expectations rationally.

B.

the public only uses a portion of the available information when forming expectations.

C.

the public makes consistent errors when forming expectations.

D.

thepublic, onaverage, anticipates the future correctly.

Q19. Refer to Figure 15.2. Adjustment from a shortrun equilibrium to the longrun equilibrium is represented by a movement from point________ to point________.

A.

c; d

B.

b; c

C.

c; b

D.

b; e

Q20.Members of the Board of Governors are

A.

appointed by the President of the United States and confirmed by the House of Representatives.

B.

appointed by member banks and confirmed by the House of Representatives.

C.

appointed by the U.S. Secretary of Treasury and confirmed by the President of the United States.

D.

appointed by the President of the United States and confirmed by the Senate.