Question 1(3 points)

Which of the following is not considered mandatory spending?

a

Social Security

b

Interest on the Debt

c

Education

d

Medicaid

Question 2(3 points)

Under which program does the US government spend the most money?

a

Foreign Aid

b

NASA

c

Defense

d

Social Security

Question 3(3 points)

Which of the following Loanable Funds graphs illustrates the increase in real interest rates due to an increase in demand for money by C, I, G, and Xn?

a

Graph A

b

Graph B

Question 4(3 points)

The debt is the __________.

a

amount the government takes in revenue above its spending in a given year

b

total amount owed by the federal government

c

entire amount of the federal budget in a given year

d

amount the government needs to borrow to make up for revenue shortfalls in a given year

Question 5(3 points)

The foreign country that owns the most US debt is __________, the second most is _________.

a

France, Italy

b

Japan, China

c

China, Japan

d

Germany, China

Question 6(3 points)

The biggest component of discretionary spending is _____________.

a

the US Military

b

Social Security

c

Medicare

d

Unemployment benefits

Question 7(3 points)

In what year was the Federal Reserve Act passed?

a

1789

b

1860

c

1913

d

1933

Question 8(3 points)

Which of the following monetary policy solutions will decrease the size of GDP output?

a

decreasing taxes

b

increasing the discount rate

c

decreasing the reserve requirement

d

buying bonds

Question 9(3 points)

Which of the following tools does the Fed use daily?

a

increasing the Federal Funds Rate

b

raising the reserve requirement

c

lowering the discount rate

d

Open market operations

Question 10(3 points)

When the Fed buys government securities (bonds), what happens to the money supply?

a

it expands

b

it contracts

c

there is no relation between the two

d

the Fed does not actually buy bonds

Question 11(3 points)

Which of the following is NOT a tool of the Federal Reserve in controlling monetary policy?

a

Government spending

b

The reserve requirement

c

The discount rate

d

Open market operations

Question 12(3 points)

Which of the following is NOT a tool of the Federal Reserve?

a

taxing policy

b

the reserve requirement

c

the federal funds rate

d

open market operations

Question 13(3 points)

Monetary policy affects economic activity in the country by _____________.

a

raising the tax rate

b

increasing the nation's income level

c

adjusting the money supply

d

adjusting government spending

Question 14(3 points)

Which of the following is NOT a specific goal of the Federal Reserve System?

a

Running a payment system, Fed Wire, for the country

b

Printing the money for the US

c

Supervising and regulating the member institutions

d

Clearing and processing all checks

Question 15(3 points)

Which of the following monetary policy solutions will increase the size of GDP output?

a

decreasing taxes

b

increasing the discount rate

c

decreasing the reserve requirement

d

selling bonds

Question 16(3 points)

The main reason the New York Federal Reserve Bank President is always on the FOMC is _________.

a

because this is the preference of the current Federal Reserve Chairman.

b

the location is close to the Atlantic Ocean

c

the New York Federal Reserve Bank is responsible for conducting Open Market Operations

d

the proximity to the Federal Reserve offices in Washington, D.C.

Question 17(5 points)

Our nation is in debt. Present two ways explaining why this affects our economy.

Your answer:

Question 18(5 points)

The economy is in a recession. Unemployment is high. You can choose to either be President of the United States or Chairman of the Fed. Explain what actions you would take by answering the following questions:

i. Who are you, the President or the Chairman?

ii. Would you recommend an expansionary or contractionary policy?

iii. What specific tool would you recommend?

iv. Why do you think your actions would work to help the economy perform better?

Your answer:

Question 19(3 points)

Which statement does not fit the classical view of economics?

a

supply creates its own demand

b

the economy will self-regulate itself

c

there is a management role in the economy for the government

d

the economy will achieve full achieve full employment in the long run

Question 20(3 points)

Which of the following fiscal policy solutions will increase the size of GDP output?

a

decreasing taxes

b

decreasing the discount rate

c

decreasing government spending

d

buying bonds

Question 21(3 points)

Interest rates increase when government borrows money for building projects, leaving little money for consumers and business to borrow. What term in economics is used to describe this effect?

a

speed of borrowing effect

b

pooling effect

c

crowding out effect

d

revolving door effect

Question 22(3 points)

The entity in control of monetary policy is _______, while the entity in control of fiscal policy is ________.

a

The Department of the Treasury, The Federal Reserve

b

The President, The Federal Reserve

c

The US Congress, the Federal Reserve

d

The Federal Reserve, the US Congress and the President

Question 23(3 points)

John Maynard Keynes' economic philosophy of fiscal policy can best be described as ___________.

a

high taxes will increase aggregate demand

b

the economy should be left to fix itself by letting prices and wages rise and fall

c

increased government spending to stimulate aggregate demand

d

the government needs to try and decrease AD when the country is experiencing a recessionary gap

Question 24(3 points)

Which two groups are in charge of fiscal policy?

a

the Federal Reserve and the US Congress

b

The US Congress and the President

c

The House of Representatives and The President

d

The Federal Reserve and the Department of the Treasury

Question 25(3 points)

If the government increases the budget and spends more we would expect the _________.

a

aggregate demand curve to shift to the right

b

aggregate demand curve to shift to the left

c

aggregate supply curve to shift to the right

d

aggregate supply curve to shift to the left

Question 26(3 points)

If there is an increase in the educational productivity level throughout the U.S. we would expect the _____________.

a

aggregate demand curve to shift to the right

b

aggregate demand curve to shift to the left

c

aggregate supply curve to shift to the right

d

aggregate supply curve to shift to the left

Question 27(3 points)

If Aggregate Demand increases and Aggregate Supply stays the same we would expect _________.

a

price level to increase and the quantity of real GDP output to decrease

b

price level to increase and the quantity of real GDP output to increase

c

price level to decrease and the quantity of real GDP output to increase

d

price level to decrease and the quantity of real GDP output to decrease

Question 28(3 points)

When faced with high inflation a classical economist believes that the government should ___________.

a

focus on reducing inflation

b

cut back on government spending and increase taxes

c

follow an expansionary monetary policy

d

allow the economy to correct itself

Question 29(3 points)

The Aggregate Supply curve shows a positive relationship between _________.

a

Money supply and interest rates

b

Real GDP and the money supply

c

Interest rates and real GDP

d

Real GDP output and price level

Question 30(3 points)

If there is an increase in household wealth throughout the economy we would expect the _________.

a

aggregate demand curve to shift to the right

b

aggregate demand curve to shift to the left

c

aggregate supply curve to shift to the right

d

aggregate supply curve to shift to the left

Question 31(3 points)

Generally speaking when an expansionary policy is enacted we would expect unemployment to _______ and price level to ______.

a

increase, increase

b

increase, decrease

c

remain the same, increase

d

decrease, increase

Question 32(3 points)

The production possibilities curve is closely related to _________.

a

the long run aggregate supply curve and the long run Phillips Curve

b

the short run aggregate supply curve

c

the short run aggregate demand curve

d

the money supply and interest rates

Question 3 (3 points) Which of the following Loanable Funds graphs illustrates the increase in real interest rates due to an increase in demand for money by C, I, G, and Xn? Graph Graph A B SIf1 DLF SIf1 SIf2 Real Interest Rate Real Interest Rate DLF2 DLF1 0 Quantity of Loanable Funds 0 Quantity of Loanable Funds