QUESTION 1

Of all of the components of aggregate demand, the most interest sensitive is:

		a- net exports.
		b- consumption.
		c- government purchases.
		d- investment.

QUESTION 2

The fact that central bankers tend to respond to higher rates of inflation by increasing the real interest rate is:

		a- one reason the dynamic aggregate demand curve slopes downward.
		b- why the monetary policy reaction curve has a negative slope.
		c- one reason the dynamic aggregate demand curve shifts left.
		d- one reason the dynamic aggregate demand curve shifts right.

QUESTION 3

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

		a- potential output.
		b- short-run aggregate supply.
		c- aggregate demand.
		d- the real interest rate by the central bank.

QUESTION 4

A characteristic of long-run equilibrium is the economy is producing its potential output. This is:

		a- the maximum level of output the economy could produce at any time.
		b- defined as using 80 percent of the economy's resources at any time.
		c- the level of output consistent with an unemployment rate of 7.5%.
		d- the level of output the economy produces when its resources are used at normal rates.

QUESTION 5

Which of the following statements is most accurate?

		a- During a recessionary gap, current output is below potential output.
		b- Potential output is determined by current output.
		c- Current output cannot exceed potential output.
		d- When an expansionary gap exists, current output is below potential output.

QUESTION 6

If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:

		a- lower the real interest rate.
		b- keep the real interest rate constant and focus on only changing the nominal interest rate.
		c- raise the real interest rate.
		d- purchase Treasury securities.