Refer to the following graph:

If the government elects to decrease spending, which AD curve will give the final equilibrium level of income?

1. A
2. B
3. C
4. D

How would the Fed pursue contractionary monetary policy?

1. Sell bonds and increase the reserve coefficient.
2. Buy bonds and increase the reserve coefficient.
3. Buy bonds and reduce the reserve coefficient.
4. Sell bonds and decrease the reserve coefficient.

In the short run, if income is falling, how should the Fed respond?

1. Sell bonds, reducing the amount of money in circulation and reducing the interest rate.
2. Buy bonds, increasing the amount of money in circulation and reducing the interest rate.
3. Increase the reserve coefficient, increasing the amount of money banks can loan out.
4. A & C

Refer to the following graph:

If the Fed beings to sell bonds, which curve reflects this policy decision?

1. A
2. B
3. C
4. D

How does Aggregate Demand respond to an increase in the money supply?

1. AD will shift forward (increase), as lower interest rates stimulate consumption and investment.
2. AD remains the same as it is not affected by the money market.
3. AD will shift backwards (decrease), as higher interest stifle consumption and investment.
4. AD will shift forward (increase), as an increase in the demand for money raises savings.

Which equations can used to find the equilibrium point in the IS-LM model?

1. A - br + c(1 - t)Y = Y
2. (M/P) = kY - hr
3. Y - C - G = I(r)
4. All of the above.

If the Central Bank sells bonds, how does AD react?

1. AD shifts forward (increases), as people are spending more money to buy bonds.
2. AD shifts backwards (decreases), as the government cuts spending in response to the monetary policy change.
3. AD shifts forward (increases), as consumption increases due to consumers earning interest from bonds.
4. AD shifts backwards (decreases), as investment and consumption decline in response to increased interest rates.

Refer to the following graph:

If the Fed announces it will buy bonds and the government increases transfer payments during the COVID-19 pandemic, which equilibrium point reflects these policy decisions?

1. A
2. B
3. C
4. D

Refer to the following graph:

If the government decreases taxes, which will be the initial level of income?

1. A
2. B
3. C
4. D

Monetary policy is used to:

1. Promote inflation and control employment.
2. Inject money into the economy.
3. Remove money from the economy.
4. Control inflation and promote employment.

If the government increases taxes, how will income change?

1. Income will increase because national savings increase, interest rates fall and investment increase, shifting IS to the right.
2. Income will decrease because consumption will fall, AD shifts down, IS shifts down before moving rightward along the curve to a new equilibrium income.
3. Income doesn't change - government spending is exogenous in Aggregate Demand.
4. Income will decrease because national savings increase, interest rates fall and investment increase, shifting LM to the right.