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38. The circular flow of economic activity between 40. Which of the following is most likely to increase consumers and producers includes which of the if the public decides to increase its holdings of following? currency? 1. Households buy factor services from firms. (A) The interest rate II. Households sell factor services to firms. (B) The price level III. Households buy outputs from firms. (C) Disposable personal income IV. Households sell outputs to firms. (D) Employment (A) III only (E) The reserve requirement (B) IV only (C) I and II only 41. During a mild recession, if policymakers want to (D) II and III only reduce unemployment by increasing investment, (E) III and IV only which of the following policies would be most appropriate? 39. Suppose the required reserve ratio is 20 percent (A) Equal increases in government expenditure and a single bank with no excess reserves and taxes receives a $100 deposit from a new customer. (B) An increase in government expenditure only The bank now has excess reserves equal to (C) An increase in transfer payments (A) $20 (D) An increase in the reserve requirement (B) $80 (E) Purchase of government securities by the Federal Reserve (C) $100 (D) $400 (E) $50054. 55. (E) Decrease Decrease If crowding out only partially offsets the effects of a tax cut. which of the following changes in interest rates and gross domestic product are most likely to occur? Gross Domestic We; % (A) Increase Increase (3) Increase Remain unchanged (C) Increase Decrease (DJ Remain unchanged Increase (E) Decrease Decrease All of the following are components of the money supply in the United States EXCEPT (A) Paper mm? (B) gold bullion (C) checkable deposits (D) coins on demand deposits 5?. According to both monetarista and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate? (A) The demand for money decreases and market interest rates decrease. (B) The demand for money increases and market interest rates increase. (C) The supply of money increases and market interest rates decrease. (D) The supply of money increases and market interest rates increase. (E) Both the demand for money and the supply of money increase and market interest rates increase.