2. When the economy is below full employment, expansionary fiscal policy: shifts the aggregate…

2. When the economy is below full employment, expansionary fiscal policy: shifts the aggregate demand curve to the left. shifts the short-run aggregate supply curve to the right. causes a movement down along the aggregate demand curve. shifts the aggregate demand curve to the right. 3. 2. When the economy is below full employment, expansionary fiscal policy: shifts the aggregate demand curve to the left. shifts the short-run aggregate supply curve to the right. causes a movement down along the aggregate demand curve. shifts the aggregate demand curve to the right. 3. Supply-side fiscal policies include all of the following EXCEPT: investment in human capital. projects that include the encouragement of new technologies. increasing transfer payments. policies that encourage investment in research and development. 4. In terms of the Laffer curve, when tax rates are zero: tax revenues are positive. tax revenues are negative. tax revenues are zero. there is no relationship between tax revenues and tax rates. 5. Using discretionary fiscal policy to smooth the short-term business cycle is challenging because: the data needed are not available for almost a month after the fact. it often takes up to a quarter to confirm a recessionary phase. once the policy is decided, it can be implemented immediately. deciding on fiscal policy often takes a long and contentious legislative process. 6. As GDP increases, tax revenues _____ and transfer payments _____. decline; decline decline; increase increase; decline increase; increase 7. The real life spending multiplier for the 2009 stimulus package was between: 0 and 1. 1 and 2. 2 and 3. 3 and 4. 8. Economists who favor a(n) _____ approach to the federal budget believe that the first priority of policymakers should be to keep the economy at full employment with stable prices. functional finance annually balanced budget cyclically balanced budget laissez-faire 9. Which of the following statements is CORRECT? M2 measures assets primarily used as a medium of exchange. M2 includes M1. M1 includes assets primarily used as a means of saving. The Federal Reserve discontinued reporting on M1 and M2 because they provide little insight into the state of the economy. 10. M1 is the most _____ of all assets because as a medium of exchange it requires no conversion. illiquid insolvent liquid None of the answers is correct. 11. If Jack Sparrow buries a chest of gold bullion on a deserted island and plans to come back later, then the gold is functioning as a: unit of account. store of value. medium of exchange. barter tool. 12. Another term for a unit of account is: a bank account. a savings account. a measure of value. a store of value. 13. Which of the following statements is TRUE? Coins constitute 90% of currency. Paper money constitutes 90% of M1. Paper money constitutes 90% of currency. Coins constitute 90% of M1. 14. Institutions that serve as the bridge between savers and borrowers are known as: commercial banks. credit unions. financial intermediaries. securities firms. 15. Bonds are considered to be _____ than stocks because ____. less risky; bondholders are less affected by a firm's bankruptcy riskier; stockholders earn dividends and bondholders do not less risky; bondholders earn dividends and stockholders do not riskier; stockholders are less affected by a firm's bankruptcy 16. What is the likely chain of events if asset prices rise? People feel poorer, so their spending falls and their saving rises, causing interest rates to fall. People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall. People feel wealthier, so their spending rises and their saving rises, causing interest rates to fall. People feel wealthier, so their spending rises and their saving falls, causing interest rates to rise. 17. SCENARIO:Assume that the Empathy State Bank begins with the balance sheet below and is fully loaned up. Empathy State Bank Assets Liabilities Vault Cash $2,500 Deposits $100,000 Deposits at the Federal Reserve 7,500 Loans 90,000 Reference: Ref 12-1
__Vanessa has a checking account at Empathy State Bank. If she writes a check for $5,000 to pay for her new car and if the bank has a reserve requirement of 5%, this bank's excess reserves will be: $250. $5,250. 0; Empathy State Bank will be all loaned up. negative; Empathy State Bank will need to acquire $2,250 in reserves. 18. An individual bank can, at most, lend out all of its: checkable deposits. excess reserves. reserves. deposits. 19. If the reserve requirement is 2.5%, the potential money multiplier is: 0.025 2.5 4 40 20. The actual money multiplier is: usually equal to the potential money multiplier. usually larger than the potential money multiplier. usually smaller than the potential money multiplier. always equal to the potential money multiplier. 21. If foreigners become less confident in the ability of the U.S. dollar to hold its value: the potential multiplier will rise. the potential multiplier will fall. the actual multiplier will rise. the actual multiplier will fall. 22. Which of the following statements is CORRECT? The Fed's actions are subject to executive branch control. Politically controlled banks are better at fighting inflation than are independent central banks. The Federal Reserve is considered to be an independent central bank. The Federal Reserve System is not subject to Congressional oversight. 23. The _____ is the central bank of the United States. Federal Deposit Insurance Corporation Federal Reserve System Securities and Exchange Commission U.S. Treasury 24. Which of the following measures would increase the money supply? increasing the reserve requirement increasing the discount rate selling government bonds buying government bonds 25. A higher interest rate __________ consumption, investment, and _____________, which ___________ aggregate demand decreases; exports; decreases decreases; imports; decreases increases; exports; increases increases; imports; increases 26. In the long run, when the economy is at full employment, any change in money supply: leads to a change in velocity only. leads to a change in aggregate output only. leads to a change in prices. is brought about by a change in tax policy. 27. In the equation of exchange, ifM= $2 trillion,P= 1.5, andQ= $8 trillion: the velocity of money (V) = 6. nominal GDP is $16 trillion. the velocity of money (V) = 4. real GDP is $12 trillion. 28. Which of the following is a characteristic of the quantity theory of money? It is focused on the short run. It assumes that prices and interest rates are sticky. It is a product of the classical school of economics. It assumes money is used for both transactions and saving. 29. Figure: Shifts in SRAS and AD
Reference: Ref 13-2
__(Figure: Shifts in SRAS and AD) If the economy is at short-run equilibrium pointbbecause of a negative supply shock, the Fed could enact an expansionary monetary policy, thus shifting the new equilibrium to point _____. As a result of this, the price level would _____ and real output would _____. a; decrease; further decrease c; further increase; increase d; decrease; increase No monetary policy would have any effect; the equilibrium will remain at pointb. 30. _____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange. Inflation targeting The Friedman rule The Taylor rule A monetary rule 31. If the Fed adheres strictly to the Taylor rule, it will: lower the target federal funds rate when the economy starts to overheat. keep the target federal funds rate constant, regardless of evolving economic conditions. increase the target federal funds rate when there is concern about inflation and lower it when there is concern about recession. decrease the target federal funds rate when the government runs an expansionary fiscal policy. 32. _____ on credit by households and _____ interest rates set in motion the events that lead to the 20072009 recession. Overspending; high Underspending; high Underspending; low Overspending; low 33. Which of the following is NOT a reason the aggregate demand curve is negatively sloped? income effect wealth effect impact on exports the interest rate effects 34. An increase in net export spending will result in a(n): increase in aggregate demand. increase in aggregate supply. decrease in aggregate supply. decrease in aggregate demand. 35. (Figure: Aggregate Demand Shift)

The shift in aggregate demand depicted may be due to a(n): increase in consumer confidence. decrease in interest rates. increase in income taxes. increase in exports. 36. High taxes and/or heavy regulation: can cause firms to boost production so they can cover the added costs. raise costs of production so that the aggregate supply curve shifts to the left. are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation . are likely to shift aggregate supply to the right. 37. (Figure: Determining Aggregate Equilibrium Levels)

Equilibrium output is ________ and the equilibrium price level is ________. 2,000; 130 5,000; 160 3,000; 100 100; 3,000 38. The proportion of additional income that consumers spend is known as the: marginal propensity to save. marginal propensity to consume. average propensity to save. average propensity to consume. 39. The idea that new spending creates more new spending is known as: the crowding-out effect. the multiplier effect. the wealth effect. the interest rate effect. 40. Cost-push inflation occurs because of a shift to the: right of the short-run aggregate supply curve. left of the short-run aggregate supply curve. right of the aggregate demand curve. left of the aggregate demand curve.

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