In explaining the downward-sloping aggregate demand curve, the real money-supply effect is:
a. When the price index falls, the real money supply falls, causing the real risk-free interest rate to fall, and consumption and real investment to rise.
b. When the price index falls, the real money supply falls, causing the real risk-free interest rate to fall, and consumption and real investment to rise.
c. When the price index falls, the real money supply rises, causing the real risk-free interest rate to fall, and consumption and real investment to rise.
d. When the price index falls, central banks intervene to bring the money supply back to where it was, causing the real risk-free interest rate to fall, and consumption and real investment to rise.
e. None of the above.
Question 2 - Fixing the insolvency problem caused by the Great Recession, the U.S. Federal Reserve as reluctant to purchase toxic assets from banks because:
a. It could cause an unwanted expansion of the e U.S. monetary base.
b. Toxic security purchases had to be funded, and the Fed already had a major debt problem.
c.It could cause an unwanted contraction of the U.S. monetary base.
d. The Fed could be accused of nationalizing the U.S. financial system.
e. All of the above.
Question 3 - In explaining the downward-sloping aggregate demand curve, the wealth effect is:
a. When the price index falls, the real money supply falls, causing the real risk-free interest rate to fall, and the value of bonds (wealth) to rise.
b. When the price index falls, the real money supply falls, causing the real risk-free interest rate to rise, and the value of bonds (wealth) to rise.
c. When the price index falls, the real money supply rises, causing the real risk-free interest rate to fall, and the value of bonds (wealth) to rise.
d. When the price index falls, people become wealthy because they earn higher nominal incomes, and the price of everything they purchase is cheaper. Therefore, they are wealthier.
e. None of the above.
Question 4 - Fixing the insolvency problem caused by the Great Recession, the U.S. Federal Reserve as reluctant to purchase toxic assets from banks because:
a. It would transfer the problem to the Federal Reserve but might not solve the underlying causes.
b. Toxic security purchases had to be funded, and the Fed already had a major debt problem.
c.The Fed could be accused of nationalizing the U.S. financial system.
d. All of the above.
Question 5 - An increase in government spending causes:
a. Aggregate supply to rise, which reduces the nation's average price level and increases real GDP.
b. Aggregate demand to rise, which increases the nation's average price level and reduces real GDP.
c. Always causes the passive deficit to rise.
d. Aggregate supply to rise, which reduces the nation's average price level and reduces real GDP.
e. Aggregate demand to rise, which increases the nation's average price level and increases real GDP.
Question 6 - Fixing the insolvency problem caused by the Great Recession, the government was reluctant to infuse equity into financial institutions because:
a. It would transfer the problem to the government but may not solve the underlying causes.
b. Equity infusions had to be funded, and the government already had a major debt problem.
c.The government could be accused of nationalizing the U.S. financial system.
d. All of the above.
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