If an increase in investment spending of 50 million results in a 400 million increase in equilibrium real GDP, then
A) the multiplier is 0.125. B) the multiplier is 3.5.
C) the multiplier is 8. D) the multiplier is 50.
Ques. 2Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A) higher; lower B) higher; higher C) lower; lower D) lower; higher
Ques. 3If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a
A) securitization meltdown. B) commodity crisis.
C) bank panic. D) institutional death spiral.
Ques. 4Models that focus on factors such as technology shocks rather than monetary explanations of fluctuations in real GDP are called
A) rational expectations models. B) real business cycle models.
C) short-run macroeconomic models. D) nonmonetary business cycle models.
Ques. 5If inflation is completely anticipated
A) borrowers lose in the economy. B) firms lose because they incur menu costs.
C) lenders lose in the economy. D) no one loses in the economy.
Ques. 6At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.
Indicate whether the statement is true or false
Ques. 7Refer to Table 26-6. Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.
If the Fed wants to keep real GDP at its potential level in 2017, should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?
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