If the Fed adopts a contractionary monetary policy, eventually we can expect:
a. aggregate demand to increase.
b. short-run aggregate supply to decrease.
c. interest rates to decrease.
d. planned investment expenditures to decrease.
e. real Gross Domestic Product to increase.
QUESTION 2The amount by which actual output falls short of potential output is called:
a. a deadweight loss.
b. real GDP.
c. a recessionary gap.
d. the full-employment output.
e. an expansionary gap.
QUESTION 3If the Fed sells U.S. government securities to drain reserves from banks, which of the following is most likely to occur?
a. The demand for money will increase and the interest rate will rise.
b. The money supply will increase and the interest rate will fall.
c. The interest rate will rise and the quantity of money demanded will fall.
d. The money supply will decrease and the interest rate will fall.
e. The interest rate will fall and the quantity of money demanded will increase.
QUESTION 4Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium?
a. The actual price level equals the expected price level.
b. Aggregate quantity supplied equals potential output.
c. Aggregate quantity demanded equals potential output.
d. Aggregate quantity supplied equals aggregate quantity demanded.
e. Aggregate demand curve is horizontal at the potential output level.
QUESTION 5As a result of an expansionary monetary policy:
a. both aggregate expenditure and aggregate demand increase.
b. both aggregate expenditure and aggregate demand decrease.
c. aggregate expenditure increases and aggregate demand decreases.
d. aggregate expenditure decreases and aggregate demand increases.
e. aggregate expenditure remains unchanged; aggregate demand increases.
QUESTION 6Which of the following if true would suggest that an expansionary gap exists in an economy?
a. Rapid inflation during a period when plant capacity utilization is below average
b. A steady price level coupled with a 5 percent unemployment rate
c. An unemployment rate below its natural rate and an unexpected increase in the consumer price index
d. Sluggish growth in the rate of inflation and an exceptional increase in the Dow Jones average
e. A modest increase in the number of new unemployment claims and a lower than expected price level
QUESTION 7If the Fed sells U.S. government securities in the open market, gross domestic product:
a. increases because the resulting increase in the interest rate leads to a decrease in investment.
b. increases because the resulting decrease in the interest rate leads to an increase in investment.
c. decreases because the resulting increase in the interest rate leads to a decrease in investment.
d. decreases because the resulting increase in the interest rate leads to an increase in investment.
e. decreases because the resulting decrease in the interest rate leads to an increase in investment.
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