Although open market operations and discount loans both change the monetary base, the Fed has :

Although open market operations and discount loans both change the monetary base, the Fed has
 
  A) greater control over open market operations than over discount loans.
  B) greater control over discount loans than over open market operations.
  C) very little control over either discount loans or open market operations.
  D) complete control over both discount loans and open market operations.

Question 2

All of the following are reasons for the downward-sloping aggregate demand curve except
 
  A) as the price level decreases, the quantity demanded of real GDP decreases because goods and services are more expensive.
  B) as the price level increases, the real value of household wealth declines, reducing consumption.
  C) a higher price level increases the demand for money, causing an increase in the interest rate which reduces spending on investment goods and consumer durables.
  D) if the price level rises in a country relative to price levels in other countries, net exports will decrease in the original country.

Question 3

In the equation S = Y - C, in order to interpret Y as disposable income, it is necessary to interpret S as ________ saving.
 
  A) private
  B) national
  C) government
  D) business

Question 4

A closed economy is one that
 
  A) has no government sector.
  B) neither borrows from nor lends to foreign countries.
  C) produces mainly agricultural goods.
  D) produces mainly manufactured goods.

Question 5

In an options contract, another name for the strike price is the
 
  A) market price.
  B) exercise price.
  C) equilibrium price.
  D) fixed price.

Question 6

Describe the differences between the growth rates of real personal consumption and real gross private investment in the United States.
 
  What will be an ideal response?

Question 7

The current demand for money increases when
 
  A) current real income increases.
  B) future real income decreases.
  C) the nominal rate of interest increases.
  D) none of the above.

Question 8

The LM curve is the combinations of
 
  A) the output gap and the real interest rate for which the money market is in equilibrium.
  B) the inflation rate and nominal interest rate for which the money market is in equilibrium.
  C) the inflation rate and real interest rate for which the money market is in equilibrium.
  D) the inflation rate and real interest rate for which the goods market is in equilibrium.

Question 9

New information ought not to influence economic decision-making if ________.
 
  A) consumers rely on rational expectations
  B) monetary policy changes
  C) monetary and/or fiscal policy changes
  D) that information has already been anticipated

Question 10

Suppose consumer confidence improves and as a result, consumer spending increases by 50 billion dollars. Assume households spend 0.80 of each extra dollar of income and save the remaining 0.20.
 
  Other things equal, calculate by how much spending will increase during:
  a. the first round through the circular flow.
  b. the second round through the circular flow.
  c. the third round through the circular flow.
  d. the fourth round through the circular flow.

Question 11

If the Fed makes a discount loan of 2 million to a commercial bank, the Fed's balance sheet will show
 
  A) an increase in discount loans of 2 million and an increase in bank reserves of 2 million.
  B) an increase in discount loans of 2 million and a decrease in bank reserves of 2 million.
  C) a decrease in discount loans of 2 million and an increase in bank reserves of 2 million.
  D) a decrease in discount loans of 2 million and a decrease in bank reserves of 2 million.

Question 12

The price at which an option may be exercised is called the
 
  A) market price.
  B) equilibrium price.
  C) strike price.
  D) fixed price.

Question 13

Suppose the economy is in a long-run equilibrium when a positive demand shock occurs. On the graphs above, show what happens to bring the economy back to long-run equilibrium, assuming that there is no policy response.
 
  In words, describe how the graph would be different, if policy makers did intervene.