Question

1. Monetary policy refers to

a. government taxing

b. Government spending

c. Federal reserve manipulating the money supply

d. Federal reserve printing money

2. Which of the following would shift the long run aggregate supply curve to the left?

a. Decrease in consumption

b. Decrease in resources

3. In the short run, aggregate demand in a country will decrease if there is a decrease in the

a. tax rate in the country

b. money supply

c. factors of production

d. level of technology

4. If the federal government increased spending, then you could expect to see

a. a recession

b. a decrease in interest rate

c. a increase in interest rate

d. a decrease in national debt

5. Research shows that when students receive an extra $100 they purchase items that total $80. Based on this what would be the tax multiplier given the information above?

a. 1.25

b. 1.5

c. 4

d. 1

6. An increase in government spending (without crowding out) would cause all of the following except

a. the AD curve to shift right

b. the price level to fall

c. the price level to rise

d. the level of real GDP to rise

7. Which of the following would lead to a change in investment?

a. current level of income

b. change in the interest rate

c. all of the above

8. The federal reserve practice of using open market operations: buying bonds to _______ the interest rate will work as long as the demand curve for money is __________.

a. decrease, vertical

b. increase vertical

c. decrease, downward shaping

d. increase, upward shaping

Answer 1

1.

Monetary policy means change in the money supply by the Federal reserve system for affecting the inflation. Hence it can be said that monetary policy means Federal reserve manipulating the money supply.

Hence option c is the correct answer.

C Federal reserve manipulating the money supply

2.

Since in the long-run all factors of production are variable. So the only decrease in resources would shift the long run aggregate supply curve to the left.

Hence option b is the correct answer.

b. Decrease in resources

3.

In the short run, aggregate demand in a country will decrease if there is a decrease in the money supply. This is because with the decrease in the money supply, the money supply curve shifts leftward, so the interest rate increases. With high interest rate, the borrowing becomes expensive. So investment demand decreases. Since investment is the part of AD. So AD decreases.

Hence option c is the correct answer.

b. money supply

4.

If the federal government increased spending, then demand for loanable fund increases, so the interest rate will increase.

Hence option c is the correct answer.

c. a increase in interest rate