1. Assume the MPC is 0.90. If the government increases spending by $400 billion and increases taxes by $400 billion simultaneously, then aggregate demand will: Select one: a. Shift to the right by $400 billion. b. Shift to the right by less than $400 billion. c. Shift to the left by $400 billion. d. Not change.
2. Assume the MPC is 0.60. If the government cuts spending by $10 billion and cuts taxes by $10 billion simultaneously, then the federal budget will:
a. Not change and aggregate demand will not change.
b. Not change and aggregate demand will decrease by $10 billion.
c. Not change and aggregate demand will increase by $10 billion.
d. Decrease by $10 billion and aggregate demand will decrease by $10 billion.
3. Aggregate demand shifts to the left when:
a. Government taxes are increased.
b. Government transfers are decreased.
c. Government purchases are decreased.
d. All of the above.
4. A rightward shift in the aggregate supply curve should result in:
a. Inflation and a higher unemployment rate.
b. Inflation and a lower unemployment rate.
c. Deflation and a higher unemployment rate.
d. Deflation and a lower unemployment rate.
5. Which group of economists believes that the supply of goods and services is determined by institutional factors such as the size of the labor force and technology?
a. Monetarists.
b. Supply-siders.
c. Keynesians.
d. Eclectic economists.
6. In the long run, an increase in aggregate demand will lead to:
a. A higher price level and an increase in real GDP.
b. A higher price level.
c. An increase in real GDP.
d. A decrease in real GDP.
7. The Federal Open Market Committee meets:
a. Twice per year.
b. Every four or five weeks.
c. Every week.
d. Every two months.
8. Excess reserves are:
a. Legal reserves in excess of total reserves.
b. Required reserves plus minimal reserves.
c. Bank reserves in excess of required reserves.
d. Total reserves minus deficient reserves.
9. The discount rate is the interest rate charged when:
a. The Fed lends reserves to private banks.
b. Individuals lend money to private banks.
c. One bank lends reserves to another bank.
d. Private banks lend excess reserves to the Fed.