1. The money supply in the United States is controlled by:

A. Congress (in particular, the Senate Committee on Banking and Finance).
B. the commercial banking industry.
C. the U.S. Treasury Department.
D. the Federal Reserve.
E. the New York Stock Exchange.

2. Which of the following would most likely result if the federal government increased its spending without increasing its tax revenues during a period when the economy is near full employment?

A. A recession.
B. A fall in interest rates.
C. Inflation.
D. A reduction of the national (public) debt.
E. A large increase in the real output of the economy.

3. Keynesian or demand-side economists believe how well the economy is doing with respect to employment and growth depends primarily on:

A. the level of tax rates.
B. the level of interest rates.
C. the rate of growth of the money supply.
D. the amount of saving done by households.
E. the amount of spending done by households, businesses, the government, and foreigners.

4. The Federal Reserve controls the money supply primarily by:

A. controlling the amount of Federal Reserve Notes (that is, currency or paper money) in circulation.
B. altering the reserve position of banks through sales and purchases of government securities.
C. altering the required reserve ratio to control banks’ ability to grant loans.
D. controlling the production of coins at the U.S. Mint.
E. buying and selling gold in international markets.

5. Growth in output per worker (labor productivity) of Western nations has been due to all the following except:

A. growth in the quantity of capital.
B. technological advance (growth in the quality of capital).
C. growth in the quantity of the labor force.
D. education and training of the labor force.
E. the discovery of new ways to utilize various natural resources.

6. Which of the following statements is true?

A. The value of a dollar increases when there is inflation.
B. If the CPI (Consumer Price Index) is 140, consumer prices are 140% higher than they were in the base period.
C. One measure of the rate of inflation is the percentage change in the CPI.
D. The CPI measures price changes for all goods in the economy.
E. All of the above statements are true.

7. A tight money policy is designed to shift the:

A. aggregate demand curve rightward.
B. aggregate demand curve leftward.
C. aggregate supply curve rightward.
D. aggregate supply curve leftward.
E. lower interest rates.

8. Fiscal policy refers to the control of:

A. interest rates by the Federal Reserve System.
B. business policies to increase competition.
C. the Federal government budget to influence total spending.
D. Federal government spending in order to balance the budget.
E. the growth of the money supply.

9. Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply:

A. contracts and commercial bank reserves increase.
B. expands and commercial bank reserves decrease.
C. contracts and commercial bank reserves decrease.
D. expands and commercial bank reserves increase.
E. will not change.

10. Output and prices are both higher than they were a year ago. Given this, which of the following is true?

A. Real GDP declined from last.
B. GDP declined from last year.
C. GDP increased from last year, but real GDP declined.
D. Both GDP and real GDP increased from last year.
E. Per capita GDP increased from last year.

11. If interest rates rise, what is likely to happen to the prices of stocks and bonds?

 

	Stock Prices	Bond Prices
A.	fall	rise
B.	fall	fall
C.	rise	fall
D.	rise	rise
E.	rise	stay the same

12. The public debt:

A. refers to the debts of all units of government – Federal, state, and local.
B. consists of the total debt of American households, businesses, and government.
C. refers to the collective amount that American citizens and businesses owe to foreigners.
D. consists of the historical accumulation of all Federal government deficits and surpluses.
E. none of the above.

13. Production and employment in which of the following industries would be the least affected by a major recession?

A. furniture and refrigerators.
B. oil and steel.
C. bread and milk.
D. computers and copy machines.
E. housing and cars.

14. According to Keynesian theory, which combination of policies below is consistent (that is, the policies would tend to reinforce instead of offset each other)?

A. Decrease taxes; increase government spending; increase the money supply.
B. Decrease taxes; decrease government spending; increase the money supply.
C. Decrease taxes; increase government spending; decrease the money supply.
D. Increases taxes; increases government spending; increase the money supply.
E. Increase taxes; decrease government spending; increase the money supply.

15. The largest component of GDP (Gross Domestic Product) is:

A. government purchases of goods and services.
B. business purchases of capital goods.
C. foreign purchases of U.S. exports.
D. consumer purchases of goods and services.
E. gross private domestic investment.