Q: If the required reserve ratio is 10%, what is the maximum potential increase in the money supply from a new deposit of $\$1,000$?

$\frac{1}{0.10} \times 1,000 = 10,000$

Question 1

Suppose the Federal Reserve wants to decrease inflation. Which of the following monetary policy actions is most likely to achieve this goal?

Accepted Answer

Increasing the federal funds rate

Question 2

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple spending multiplier?

Accepted Answer

$\frac{1}{0.2} = 5$

Question 3

Which of the following best describes the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates.

Question 4

If the economy is experiencing a recessionary gap, which of the following policies would be most appropriate?

Accepted Answer

Increase government spending

Question 5

Given the following information: Consumption = $500$, Investment = $200$, Government Spending = $300$, Net Exports = $-50$. What is the value of GDP?

Accepted Answer

$500 + 200 + 300 - 50 = 950$

Question 6

Which of the following would shift the aggregate demand curve to the right?

Accepted Answer

An increase in government spending

Question 7

If the nominal GDP in 2022 is $20$ trillion and the GDP deflator is $125$, what is the real GDP for 2022?

Accepted Answer

$\frac{20}{1.25} = 16$ trillion

Question 8

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

Purchases of stocks and bonds

Question 9

Suppose the unemployment rate is 6%, the natural rate of unemployment is 4%, and the inflation rate is 2%. According to the Phillips Curve, what is the likely relationship between unemployment and inflation in this scenario?

Accepted Answer

Unemployment is above the natural rate, so inflation should be falling.

Question 10

If the Fed conducts an open market sale of government securities, what is the expected effect on the money supply and interest rates?

Accepted Answer

Money supply decreases, interest rates increase

Question 11

Which of the following best explains why the long-run aggregate supply (LRAS) curve is vertical?

Accepted Answer

Because in the long run, output is determined by resources and technology, not by the price level

Question 12

If the required reserve ratio is 10%, what is the maximum potential increase in the money supply from a new deposit of $\$1,000$?

Accepted Answer

$\frac{1}{0.10} 	imes 1,000 = 10,000$

Question 13

Which of the following is an example of expansionary fiscal policy?

Accepted Answer

Increasing government spending

Question 14

Suppose the economy is at full employment and the government increases spending without raising taxes. What is the most likely long-run effect?

Accepted Answer

Increase in price level (inflation) with little change in real GDP

Question 15

If the velocity of money is constant and the money supply increases by 5%, according to the quantity theory of money, what is the expected effect on the price level if real output remains unchanged?

Accepted Answer

Price level will increase by 5%

Question 16

Which of the following would most likely cause a leftward shift in the short-run aggregate supply (SRAS) curve?

Accepted Answer

An increase in wages

Question 17

If the government increases taxes by $\$100$ and the marginal propensity to consume (MPC) is $0.75$, what is the expected change in aggregate demand?

Accepted Answer

$-100 	imes \frac{0.75}{1-0.75} = -300$

Question 18

Which of the following is a tool of monetary policy used by the Federal Reserve?

Accepted Answer

Open market operations

Question 19

Suppose the economy is experiencing high inflation and the Fed wants to reduce it. Which combination of actions would be most effective?

Accepted Answer

Increase the discount rate and sell government securities

Question 20

If the real interest rate is 3% and the expected inflation rate is 2%, what is the nominal interest rate according to the Fisher equation?

Accepted Answer

$3\% + 2\% = 5\%$

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