Economics Micro & Macro (CliffsAP)

C.The monetary policy that is appropriate in this situation is restrictive monetary policy. For example, selling

government bonds or increasing the discount rate.

2. A.An increase in demand for Italian products will lead to an increase in the supply of dollars to purchase Italian
   currency. The increase in the supply of dollars will decrease the value of the dollar abroad.
   B.The domestic value of the dollar will rise because there will be a reduced supply of dollars in the U.S. to
   convert to Italian currency.


3. A. The $1,000 deposit will increase the money supply because banks will be loaning out portions of the deposit.

B.The maximum amount of an increase is $4,000. The money multiplier is 1/RR:

1/.2 = multiplier (5)

Remember to deduct the original amount of the deposit to determine the true impact the deposit has on the money

supply:

5 x $1,000 = $5,000

-$1,000(original deposit)

$4,000 increase in money supply

Price

Level

Real GDP

AD^1

AS

AD

Macroeconomics Full-Length Practice Test 1

Macroeconomics Full-Length

Practice Test 1