204 ❯ Step 5. Build Your Test-Taking Confidence
- Which of the following is an example of an
expansionary supply shock?
(A) Rapid increasing wages
(B) A greatly depreciated currency
(C) Declining labor productivity
(D) Lower than expected agricultural harvests
(E) Lower factor prices in major industries - Which of the following fiscal policy combina-
tions would be most likely to slowly increase
real GDP without putting tremendous upward
pressure on the price level?
(A) Increase government spending with a
matching decrease in taxes.
(B) Decrease government spending with a
matching increase in taxes.
(C) Increase government spending with no
change in taxes.
(D) The Federal Reserve lowers the reserve ratio.
(E) Increase taxes with a matching increase in
government spending. - Which of the following is an example of con-
tractionary monetary policy?
(A) The Fed lowers the reserve ratio.
(B) The Fed lowers the discount rate.
(C) The Fed increases taxes on household income.
(D) The Fed decreases spending on welfare
programs.
(E) The Fed sells Treasury securities to com-
mercial banks. - The economy is in a deep recession. Given this
economic situation, which of the following
statements about monetary policy is accurate?
(A) Expansionary policy would only worsen the
recession.
(B) Expansionary policy greatly increases aggre-
gate demand if investment is sensitive to
changes in the interest rate.
(C) Contractionary policy is the appropriate
stimulus for investment and consumption.
(D) If the demand for money is perfectly elastic,
expansionary monetary policy might be quite
effective.
(E) An open market operation that sells govern-
ment securities is the only realistic way to
improve the economy.
39. Daddy Morebucks withdraws $1 million from
his savings account and puts the cash in his
refrigerator. This affects M1 and M2 in which
of the following ways?
M 1 M 2
(A) Rises Rises
(B) No change No change
(C) Falls Falls
(D) Rises Falls
(E) Rises No change- What is the difference between how the short-
run and long-run Phillips curves are drawn?
(A) The short-run Phillips curve is downward
sloping and the long-run Phillips curve is
upward sloping.
(B) The short-run Phillips curve is upward slop-
ing and the long-run Phillips curve is vertical.
(C) The short-run Phillips curve is horizontal and
the long-run Phillips curve is upward sloping.
(D) The short-run Phillips curve is downward
sloping and the long-run Phillips curve is
vertical.
(E) The short-run Phillips curve is vertical and
the long-run Phillips curve is upward sloping. - Which of the following insures the value of the
U.S. dollar?
(A) The euro and other foreign currencies held
by the Federal Reserve
(B) Gold bars in secure locations like Fort Knox
(C) The promise of the U.S. government to
maintain its value
(D) The value of the actual paper on which it is
printed.
(E) An equal amount of physical capital, land,
and natural resources - The reserve ratio is 0.10 and Mommy Morebucks
withdraws $1 million from her checking account
and keeps it as cash in her refrigerator. How
does this withdrawal potentially impact money
in circulation?
(A) Decreases it by $9 million
(B) Decreases it by $1 million
(C) Decreases it by $100,000
(D) Increases it by $1 million
(E) Decreases it by $10 million