206 ❯ Step 5. Build Your Test-Taking Confidence
- Which of the following could limit the ability
of a central bank to conduct expansionary mon-
etary policy?
(A) Money demand is nearly perfectly elastic.
(B) Investment demand is nearly perfectly elastic.
(C) Banks make loans with all excess reserves.
(D) Households carry very little cash, holding
their money in checking and saving deposits.
(E) Money supply is nearly perfectly inelastic. - Which of the following is a predictable
outcome of expansionary monetary policy in a
recession?
(A) It decreases aggregate demand so that the
price level falls, which increases demand for
the dollar.
(B) It increases investment, which increases aggre-
gate demand and increases employment.
(C) It increases aggregate demand, which
increases real GDP and increases the unem-
ployment rate.
(D) It keeps interest rates high, which attracts
foreign investment.
(E) It decreases the interest rate, which attracts
foreign investment in U.S. financial assets. - Suppose the economy is in long-run equilib-
rium when an expansionary supply shock is
felt in the economy. This changes the short-run
Phillips curve, the short-run unemployment
rate, and the long-run unemployment rate in
which of the following ways?
SHORT-RUN SHORT-RUN LONG-RUN
PHILLIPS UN- UN-
CURVE EMPLOYMENT EMPLOYMENT
(A) Shifts down Falls Rises
(B) Shifts up Rises Falls
(C) Shifts down Falls Falls
(D) Shifts up Rises Rises
(E) Shifts down Rises Falls
- As the Japanese economy expands, in what ways
do U.S. net exports, the values of the dollar and
the yen change?
U.S. NET VALUE OF VALUE OF
EXPORTS DOLLAR YEN
(A) Decrease Increase Increase
(B) Increase Decrease Increase
(C) Decrease Decrease Increase
(D) Increase Increase Decrease
(E) Increase Increase Increase55. Suppose the President plans to cut taxes for
consumers and also plans to increase spending
on the military. How does this affect real GDP
and the price level?
(A) GDP increases and the price level decreases.
(B) GDP decreases and the price level increases.
(C) GDP stays the same and the price level
increases.
(D) GDP decreases and the price level decreases.
(E) GDP increases and the price level increases.- U.S. dollars and the European Union’s (EU’s)
euro are exchanged in global currency markets.
Which of the following is true?
(A) If inflation is high in the EU and the price
level in the United States is stable, the value
of the dollar appreciates.
(B) If the Fed decreases the money supply, the
value of the dollar depreciates.
(C) If EU consumers are less inclined to purchase
American goods, the dollar appreciates.
(D) If U.S. income levels are rising relative to
incomes in the EU, the euro depreciates.
(E) If the European central bank expands the
money supply, the euro appreciates.