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1) When the IS and LM curves are combined in the same diagram, the intersection of
the two curves determines the equilibrium level of ________ as well as the ________
A) aggregate output; price level
B) aggregate output; interest rate
C) money supply; price level
D) consumer expenditures; interest rate
2) Because inflation was not a serious problem during the Great Depression, Keynes's
analysis assumed
A) that unemployment also was not a problem
B) that the money supply was fixed
C) that the price level was fixed
D) that monetary policy is not effective
3) According to Keynes's theory of liquidity preference, velocity increases when
A) income increases
B) wealth increases
C) brokerage commissions increase
D) interest rates increase
4) Suppose the economy is producing at the natural rate of output An increase in
consumer and business confidence will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
5) Securities are ________ for the person who buys them, but are ________ for the
individual or firm that issues them
A) assets; liabilities
B) liabilities; assets
C) negotiable; nonnegotiable
D) nonnegotiable; negotiable
6) The aggregate demand curve is downward sloping because a higher inflation rate
leads the central bank to raise ________ interest rates, thereby ________ the level of
equilibrium aggregate output, everything else held constant
A) real; lowering
B) real; raising
C) nominal; lowering
D) nominal; raising
7) Of the sources of external funds for nonfinancial businesses in the United States,
loans from banks and other financial intermediaries account for approximately
________ of the total
A) 6%
B) 40%
C) 56%
D) 60%
8) Even economists have no single, precise definition of money because
A) money supply statistics are a state secret
B) the Federal Reserve does not employ or report different measures of the money
supply
C) the "moneyness" or liquidity of an asset is a matter of degree
D) economists find disagreement interesting and refuse to agree for ideological reasons
9) Suppose the economy is producing at the natural rate of output and the government
passes legislation that severely restricts a company's ability to reduce production costs
via outsourcing Everything else held constant, this policy action will cause ________ in
the unemployment rate in the short run and ________ in inflation in the short run
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
10) A bank with insufficient reserves can increase its reserves by
A) lending federal funds
B) calling in loans
C) buying short-term Treasury securities
D) buying municipal bonds
11) The return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$950 next year is
A) -10 percent
B) -5 percent
C) 0 percent
D) 5 percent
