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1) A tax cut initially
A) increases consumption expenditure by an amount greater than the tax cut
B) increases consumption expenditure by an amount equal to the tax cut
C) increases consumption expenditure by an amount that is less than the value of the tax
cut
D) has no effect on consumption expenditure
E) reduces consumption expenditure by an amount that is less than the value of the tax
cut
2) In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to lower
production
A) below; negative
B) above; negative
C) below; positive
D) above; positive
3) Open market purchases ________ reserves and the monetary base thereby ________
the money supply
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising
4) The quantity of reserves supplied equals
A) nonborrowed reserves minus borrowed reserves
B) nonborrowed reserves plus borrowed reserves
C) required reserves plus borrowed reserves
D) total reserves minus required reserves
5) Everything else held constant, in the market for reserves, increases in the discount
rate affect the federal funds rate
A) when the funds rate is below the discount rate
B) when the funds rate equals the discount rate
C) when the demand for federal funds intersects the vertical section of the reserve
supply curve
D) when the demand for federal funds equals zero
6) In September 2008, the Reserve Primary Fund, a money market mutual fund, found
itself in the situation know as "breaking the buck" This means that
A) they could no longer afford to redeem shares at the par value of $1
B) they required shareholders to contribute a dollar more in fees each month
C) shareholders were able to redeem shares for more than a $1
D) shares earned more than a dollar in interest
7) If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
A) 02
B) 5
C) 10
D) 20
8) Which of the following are not contractual savings institutions?
A) Life insurance companies
B) Credit unions
C) Pension funds
D) State and local government retirement funds
9) Keynes was especially concerned with explaining the ________ level of output and
employment during the ________
A) low; 1920s
B) low; 1930s
C) high; 1920s
D) high; 1930s
10) Typically, borrowers have superior information relative to lenders about the
potential returns and risks associated with an investment project The difference in
information is called
A) moral selection
B) risk sharing
C) asymmetric information
D) adverse hazard
