1. What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed raised the required reserve ratio? A) Equilibrium interest rate and equilibrium rate of investment should both increase.
B) Equilibrium interest rate should increase, and equilibrium rate of investment should decrease.
C) Equilibrium interest rate should decrease, and equilibrium rate of investment should increase.
D) Equilibrium interest rate and equilibrium rate of investment should both decrease.

2. When the Fed buys securities through open-market operations, the equation of exchange (under monetarist assumptions about V) requires that:
A) Either aggregate spending increases or prices decrease, or both.
B) Either aggregate spending decreases or prices increase, or both.
C) Either aggregate spending or prices decrease, or both.
D) Either aggregate spending or prices increase, or both.

3. Phillips developed a curve which showed the tradeoff between:
A) The full-employment and interest rates.
B) The unemployment and inflation rates.
C) The full-employment rate and the natural rate of unemployment.
D) The natural rate of unemployment and exchange rates.

4. Which of the following theorists believes a decrease in marginal tax rates will increase the incentives to work and invest?
A) Keynesians.
B) Monetarists.
C) Supply-siders.
D) All of the above.

5. With respect to the aggregate demand curve, improved consumer confidence would:
A) Shift the curve rightward. C) Move the economy down along the curve.
B) Shift the curve leftward. D) Move the economy up along the curve.

6. Improved expectations about future sales and profits will:
A) Shift the investment demand curve rightward.
B) Shift the investment demand curve leftward.
C) Cause a movement down the investment demand curve.
D) Cause a movement up the investment demand curve.

7. The full-employment GDP is the GDP level at which:
A) The lowest possible rate of unemployment is obtained.
B) The lowest possible rate of unemployment occurs with stable economic growth.
C) The lowest possible rate of unemployment occurs with price stability.
D) Unemployment is zero.

8. Demand-pull inflation is caused by:
A) An increase in aggregate supply.
B) An increase in resource costs as an economy's production capacity is approached.
C) An increase in inventories.
D) Excessive aggregate demand in relation to an economy's production capacity.

9. If planned leakages exceed planned injections, then Keynesians believe:
A) The economy will quickly adjust to full employment if left alone.
B) Income will fall until planned leakages equal planned injections.
C) Investment will quickly rise to bring the system to equilibrium.
D) No macro equilibrium can be achieved.

10. In an economy that is below full employment, an increase in investment, ceteris paribus, leads to:
A) Higher desired saving and higher income.
B) Higher desired saving but no change in income.
C) No change in desired saving but higher income.
D) No change in desired saving and no change in income.

11. If an economy is at full employment and investment spending decreases while all other levels of spending remaining constant then the price level:
A) Increases and output decreases. C) Decreases and output decreases.
B) Increases and output increases. D) Decreases and output increases.

12. When the Fed sells securities through open-market operations, the equation of exchange (under monetarist assumptions about V) requires that:
A) Either aggregate spending increases or prices decrease, or both.
B) Either aggregate spending decreases or prices increase, or both.
C) Either aggregate spending or prices decrease, or both.
D) Either aggregate spending or prices increase, or both.

13. If desired investment exceeds actual investment, then:
A) A GDP gap will emerge.
B) Inventories are less than the desired level.
C) Inventories are accumulating beyond desired levels.
D) Cyclical unemployment exists.

14. If equilibrium GDP exceeds full-employment GDP:
A) The difference is the recessionary GDP gap.
B) The difference is the inflationary GDP gap.
C) Then inventories will accumulate.
D) Leakages must be greater than injections.

15. Which of the following is an income transfer?
A) Free medical care made available to the poor by a private physician.
B) Unemployment benefits paid to a factory worker who was laid off.
C) A new highway built by the federal government.
D) All of the above.