1. Assets of banks include:

a)customers’ s savings and checking deposits.

b)customers’ s savings deposits.

c)customers’ checking deposits.

d)loans.

2.In the term “vicious cycle of deleveraging” deleveraging means

a)gaining additional assets to help the firm grow out of its financial problems.

b)to increase sales to increase revenue

c)increasing the amount borrowed and owed

d)reducing the amount borrowed and owed

e)filing for bankurptacy, so as to be able to avoid paying off loans received in the past.

3.After the 2008 financial crisis, the Fed ________ lending to financial institutions and ______ its holdings of other non-government securities such as those backed by mortgage loans.

a)reduced; reduced

b)reduced; increased

c)increased; increased

d)increased; reduced

4.Which of the following is a way to implement contractionary fiscal policy?

a)increase government purchases of goods and services

b)increase interest rates

c)increase income taxes

d)increase money supply

e)increase unemployment benefits

5.How can the Fed reduce a continuing inflation?

a)by increasing the money supply growth rate

b)by decreasing the required reserve ratio

c)by buying government bonds from commercial banks.t of the aggregate demand curve

d)by slowing the continuing leftward shift of the aggregate demand curve

e)by decreasing the money supply growth rate

6.If there is a sudden increase in government spending, which of the following should the Fed do if it wants to keep the price level steady?

a)buy bonds in the open market

b)do nothing, since the self-correcting mechanism will adjust the economy

c)sell bonds in the open market

d)decrease the required reserve ratio

e)wait, since the price level usually does not change when government spending increases

7.

Refer to Figure 14-6. Suppose a supply shock shifts the aggregate supply curve from AS1 to AS2, and decreases output below full employment. If the Fed then decreases the money supply, it will

a)decrease the price level and shift the aggregate demand curve to the right until output returns to its full-employment level

b)stabilize the price level, but cause a further decline in output

c)stabilize the price level and return output to its full-employment level

d)increase both output and the price level

e)return output to its full-employment level, but at the expense of an increase in the price level

8.The AD curve shifts to the right when

a)the Fed lowers interest rates

b)the Fed raises interest rates

c)the Fed lowers its spending

d)the Fed increases its spending

9.The U.S. inflation rate

a)was the most serious economic problem from 2005 – 2015

b)grew rapidly after 2000

c)has been stable since 1965

d)fell significantly after 2008

10.If there is a sudden increase in government spending, which of the following should the Fed do if it wants to keep the price level steady?

a)buy bonds in the open market

b)do nothing, since the self-correcting mechanism will adjust the economy

c)sell bonds in the open market

d)decrease the required reserve ratio

e)wait, since the price level usually does not change when government spending increases

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