Question

If the economy is full employment, an increase in aggregate demand will most likely lead to:

a reduction in the general level of prices
an increase in unemployment
an increase in real output, but not in prices
an increase in prices, but not in real output.

In order to reduce the rate of inflation in a rapidly growing, full-employment economy, it would be appropriate for the Federal Reserve to

Increase income tax rates
Sell government bonds
Reduce reserve requirements
Print more money

The use of fiscal policy to stimulate an economy during a recession will:

most likely result in a federal budget deficit
most likely result in a federal budget surplus
help the federal government balance its budget
violate the budgetary philosophy of functional finance

Assume that the inflation rate is low but the unemployment and business failure rates are both high in the United States.  An appropriate monetary policy action by the Federal Reserve would be to

Decrease the money supply
Increase the required reserve ratio
Raise the federal funds rate
Buy government bonds on the open market

Which of the following represents an appropriate fiscal policy for a country in a recession?

A reduction in unemployment compensation benefits
A reduction in government purchases
A reduction in personal income tax rates
A reduction in the money supply

Your dad just paid all the family bills for the month.  He hands you a stack of bill stubs and asks you to throw them away.  Should you:

Trash them.  You don’t want to disobey your dad.

The current international monetary system is best described as

A managed float
A gold standard
An adjustable peg system
A system of fixed exchange rates

Answer 1

1 - Option D

An increase in the prices but not in real output

The excess demand condition will cause the inflation in economy causing the price levels to rise

2 - Option B

Sell goverment bonds

This is contractionary monetary policy and will reduce the money supply thus the rate of inflation. The other options will increase inflation

3 - Option A

Most likely result in federal budget deficit

The increased spending or the lower taxes to stimulate the economy will result in greater deficit

4 - Option D

Buy the government bonds on the open market

This will increase the money supply , reduce the unemployment and business failure

5 - Option C

Reduction in personal income tax rate

This is part of the expansionary fiscal policy and will reduce the recession

6 - Option A

A managed float