Question

1) Which statement about the Great Recession of 2008 is FALSE?

		The large collapse in output and employment that occurred after September 2008 was the result of the financial crisis.
		The Federal Reserve made the crisis worse by using conventional monetary policy to lower interest rates.
		The Great Recession of 2008 was caused by a large fall in aggregate demand.
		The use of conventional monetary policy proved to be incapable on its own of stopping the large fall in output and employment.
		The financial crisis which began in September 2008 was over a few months later because of government’s rescue efforts

2) Which statement about the use of conventional monetary during the Great Recession is most likely correct?

		Using conventional monetary to combat the Great Recession only succeeded in increasing the inflation rate.
		Using conventional monetary policy to combat the Great Recession had no impact on the fall of output and employment.
		Using conventional monetary policy to combat the Great Depression will go down as one of the worst policy mistakes the Federal Reserve has ever made.
		Using conventional monetary policy to combat the Great Recession worsen the fall of output and employment.
		Using conventional monetary policy to combat the Great Recession did not prevent a large fall in output and employment, but prevented the collapse from being worse than it was.

3) Complete crowding out implies that:

		A $100 billion increase in the money supply would raise the inflation rate because of a multiple increase in wages and prices.
		A $100 billion decrease in government spending would reduce private spending by over $100 billion because the multiplier effect has a negative value.
		A $100 billion increase in government spending would reduce private spending by $100 billion because the multiplier effect has a value of one.
		A S100 billion increase in government spending would reduce private spending by more than $100 billion because the multiplier effect has a negative value.
		A $100 billion increase in government spending would reduce private spending by $100 billion because the multiplier effect has a value of zero.

Answer 1

1.

E.

The financial crisis lasted longer than the few months and the economy could only be recovered after few years with the joint effort of fiscal and monetary policy.

2.

B

There was no any significant impact upon the output level and employment due to the conventional monetary policy.

3.

E

Crowding out effect will offset the impact of increase in government spending, by reducing private spending and it will not show any impact. It will make the multiplier effect to be 0.