Econ 1.13 28.04

If a central bank reduces the money supply, this move will most likely lead to a:

• A. rise in nominal interest rates and a decline in aggregate price level.
• B. rise in nominal interest rates and a rise in aggregate price level.
• C. decline in nominal interest rates and a rise in aggregate price level.

The transmission of a central bank’s policy rate action through the economy ultimately affects:

• A. total demand.
• B. inflation.
• C. long-term interest rates.

The primary goal of both monetary and fiscal policy focuses on balancing economic growth and:

• A. income distribution.
• B. inflation.
• C. employment.

None

• A. 124.6.
• B. 123.7.
• C. 125.4.

Q. Which of the following indicators is most appropriate in predicting a turning point in the economy?

• A. The Industrial Production Index
• B. The average bank prime lending rate
• C. Average weekly hours, manufacturing

Q. According to the Austrian school, the most appropriate government response to an economic recession is to:

• A. allow the market to adjust naturally.
• B. maintain steady growth in the money supply.
• C. decrease the market rate of interest below its natural value.

The crowding-out effect is most likely associated with:

• A. falling real interest rates.
• B. decreasing government borrowing.
• C. increasing government borrowing.

Which of the following statements regarding the money creation process in fractional reserve banking is correct?

• A. The reserve requirement is negatively related to the quantity of money created.
• B. The reserve requirement is positively related to the availability of credit.
• C. The money multiplier is unaffected by the reserve requirement.

Q. A “pay-as-you-go” rule, which requires that any tax cut or increase in entitlement spending be offset by an increase in other taxes or reduction in other entitlement spending, is an example of which fiscal policy stance?

• A. Neutral.
• B. Expansionary.
• C. Contractionary.

Q. Based on typical labor utilization patterns across the business cycle, productivity (output per hours worked) is most likely to be highest:

• A. at the peak of a boom.
• B. into a maturing expansion
• C. at the bottom of a recession.