A budget surplus occurs when income or receipts exceed outlays or expenditures. A budget deficit occurs when expenses exceed revenue.

A budget surplus occurs when expenses exceed revenue. A budget deficit occurs when income exceeds expenditures.

A budget surplus and deficit both occur when income equals expenditures.

A budget surplus occurs only in private companies, while a deficit occurs only in governments.

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit. A liability is something a person or company owes, usually a sum of money.

An asset is a type of expense, while a liability is a form of income.

An asset is a debt owed to others, and a liability is a property owned by a company.

An asset is a legal obligation, and a liability is a future benefit.

Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. Aggregate demand is the total demand for goods and services within a particular market.

Aggregate supply is the total demand for goods and services in a national economy, while aggregate demand is the total supply of goods and services.

Aggregate supply refers to the total imports and exports of a country, and aggregate demand refers to the total government spending.

Aggregate supply is the total number of workers in an economy, and aggregate demand is the total number of consumers.

Long-run aggregate supply is the total amount of goods and services produced in an economy at full employment, where all resources are used efficiently.

Long-run aggregate supply is the total demand for goods and services in an economy at a given price level.

Long-run aggregate supply refers to the short-term fluctuations in output and employment.

Long-run aggregate supply is the total amount of money in circulation within an economy.

Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply. Cost-push inflation is caused by an increase in prices of inputs like labour, raw material, etc.

Demand-pull inflation is caused by a decrease in consumer spending, while cost-push inflation results from technological advancements.

Demand-pull inflation happens when supply exceeds demand, and cost-push inflation is due to increased government subsidies.

Demand-pull inflation is the result of falling production costs, and cost-push inflation is caused by higher consumer savings.

The consumer price index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The consumer price index (CPI) is a measure of the total output of a country's economy.

The consumer price index (CPI) tracks the changes in the value of a country's currency in the foreign exchange market.

The consumer price index (CPI) measures the average income of urban consumers over time.

Inflation is the rate at which the general level of prices for goods and services is rising. Deflation is the decrease in the general price level of goods and services.

Inflation is the decrease in the general price level of goods and services. Deflation is the increase in the general price level of goods and services.

Inflation and deflation both refer to the increase in the value of money over time.

Inflation is the process of reducing the supply of money, while deflation is increasing it.

Bond prices and interest rates have an inverse relationship: when interest rates rise, bond prices fall, and vice versa.

Bond prices and interest rates always move in the same direction: when interest rates rise, bond prices also rise.

Bond prices are not affected by changes in interest rates.

Bond prices and interest rates have no predictable relationship.

Interest on reserve is the interest paid by central banks on the reserve balances held by commercial banks.

Interest on reserve is the fee charged by commercial banks for customer savings accounts.

Interest on reserve is the profit earned by banks from lending to individuals.

Interest on reserve is the tax imposed by the government on bank reserves.

The Federal Reserve is the central bank of the United States, responsible for monetary policy. A central bank is a national bank that provides financial and banking services for its country's government and commercial banking system.

The Federal Reserve is a private investment bank that manages only commercial loans. A central bank is a local bank that serves only individual customers.

The Federal Reserve is a government agency that only prints currency. A central bank is a private institution that does not interact with the government.

The Federal Reserve is a commercial bank that offers savings accounts. A central bank is a regional bank that operates independently of the government.

The required reserve ratio is the fraction of depositors' balances that commercial banks must hold in reserve and not lend out.

The required reserve ratio is the interest rate charged by central banks on loans to commercial banks.

The required reserve ratio is the total amount of money a bank can lend out to borrowers.

The required reserve ratio is the percentage of a bank's assets that must be invested in government bonds.

A fractional banking system is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal.

A fractional banking system is a system where banks must keep 100% of deposits as cash reserves at all times.

A fractional banking system is a banking system that does not allow loans or credit creation.

A fractional banking system is a system where banks only operate with government-issued bonds and not with customer deposits.

Fiscal policy refers to government spending and tax policies to influence economic conditions. Monetary policy refers to central bank actions that determine the size and rate of growth of the money supply.

Fiscal policy refers to central bank interest rate decisions, while monetary policy refers to government spending on infrastructure.

Fiscal policy is about regulating stock markets, and monetary policy is about setting minimum wages.

Fiscal policy involves only tax collection, while monetary policy involves only printing new currency.

An automatic stabilizer is a feature of the economy that reduces its sensitivity to shocks, such as changes in income or unemployment, without additional government action.

An automatic stabilizer is a government policy that increases taxes during economic booms to slow down growth.

An automatic stabilizer is a tool used by central banks to control the money supply directly.

An automatic stabilizer is a type of investment that guarantees fixed returns regardless of economic conditions.

A recessionary or negative output gap occurs when actual output is less than potential output in the economy.

A recessionary or negative output gap occurs when actual output is greater than potential output in the economy.

A recessionary or negative output gap occurs when actual output equals potential output in the economy.

A recessionary or negative output gap occurs when the economy is experiencing hyperinflation.

An inflationary or positive output gap occurs when actual output exceeds potential output in the economy.

An inflationary or positive output gap occurs when actual output is less than potential output in the economy.

An inflationary or positive output gap occurs when the economy is at full employment.

An inflationary or positive output gap occurs when there is zero inflation in the economy.

Open-market operations are the buying and selling of government securities in the open market to expand or contract the amount of money in the banking system.

Open-market operations are the process of setting interest rates for commercial banks.

Open-market operations refer to the regulation of foreign exchange rates by the central bank.

Open-market operations involve the direct lending of money to consumers by the central bank.

The discount rate is the interest rate charged to commercial banks for loans received from a central bank's discount window. The federal funds rate is the interest rate at which depository institutions trade federal funds with each other overnight.

The discount rate is the interest rate at which individuals borrow from commercial banks, and the federal funds rate is the rate at which the government lends to the public.

The discount rate is the rate at which the central bank lends to the public, and the federal funds rate is the rate at which commercial banks lend to individuals.

The discount rate is the interest rate charged to consumers for credit cards, and the federal funds rate is the rate at which banks lend to businesses.

Ample reserves refer to a situation where banks have more reserves than required. Limited reserves refer to a situation where banks have just enough or less than required reserves.

Ample reserves refer to a situation where banks have less reserves than required. Limited reserves refer to a situation where banks have more than required reserves.

Ample reserves refer to a situation where banks have no reserves at all. Limited reserves refer to a situation where banks have unlimited reserves.

Ample reserves and limited reserves both refer to situations where banks have exactly the required amount of reserves.

Crowding out is a situation where increased government spending leads to a reduction in private sector investment.

Crowding out is when private investment increases due to government spending.

Crowding out refers to a decrease in government spending caused by private sector growth.

Crowding out is the process of increasing private sector investment through tax cuts.

The nominal interest rate is the stated interest rate on a loan or investment, unadjusted for inflation. The real interest rate is the nominal rate adjusted for inflation.

The nominal interest rate is always lower than the real interest rate, regardless of inflation.

The real interest rate is the stated rate on a loan, while the nominal rate is adjusted for inflation.

Nominal and real interest rates are always equal when inflation is zero.

The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment.

The unemployment rate is the percentage of people who are retired.

The unemployment rate is the percentage of the population that is employed.

The unemployment rate is the percentage of people who are not looking for work.

Frictional unemployment is short-term unemployment that occurs when people are between jobs or entering the labor market for the first time.

Frictional unemployment is caused by a mismatch between workers’ skills and available jobs.

Frictional unemployment is long-term unemployment due to economic downturns.

Frictional unemployment is unemployment caused by technological advancements replacing workers.

Cyclical unemployment is unemployment that results from economic downturns or recessions.

Cyclical unemployment is unemployment caused by seasonal changes in labor demand.

Cyclical unemployment is unemployment that occurs when people voluntarily leave their jobs.

Cyclical unemployment is unemployment due to technological advancements replacing workers.

Structural unemployment is unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand.

Structural unemployment is unemployment caused by seasonal changes in labor demand.

Structural unemployment is unemployment that occurs when people voluntarily leave their jobs.

Structural unemployment is unemployment due to temporary layoffs during economic downturns.

The natural rate of unemployment is the level of unemployment consistent with a stable rate of inflation, where the labor market is in equilibrium.

The natural rate of unemployment is the unemployment rate when the economy is in a recession.

The natural rate of unemployment is the percentage of people who are not willing to work at any wage.

The natural rate of unemployment is the unemployment rate caused solely by government policies.

Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country. Absolute advantage is the ability to produce more of a good with the same resources than another country.

Comparative advantage is the ability to produce more of a good with the same resources than another country. Absolute advantage is the ability to produce a good at a lower opportunity cost than another country.

Comparative advantage is the ability to produce goods at the same cost as another country. Absolute advantage is the ability to produce less of a good with more resources than another country.

Comparative advantage is the ability to produce less of a good with more resources than another country. Absolute advantage is the ability to produce goods at the same cost as another country.

Exports are goods and services produced domestically and sold abroad. Imports are goods and services bought from other countries.

Exports are goods and services bought from other countries. Imports are goods and services produced domestically and sold abroad.

Exports and imports are both goods and services produced and consumed within the same country.

Exports are only raw materials sent abroad, while imports are only finished products bought from other countries.

Long-run economic growth is the sustained upward trend in the economy's output over time., best illustrated by an increase in LRAS.

Long-run economic growth is the short-term fluctuation in the stock market.

Long-run economic growth refers to a decrease in the economy's output over time.

Long-run economic growth is the temporary increase in consumer prices.

Self-correction of output gaps refers to the economy's ability to return to full employment output in the long run without government intervention.

Self-correction of output gaps refers to the government's intervention to maintain output gaps indefinitely.

Self-correction of output gaps means the economy will always remain in a recession without help.

Self-correction of output gaps is the process by which output gaps are made permanent by policy actions.

Nominal GDP is the market value of all final goods and services produced in a country in a given period, measured in current prices. Real GDP is nominal GDP adjusted for inflation.

Nominal GDP is adjusted for inflation, while real GDP is measured in current prices only.

Nominal GDP and real GDP are both measured in constant prices, but real GDP excludes services.

Nominal GDP is the value of exports only, while real GDP is the value of imports only.

The phases of the business cycle include expansion, peak, contraction (recession), and trough.

The phases of the business cycle include only expansion and contraction.

The phases of the business cycle are production, distribution, and consumption.

The phases of the business cycle are planning, execution, and closure.

The circular-flow model is an economic model that shows how money, goods, and services move through the economy.

The circular-flow model is a scientific model that explains the water cycle.

The circular-flow model is a mathematical model used to predict weather patterns.

The circular-flow model is a physical model that demonstrates planetary motion.

Discouraged workers are individuals who have stopped looking for work because they believe no jobs are available for them.

Discouraged workers are individuals who work part-time but want full-time employment.

Discouraged workers are people who are temporarily laid off and waiting to be recalled.

Discouraged workers are individuals who are self-employed and not seeking traditional employment.

GDP calculation (expenditures approach) is the method of calculating GDP by adding up all expenditures made on final goods and services over a period of time.

GDP calculation (expenditures approach) is the method of calculating GDP by subtracting imports from exports only.

GDP calculation (expenditures approach) is the method of calculating GDP by counting only government spending.

GDP calculation (expenditures approach) is the method of calculating GDP by adding up only the value of intermediate goods.

Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Scarcity is the process of distributing goods and services equally among all people.

Scarcity is the ability of a country to produce unlimited resources without any constraints.

Scarcity is the situation where resources are always abundant and meet all human wants.

Trade-offs are alternatives that must be given up when one is chosen rather than another. Opportunity cost is the value of the next best alternative forgone.

Trade-offs are the benefits gained from every choice. Opportunity cost is the total cost of all alternatives.

Trade-offs are the resources used in production. Opportunity cost is the profit earned from the chosen alternative.

Trade-offs are the only options available. Opportunity cost is the least valuable alternative.

MPC (marginal propensity to consume) is the proportion of additional income that is spent on consumption. MPS (marginal propensity to save) is the proportion of additional income that is saved.

MPC is the total income earned in an economy, while MPS is the total savings in an economy.

MPC is the minimum price consumers are willing to pay, and MPS is the maximum price sellers are willing to accept.

MPC is the measure of inflation, and MPS is the measure of unemployment.

The spending or money multiplier is the ratio of change in GDP to the initial change in spending or investment.

The spending or money multiplier is the ratio of total savings to total investment in an economy.

The spending or money multiplier is the ratio of government spending to total tax revenue.

The spending or money multiplier is the ratio of imports to exports in an economy.

Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower. Investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

Interest rate is the profit earned from selling goods. Investment is the act of spending money on daily expenses.

Interest rate is the total amount of money borrowed. Investment is the process of saving money in a piggy bank.

Interest rate is the tax paid on income. Investment is the purchase of perishable goods for immediate consumption.

Stagflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.

Stagflation is a period of rapid economic growth and low inflation.

Stagflation refers to a situation where only unemployment is high, but inflation and growth remain stable.

Stagflation is when the economy experiences deflation and high employment rates.

The labor force is the total number of people employed or actively seeking employment.

The labor force is the total number of people who are retired.

The labor force is the total number of people who are students.

The labor force is the total number of people who are not looking for work.

GDP per capita is the gross domestic product divided by the population, showing the average economic output per person.

GDP per capita is the total government spending divided by the number of businesses in a country.

GDP per capita is the total exports of a country divided by its population.

GDP per capita is the average income of only the employed population in a country.

Human capital refers to the economic value of a worker's experience and skills. Physical capital refers to tangible assets used in production, such as machinery and buildings.

Human capital refers to machinery and buildings, while physical capital refers to a worker's skills and experience.

Human capital is the total amount of money a company has, while physical capital is the number of employees.

Human capital refers to natural resources, while physical capital refers to financial investments.

Transfer payments are payments made by the government to individuals, mainly through social security, unemployment benefits, or subsidies, without any goods or services being received in return.

Transfer payments are payments made by individuals to the government in exchange for public services.

Transfer payments are payments made by businesses to the government as taxes for goods and services provided.

Transfer payments are payments made by the government to businesses for purchasing goods and services.

The production possibilities curve is a graph that shows the various combinations of output that an economy can produce given available resources and technology.

The production possibilities curve is a chart that shows the total revenue generated by different industries in an economy.

The production possibilities curve is a table that lists the prices of goods in a market over time.

The production possibilities curve is a diagram that illustrates the flow of money between households and firms.

Nominal interest rate rises, bond prices fall, AD/GDP and price level decrease, unemployment increases.

Nominal interest rate falls, bond prices rise, AD/GDP and price level increase, unemployment decreases.

Nominal interest rate rises, bond prices rise, AD/GDP and price level increase, unemployment decreases.

Nominal interest rate falls, bond prices fall, AD/GDP and price level decrease, unemployment increases.

Demand for loanable funds increases, real interest rates rise, and private investment decreases.

Demand for loanable funds decreases, real interest rates fall, and private investment decreases.

Demand for loanable funds remains unchanged, real interest rates fall, and private investment increases.

Demand for loanable funds increases, real interest rates fall, and private investment decreases.

The supply of loanable funds increases, real interest rates decrease, and economic growth increases.

The supply of loanable funds decreases, real interest rates increase, and economic growth decreases.

The supply of loanable funds remains unchanged, real interest rates increase, and economic growth increases.

The supply of loanable funds increases, real interest rates increase, and economic growth decreases.

Unemployment benefits increase during a recession, providing income support without new government action.

The government passes a new stimulus bill to boost spending.

Congress votes to cut taxes in response to an economic downturn.

The central bank changes interest rates to influence economic activity.

CPI can overstate inflation due to not accounting for consumer behavior; if actual inflation is less than expected, borrowers benefit; if actual inflation is greater than expected, lenders benefit.

CPI always understates inflation; if actual inflation is less than expected, lenders benefit; if actual inflation is greater than expected, borrowers benefit.

CPI is an exact measure of inflation; if actual inflation is less than expected, both borrowers and lenders benefit equally.

CPI can overstate inflation due to not accounting for consumer behavior; if actual inflation is less than expected, lenders benefit; if actual inflation is greater than expected, borrowers benefit.

Cyclical unemployment

Frictional unemployment

Structural unemployment

Seasonal unemployment

Adjusting administered rates such as the interest on reserve balances

Conducting open market operations exclusively

Changing the reserve requirement frequently

Directly setting the money supply level

An increase in imports decreases GDP (AD); if MPC increases, the spending multiplier increases; with MPC of 0.80 and $60 billion increase in government spending, GDP increases by $300 billion.

An increase in imports increases GDP (AD); if MPC increases, the spending multiplier decreases; with MPC of 0.80 and $60 billion increase in government spending, GDP increases by $100 billion.

An increase in imports has no effect on GDP (AD); if MPC increases, the spending multiplier decreases; with MPC of 0.80 and $60 billion increase in government spending, GDP increases by $60 billion.

An increase in imports increases GDP (AD); if MPC increases, the spending multiplier increases; with MPC of 0.80 and $60 billion increase in government spending, GDP increases by $240 billion.

A negative supply shock raises prices and lowers output, while a positive supply shock lowers prices and increases output, benefiting the economy.

A negative supply shock lowers prices and increases output, while a positive supply shock raises prices and lowers output.

Both negative and positive supply shocks always lower prices and increase output.

Negative supply shocks have no effect on output, while positive supply shocks only raise prices.

It increases investment and economic growth, and nominal interest rates rise with inflation.

It decreases investment and economic growth, and nominal interest rates fall with inflation.

It has no effect on investment or economic growth, and nominal interest rates remain unchanged during inflation.

It increases investment but decreases economic growth, and nominal interest rates fall with inflation.

M1 includes only the most liquid forms of money, while M2 includes M1 plus less liquid forms such as savings deposits.

M1 includes all assets in the economy, while M2 only includes cash and coins.

M1 is the monetary base, while M2 is not included in the money supply.

M1 and M2 are identical measures of the money supply.

Reduce demand-pull inflation, which may lead to higher unemployment.

Encourage more borrowing and spending, reducing unemployment.

Increase demand-pull inflation, lowering unemployment.

Promote rapid economic growth, decreasing inflation.

decrease interest on reserve, leading to higher price level, increased employment, and higher GDP.

increase interest on reserve, leading to lower price level, decreased employment, and lower GDP.

No change in monetary policy, resulting in stable price level, employment, and GDP.

Tightening monetary policy, causing deflation, higher unemployment, and lower GDP.

increase adminstered rates, leading to less lending by banks, increased price level and GDP.

Country B has an absolute advantage in both cars and computers.

Country A has an absolute advantage in both cars and computers.

Country A has an absolute advantage in cars, and Country B in computers.

Neither country has an absolute advantage.

An outward shift of the production possibilities curve; technology, resources, and productivity; increases productivity; shifts LRAS right

A decrease in unemployment rate; government spending, taxes, and imports; decreases productivity; shifts LRAS left

A rise in inflation rate; consumer demand, exports, and imports; no effect on productivity; does not shift LRAS

A fall in interest rates; monetary policy, fiscal policy, and exchange rates; reduces productivity; shifts LRAS left

To increase government intervention to stabilize the economy; positive results include reduced unemployment and economic growth; negative consequences include higher government debt and potential inflation.

To reduce government spending and promote free markets; positive results include lower taxes and increased competition; negative consequences include less public services and higher unemployment.

To focus on international trade and currency stability; positive results include stronger exports and stable currency; negative consequences include trade deficits and currency devaluation.

To eliminate all forms of taxation; positive results include more disposable income and higher savings; negative consequences include lack of public infrastructure and increased inequality.

Increase production by reducing taxes and regulation.

Increase government spending to boost demand.

Control inflation by raising interest rates.

Expand welfare programs to support low-income families.

It increases the real interest rate and decreases private investment due to higher government demand for loanable funds.

It decreases the real interest rate and increases private investment.

It has no effect on the real interest rate or private investment.

It increases both the real interest rate and private investment.

Discouraged workers are not counted, so the unemployment rate decreases when their number increases.

Discouraged workers are counted, so the unemployment rate increases when their number increases.

All workers, including discouraged workers, are counted in the official unemployment rate.

Only part-time workers are not counted in the official unemployment rate.

The economy self-corrects as wages and resource prices fall, reducing unemployment, increasing real GDP, and lowering the price level.

The economy self-corrects as wages and resource prices rise, increasing unemployment, decreasing real GDP, and raising the price level.

The economy self-corrects as government spending increases, reducing unemployment, increasing real GDP, and raising the price level.

The economy self-corrects as taxes are cut, increasing unemployment, decreasing real GDP, and lowering the price level.

Intermediate goods used in production

Final goods and services

Government spending on infrastructure

Consumer purchases of new cars

The Federal Reserve is reluctant to increase the money supply because it can lead to inflation. If Susan deposits $1,000 and the reserve ratio is 10%, the maximum change in the money supply is $10,000.

The Federal Reserve is reluctant to increase the money supply because it can cause unemployment. If Susan deposits $1,000 and the reserve ratio is 10%, the maximum change in the money supply is $1,000.

The Federal Reserve is reluctant to increase the money supply because it can reduce interest rates. If Susan deposits $1,000 and the reserve ratio is 10%, the maximum change in the money supply is $100.

The Federal Reserve is reluctant to increase the money supply because it can increase government spending. If Susan deposits $1,000 and the reserve ratio is 10%, the maximum change in the money supply is $5,000.

raising interest rates

reducing government spending

lowering taxes

decreasing the money supply

decreasing transfer payments

Lowering interest on reserve rates or increasing the money supply by purchasing bonds

even out

raise

decrease

both increase and decrease

increase taxes, decrease government spending, or increase interest on reserve

decrease taxes, increase government spending, decrease administered rates

decrease taxes, increase government spending, increase interest on reserve

buy bonds, increase gov. spending, decrease taxes, decrease administered rates

sell bonds, decrease gov. spending, increase taxes, increase interest on reserve

an increase in the demand for money

a decrease in the demand for money

an increase in the money supply

a decrease in the money supply

increase in demand for loanable funds

increase in supply of loanable funds

decrease in supply of loanable funds

increase in supply of loanable funds

an increase in capital inflow

a decrease in capital inflow

an increase in government spending financed by borrowing

a decrease in saving and retirement accounts

The interest rate increases

The interest rate decreases

The interest rate remains unchanged

The interest rate first increases, then decreases

It increases the demand for loanable funds

It decreases the demand for loanable funds

It increases the supply of loanable funds

It decreases the supply of loanable funds

Higher confidence increases demand

Higher confidence decreases demand

No effect

Higher confidence decreases supply

Increase borrowing

Decrease borrowing

No effect

Increase savings

It decreases

It remains unchanged

It increases

It fluctuates

An increase in business investment opportunities

A decrease in government borrowing

An increase in consumer spending

A decrease in business investment opportunities

$3500

$4500

$500

storing all of the deposits.

loaning a portion of deposits.

loaning all of the deposits.

none of the above

Store of Value

Unit of Account

Medium of Exchange

Barter System

Unit of Account

Store of Value

Medium of Exchange

Demand Deposit

Barter

Loan

Mortgage

Interest

Savings deposits

Property

Cash

Credit

The asset can be easily traded for water.

The asset can be easily used or converted into cash.

The asset can be a solid or a gas depending on the temperature

The asset takes a long time to be converted into cash.

Federal Deposit Insurance Corporation

Federal Reserve System

Representative Money

Fractional Reserve Banking

Representative money

Currency

Commodity money

Fiat money

an increase in saving.

an increase in investment.

a decrease in unemployment.

a decrease in consumption.

Increase by $5 million

Decrease by 20

Decrease by $5 million

Increase by $4 million

$30 million

$360 million

$40 million

$480 million

A tariff increases prices and increases domestic GDP.

AD increases because of an increase in wages

SRAS curve shifts to the right because of a decrease in nominal wages.

SRAS curve will decrease because of an increase in nominal wages

$8000

$10,000

$6000

$17,000

$9500

expand the money supply in order to raise interest rates, which increase investment.

expand the money supply in order to lower interest rates, which increases investment.

contract the money supply in order to raise interest rates, which increases investment.

contract the money supply in order to raise interest rates, which decreases investment.

buy bonds and decrease the discount rate to encourage borrowing.

M1

M2

Stocks

Bonds

price level would decrease and unemployment would decrease

price level would remain unchanged and unemployment would decrease

price level would increase and unemployment would decrease

price level would increase and unemployment would increase

price level would increase and unemployment would remain unchanged

Decrease Discount Rate, Buy bonds Open Market Operations, decrease Reserve Requirement

decrease Discount Rate, Sell bonds Open Market Operations, decrease Reserve Requirement

increase Discount Rate, Buy bonds Open Market Operations, increase Reserve Requirement

Increase Discount Rate, Sell bonds Open Market Operations, decrease Reserve Requirement

Increase Discount Rate, Sell bonds Open Market Operations, increase Reserve Requirement

$8,000

$10,000

$2000

$20,000

$50,000

Reserves held by banks

Currency in circulation

Currency in circulation + reserves held by banks

Currency in circulation – reserves held by banks

Currency in circulation/reserves held by banks

a $100 billion decrease in government spending

a $100 billion increase in government spending

a $90 billion decrease in government spending and a $10 billion decrease in taxes

a $90 billion increase in government spending and a $10 billion decrease in taxes

none of the above

GDP deflator measures all domestic production prices; CPI measures consumer goods prices for a market basket of goods

The effect is a decrease in lending and higher interest rates in the economy.