Name: Class: Date: fall 2016 exam 3 2pm classIndicate the answer choice that best completes the statement or answers the question.1. Opponents of active stabilization policy a. think the Fed should simply try to fine tune the economy. b. believe some effects of monetary policy may be long-lived. c. generally agree that fiscal policy has no impact in the long run. d. generally don't believe, even in theory, that fiscal policy can stabilize the economy.2. Governments may prefer an inflation tax to some other type of tax because the inflation tax a. reduces the real cost of government expenditure. b. is easier to impose. c. reduces inflation. d. falls mainly on high-income individuals.3. If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a a. $510 increase in excess reserves and a $90 increase in required reserves. b. $90 increase in excess reserves and a $510 increase in required reserves. c. $600 increase in required reserves and no increase in excess reserves. d. $600 increase in excess reserves and no increase in required reserves.4. The Fed can increase the money supply by conducting open-market a. purchases or by raising the discount rate. b. purchases or by lowering the discount rate. c. sales or by raising the discount rate. d. sales or by lowering the discount rate.5. Which of the following policy actions shifts the aggregate-demand curve? a. an increase in taxes b. an increase in government spending c. an increase in the money supply d. All of the above are correct.6. Suppose there is a tax increase. To stabilize output, the Federal Reserve will a. decrease government spending. b. decrease the money supply. c. increase government spending. d. increase the money supply.7. The existence of money leads to a. greater specialization in production, but not to a higher standard of living. b. a higher standard of living, but not to greater specialization.Copyright Cengage Learning. Powered by Cognero. Page 1Name: Class: Date: fall 2016 exam 3 2pm class c. greater specialization and to a higher standard of living. d. neither greater specialization nor to a higher standard of living.8. Which list ranks assets from most to least liquid? a. currency, stocks, fine art b. fine art, currency, stocks c. currency, fine art, stocks d. fine art, stocks, currency9. Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Hertax rate is 20 percent. Tara’s after-tax real rate of interest a. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. b. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. c. will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. d. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.10. If the reserve ratio is 20 percent, then $100 of new reserves can generate a. $500 of new money in the economy. b. $2,000 of new money in the economy. c. $250 of new money in the economy. d. $60 of new money in the economy.11. If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit? a. lenders and people holding a lot of currency b. people holding a lot of currency but not lenders c. neither lenders nor people holding a lot of currency d. lenders but not people holding a lot of currency12. In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have a. decreased both the money multiplier and the money supply. b. increased the money multiplier and decreased the money supply. c. increased both the money multiplier and the money supply. d. decreased the money multiplier and increased the money supply.13. If the stock market crashes, then a. aggregate demand decreases, which the Fed could offset by purchasing bonds. b. aggregate demand increases, which the Fed could offset by selling bonds. c. aggregate demand decreases, which the Fed could offset by selling bonds.Copyright Cengage Learning. Powered by Cognero. Page 2Name: Class: Date: fall 2016 exam 3 2pm class d. aggregate demand increases, which the Fed could offset by purchasing the money supply.14. If it were not for the automatic stabilizers in the U.S. economy, a. the Federal Reserve would have less reason than it has now to monitor stock prices. b. output and employment would probably be more volatile than they are now. c. it would be more desirable than it is now for the Federal Reserve to target an interest rate. d. a strict balanced-budget rule would be more desirable than it is now.15. Fiscal policy is determined by a. the president and Congress and involves changing the money supply. b. the Federal Reserve and involves changing the money supply. c. the Federal Reserve and involves changing government spending and taxation. d. the president and Congress and involves changing government spending and taxation.16. Which of the following statements is correct for the short run? a. Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supplyand demand for money; the price level is relatively slow to adjust. b. Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supplyand demand for loanable funds; the price level adjusts to balance the supply and demand for money. c. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. d. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.17. John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler’s checks. As a result of these changes, a. M1 decreases by $2,500 and M2 increases by $2,500. b. M1 increases by $2,500 and M2 stays the same. c. M1 and M2 stay the same. d. M1 increases by