1 All of the following are characteristics of short term economic fluctuations EXCEPT a Expansions and recessions are felt in only a few sectors of the economy b Expansions and recessions are irregular in length and severity c Unemployment rises during recessions d Durable goods industries are more sensitive to short term fluctuations than service and non durable industries 2 Recessions tend to be by in the rate of inflation a Followed an increase b Followed a decline c Preceded a decline d Preceded immediately a stabilization 3 When actual output is less than potential output there is a n a Budget deficit b Budget surplus c Recessionary gap d Trade deficit 4 If the cyclical rate of employment equals 1 and the actual rate of unemployment equals 8 then the natural rate of unemployment must equal 7 a b 9 c 12 5 d 7 Y Y Y u u natural rate of unemployment u current unemployment rate cyclical unemployment current unemply structural frictional cyclical NATURAL structural frictional Y Y current 8 and cyclical 1 8 1 7 5 When is cyclical unemployment 0 6 All of the following would be included in planned aggregate expenditure EXCEPT a Spending on consumer durables b Planned changes in inventories c d Sales of domestically produced goods to foreigners Interest paid on the government debt 7 If firms sell more output than expected planned investment Is greater than actual investment Is less than actual investment a b c Equals actual investment d Equals 0 8 The consumption function is relationship between consumption and a Planned aggregate expenditure b Total spending Investment c Its determinants such as disposable income d 9 Changes in autonomous consumption could be the result of a Changes in disposable income b Changes in inflation c Changes in the mpc d Changes in the housing prices 10 In Macroland autonomous consumption equals 100 the marginal propensity to consume equals 0 75 net taxes are fixed at 40 planned investment is fixed at 50 government purchases are fixed at 150 and net exports are fixed at 20 Induced expenditure equals a 0 25Y b 320 0 25Y c 0 75Y d 290 0 75Y a 5 12 b 5 14 c 7 12 d 7 14 interest rate alter a The money supply b Money demand c Autonomous expenditures Induced expenditures d a Fed funds b Prime c Discount d Federal 11 Short run equilibrium output is the level of output at which actual output a Equals potential output b Maximizes firm profits c Equals real GDP per capita d Equals planned aggregate expenditure 12 The Board of Governors consist of governors appointed for staged year terms 13 Changes in consumption and planned investment spending resulting from changes in the real 14 The federal reserve charges commercial banks to borrow reserves is called rate 15 If the Federal Reserve is currently paying 1 interest on bank reserves but then reduces that interest rate to 0 5 banks may decide to hold reserves and the money supply may 16 Changes in planned spending not caused by changes in output or the inflation rate will shift the a More increase b More decrease c a Aggregate supply curve b Keynesian cross c Potential output line d Aggregate demand curve 17 The Federal Reserve was created by the Federal Reserve Act passed by Congress in 1913 and began operations in 1914 Like all central banks the Federal Reserve is a government agency All of the following statements are true about the Fed except a It promotes public goals such as economic growth low inflation and the smooth operation of financial markets b The Federal Reserve is the lender of last resort It has the power to supervise and regulate banks c It focuses on making a profit like commercial banks d 18