Identify the six parts of the financial system.
What will be an ideal response?
They are: money, financial markets, financial instruments, financial institutions, government regulatory agencies, and central banks.
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The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A
If products C and D are close substitutes, an increase in the price of C will
A. tend to cause the price of D to decrease. B. shift the demand curve for D to the right. C. shift the demand curves for both products to the right. D. shift the demand curve for C to the left and the demand curve for D to the right.
The equilibrium in the market for loanable funds is:
A. at the interest rate set by the Fed. B. at the price at which the quantity supplied is slightly greater than quantity demanded. C. where the amount being borrowed and the amount being saved is the same. D. where the amount being saved is enough for banks to cover required reserves.
Which of the following is the best example of an action that imposes an external cost?
A. Wear and tear on your car as the result of frequent use. B. Deterioration in the average quality of a house you own as the result of poor maintenance. C. Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. D. A rose garden on your property from which your neighbor gets much enjoyment.