Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except:
A. a positive demand shock
B. a positive inflation shock
C. an increase in govt spending
D. an increase in the inflation rate
Answer: D. an increase in the inflation rate
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Use the following graph to answer the next question.
If the economy is currently in equilibrium at output level Q2, but full-employment output is at level Q1, which of the following fiscal policy actions would be the most effective at bringing the economy back to its full-employment output level?
A. Increase taxes and increase government purchases. B. Reduce government purchases and cut taxes. C. Cut taxes. D. Increase taxes.
There is a potential for banks to create money when they
A) lend out their excess reserves. B) fail to lend out their excess reserves. C) hold more of their customer deposits as vault cash. D) hold all of their customer deposits as vault cash.
The assertion that income accrues to people as a consequence of interactions among suppliers and demanders
A) amounts to an endorsement of the existing system. B) amounts to an endorsement of the pattern of income distribution. C) ignores the fact that the interactions are often unfair. D) offers a way of approaching the issue of income distribution.
Foreign exchange refers to
a. trade with other countries. b. the currencies of other countries. c. the goods and services of other countries. d. the excess of exports over imports.