Money illusion:
a) is the misconception that prices have changed; it occurs when the Federal Reserve reduces the money supply.
b) occurs when output rises.
c) occurs only in the long run.
d) is the misconception that one is wealthier; it occurs when the money supply grows.
Ans: d) is the misconception that one is wealthier; it occurs when the money supply grows.
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As the exchange rate ________, the quantity supplied of U.S. dollars ________
A) falls; increases B) rises; increases C) falls; remains the same D) rises; remains the same E) rises; decreases
Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then
A) the Fed's contractionary policy will result in too small of a decrease in GDP. B) the Fed's expansionary policy will result in too small of a decrease in GDP. C) the Fed's contractionary policy will result in too large of a decrease in GDP. D) the Fed's expansionary policy will result in too large of an increase in GDP.
One way the government can boost the economy out of a recession is:
A. with public announcements telling the public to save their money. B. by increasing government spending. C. by setting price ceilings on most goods so people can afford them. D. None of these will help an economy in recession.
Which of the following is NOT likely to occur when a bank fails?
A) Everyone that deposits money in the bank loses all or a portion of their money, unless the country has a functioning deposit insurance system. B) The loss of savings (or the feared loss of savings) causes households to cut back on consumption, which spreads the recessionary effect wider through the country. C) Unaffected banks may stop making loans as they take a cautious approach, slowing or stopping new investment. D) Other banks make too many loans to make up for the loans not made by the failed bank, kicking off a cycle of stimulation and inflation.