The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B
B. recessionary; C
C. recessionary; A
D. expansionary; A
Answer: C
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Domestic savings:
A. comes from private households spending less than they earn. B. is equal to domestic income minus consumption spending. C. occurs when government revenues exceed noncapital expenditures. D. All of these are true.
Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?
a. The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. b. The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. c. The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. d. The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply.
When the exchange rate is determined by market forces and an economy is experiencing a net inflow of capital, the economy will tend to
a. run a budget deficit. b. run a trade deficit. c. experience an increase in the supply of money. d. experience a reduction in the supply of money.
As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
A. a decrease in demand. B. a decrease in reservation price. C. the income effect of a price change. D. the substitution effect of a price change.