FOCUSED QUIZ 30

ECON KEYNESIAN MODEL AND MONETARY POLICY, PP. 103-109

1. Why does the Federal Reserve adjust the money 6. For what MAIN reason can monetary and fiscal
supply? policy be counterproductive?
a. to decrease inflation a. Firms respond to government
b. to maximize labor force participation intervention with decreased output.
c. to influence interest rates b. Economic predictions are very often
Od. to decrease the unemployment rate incorrect.
e. to increase the output gap
Oc. It can overcorrect a recessionary gap.
d. Government interference creates
2. What MUST be true of an economy with no deadweight loss.
output gap? e. It can lead to hyperinflation.
a. Structural unemployment is zero.
b. Natural unemployment is zero. 7. Which of the following actions is fiscal policy?

O
c. Cyclical unemployment is zero. a. buying bonds
d.
e.
Frictional unemployment is zero.
Total unemployment is zero. Ob.
c.
increasing taxes
lowering the reserve ratio
d. increasing the discount rate
3. What happens when the money supply e. decreasing the federal funds rate
increases during a recession?
a. aggregate demand decreases 8. What is the primary role of expansionary fiscal
policy?
Ob.
c.
investment increases
short-run aggregate supply increases a. reducing overemployment
d. investment decreases b. breaking up monopolies
e. long-run aggregate supply increases c. shifting the money supply

4. What is the underlying cause of recessions and Od.

e.
ending recessions
curbing inflation
expansions?
a. failure of government intervention 9. What is the upper limit of the amount of time it
b. negative externalities takes Congress to authorize additional
c. increased inflation spending?
d. increased unemployment a. three months

Oe. short-term inflexibility of prices

O
b.
c.
one year
three business cycles
5. Which of the following pairs CORRECTLY links d. two years
a change and its effect? e. six months

Oa.b. fall in money supply; fall in prices

increase in taxes; increase in output 10. Y exceeds Y*. Which of the following answer
c. increase in discount rate; increase in choices BEST describes this economy?
prices a. inflationary bubble
d. fall in reserve ratio; fall in money supply
e. rise in money supply; fall in economic O
b.
c.
expansion
trough
activity d. period of deflation
e. recession
 FOCUSED QUIZ 30 PAGE 60 OF 80 DEMIDEC RESOURCES ©2023

11. How does the economy adjust to a negative AS

shock?
a. increase in price level until Y=Y*
b. fall in price level until Y=Y*
Oc. increase in AD until Y=Y*
d. shift in LRAS until Y=Y*
e. decrease in AD until Y=Y*

12. If Y* > Y, which of the following actions would

the Federal Reserve MOST likely take?
a. decrease government spending
b. sell bonds

O c.
d.
increase money supply
increase taxes
e. decrease money supply

13. Which of the following phenomena occurs if Y >

Y*?
a. recession
b. stagflation
c. deflation
d. unemployment

O e. inflation

14. How long does it take to calculate the first

estimates of GDP?
a. six months
b. one month
c. two weeks
d. three months
e. one year

15. On a Keynesian model, AD and SRAS intersect

where potential output equals
a. real GDP per capita
b. real GDP
c. nominal GDP per capita
d. nominal GDP
e. price level