Which of the following is true in the long run? A) both c and d B) all of the fo

Question

Which of the following is true in the long run?
A) both c and d
B) all of the following
C) increases in government purchases lead to complete crowding out
D) the economy behaves very much as the classical model would predict
E) consumption and investment decrease after government spending increases
31.
The Federal Reserve Banking Act of 1978
A) attempted to guarantee stability of the banking system
B) was a reaction to the savings and loan crisis
C) added full employment to the list of objectives for the Fed
D) strengthened deposit insurance programs
E) pledged the Fed to keep the inflation rate low
32.
The problem of inflation provides an application of opportunity cost because
A) inflation imposes costs on everyone and no one gains
B) it benefits some citizens at the cost of harming others
C) inflation offers opportunities for debtors to gain control over more resources
D) equal opportunity demands a level playing field in terms of the cost of credit
E) production possibilities change with inflation
33.
The Fed's efforts to attain full employment are made difficult by
A) the persistence of cyclical unemployment
B) the instability of the inflation rate
C) new legislation that attempts to avoid financial panics
D) the difficulty of determining what normal unemployment means
E) conflicting objectives among its member banks
34.
An active monetary policy refers to the Fed's
A) changing of the money supply to achieve its goals
B) frequent changes in the interest rate to offset expectations about future rates
C) regular changes in policy objectives
D) resistance to Congressional control
E) matching monetary policy to fiscal policy
35.
When money demand falls on its own (i.e., not in response to a spending shock), what must the Fed do to stabilize GDP?
A) increase the money supply
B) decrease the money supply
C) leave the money supply and money demand unchanged
D) increase money demand
E) decrease money demand
36.
If money demand decreases due to greater use of credit cards, which of the following would most likely happen under an active monetary policy?
A) the money supply would decrease, real GDP would not change, and neither would the interest rate
B) the money supply would increase, real GDP would not change, and neither would the interest rate
C) the money supply would decrease, real GDP would increase, and the interest rate would decrease
D) the money supply would increase, real GDP would not change, and the interest rate would decrease
E) the money supply would decrease, real GDP would decrease, but the interest rate would not change
37.
If there is a large increase in the price of oil and the Fed wishes to maintain output stability, which of the following should it do?
A) do nothing, since the self-correcting mechanism will adjust the economy
B) sell bonds in the open market
C) wait, since output seldom changes when there is an increase in the price of oil
D) encourage firms to not adjust the wages they pay
E) buy bonds in the open market
38.
If people come to expect ongoing inflation, what will happen over time independent of the Fed's response?
A) the long-run aggregate supply curve will shift to the right
B) the aggregate supply curve will continue to shift upward
C) the aggregate demand curve will continue to shift to the right
D) the aggregate supply curve will continue to shift downward
E) the aggregate demand curve will continue to shift to the left
39.
The Fed can surely reduce the rightward shift of the AD curve, but
A) stock and bond prices may fall dramatically
B) inflation may rise sharply
C) inflation would change in an unpredictable fashion
D) recession may result
E) unemployment may fall to below the natural rate

Explanation / Answer

b) c)

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