Reference no: EM132056094

1. Of all of the components of aggregate demand, the most interest sensitive is:

a- net exports.

b- consumption.

c- government purchases.

d- investment.

2. The fact that central bankers tend to respond to higher rates of inflation by increasing the real interest rate is:

a- one reason the dynamic aggregate demand curve slopes downward.

b- why the monetary policy reaction curve has a negative slope.

c- one reason the dynamic aggregate demand curve shifts left.

d- one reason the dynamic aggregate demand curve shifts right.

3. The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

a- potential output.

b- short-run aggregate supply.

c- aggregate demand.

d- the real interest rate by the central bank.

4. A characteristic of long-run equilibrium is the economy is producing its potential output. This is:

a- the maximum level of output the economy could produce at any time.

b- defined as using 80 percent of the economy's resources at any time.

c- the level of output consistent with an unemployment rate of 7.5%.

d- the level of output the economy produces when its resources are used at normal rates.

5. Which of the following statements is most accurate?

a- During a recessionary gap, current output is below potential output.

b- Potential output is determined by current output.

c- Current output cannot exceed potential output.

d- When an expansionary gap exists, current output is below potential output.

6. If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:

a- lower the real interest rate.

b- keep the real interest rate constant and focus on only changing the nominal interest rate.

c- raise the real interest rate.

d- purchase Treasury securities.