Question

1. During a recessions caused by an aggregate demand shock, we would expect inflation to __________ and unemployment to ____________.

$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	a.	fall, fall
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	b.	rise, rise
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	c.	fall, rise
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	d.	rise, fall

1. During the Great Depression there was no deposit insurance and banking panics occurred. A bank panic happens when

$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	a.	banks fear that loans will be too risky and sharply cut back lending
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	b.	many depositors lose confidence and fear that loan defaults will endanger their deposits
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	c.	banks fear that interest rates will be too high for the normal conduct of business
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	d.	many depositors lose confidence in the economy and move their money into bank deposits

1. During the Great Recession, the Federal Reserve undertook a series of unconventional monetary policy actions. For example, the Federal Reserve lent funds to Fannie Mae and Freddie Mac and purchased mortgage backed securities from them as well. These actions were intended to

$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	a.	keep funds flowing to the mortgage market
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	b.	keep investment banks solvent
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	c.	provide liquidity to depository banks with short-term liquidity problems
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	d.	none of the above

1. One of the major features of the Trump Administration's 2017 Tax Cut & Jobs Act was to

$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	a.	raise taxes on wealthy individuals
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	b.	increase the capital gains tax rate
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	c.	lower the corporate tax rate from 35% to 21%
$00z34blrYlrZ_Vsw-0aBs2aqNDsP05hKLO6cCTwp$	d.	raise the tax rate on lower income households

1. Which of the following shifts aggregate demand to the left?

$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	a.	Interest rates fall.
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	b.	Stock prices fall for some reason other than a change in the price level.
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	c.	The dollar depreciates for some reason other than a change in the price level.
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	d.	The price level rises.

1. Which of the following shifts aggregate demand right?

$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	a.	both a decrease in the price level and the implementation of an investment tax credit
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	b.	a decrease in the price level but not the implementation of an investment tax credit
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	c.	the implementation of an investment tax credit but not a decrease in the price level
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	d.	neither a decrease in the price level nor the implementation of an investment tax credit

1. Which of the following will both make people buy more?

$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	a.	wealth falls and monetary policy raises interest rates.
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	b.	wealth rises and monetary policy lowers interest rates
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	c.	wealth falls and monetary policy lowers interest rates.
$_HhJbZdXxyV58dgGvgSoAP-SNMQf8A6GfXyDvigA$	d.	wealth and monetary policy raising interest rates.

Answer 1

1. A recession caused by an aggregate demand shock means AD has shifted leftward. This will decrease both equilibrium real GDP and price level. Decrease in price level means inflation will fall. Decrease in real GDP means firms will employ less number of labor to produce this reduced amount of output, this will increase unemployment.

Answer: option C