1) The real-balances effect indicates that: a) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending

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1) The real-balances effect indicates that:

a) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.

b) a lower price level will decrease the real value of many financial assets and therefore reduce spending.

c) a higher price level will increase the real value of many financial assets and therefore increase spending.

d) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

2) Other things equal, a decrease in the real interest rate will:

a) expand investment and shift the AD curve to the left.

b) expand investment and shift the AD curve to the right.

c) reduce investment and shift the AD curve to the left.

d) reduce investment and shift the AD curve to the right.

3) What does it mean when economists say that home buyers are "underwater" on their mortgages?

a) Buyers owe more on their mortgage than the properties are worth.

b) Buyers are financially incapable of repaying their mortgages and bankruptcy is inevitable.

c) Buyers are purchasing homes on flood plains and are highly susceptible to financial losses.

d) Buyers are paying interest rates substantially higher than current market interest rates, creating interest payments that create financial hardship.

4) The Assistant U.S. Attorney General in charge of prosecuting financial crimes did which of the following in response to HSBC bank's years of money laundering and helping firms and individuals cheat on their taxes?

a) Imposed fines on HSBC and prosecuted key executives so as to diminish moral hazard in the financial services industry.

b) Filed an antitrust lawsuit so as to break up HSBC without disrupting the financial system.

c) Imposed only modest fines on HSBC so as not to destabilize the bank and the financial system.

d) Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act.

5) Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding. The government is engaging in a(n):

a) contractionary fiscal policy.

b) expansionary fiscal policy.

c) low-interest-rate policy.

d) neutral fiscal policy.

6) Since actual budget deficits surpassed 10 percent of GDP in 2009:

a) fiscal policy has become contractionary.

b) the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.

c) deficits as a percentage of GDP have continued to rise.

d) deficits as a percentage of GDP have remained constant but risen in dollar amounts.

7) A decrease in aggregate demand will cause a greater decline in real output the:

a) less flexible is the economy's price level.

b) more flexible is the economy's price level.

c) steeper is the economy's AS curve.

d) larger is the economy's marginal propensity to save