Growth in sustainable, or potential, real GDP is calculated roughly as the summation of

14. Growth in sustainable, or potential, real GDP is calculated roughly as the summation of: (a) personal consumption expenditures and gross private domestic investment; (b) productivity growth plus growth in the labor force; (c) productivity growth and money supply growth; (d) cyclically-sensitive output plus structurally-determined output.

15. Which of the following is not a component of aggregate savings? (a) private savings; (b) the government budget surplus; (c) foreign savings; (d) bank reserves.

16. A rise in interest rates can be associated with a decrease in investment, because: (a) businesses typically borrow in order to finance capital investment and interest is a cost; (b) businesses will invest when the marginal product of capital over time at least covers their interest expenses; (c) both (a) and (b) above; (d) a weakening economy and business outlook typically precedes a rise in interest rates.

17. If, over time, a relatively small change in interest rates becomes associated with a larger change in income, the IS curve likely: (a) flattened; (b) steepened; (c) shifted inward; (d) shifted outward.

18. Which statement best expresses the logic underlying the derivation of an LM curve? (a) for each level of interest rates, there is an income level that will equate transactions demand for money with speculative demand for money; (b) for each level of interest rates, there is a level of income that will make the level of aggregate demand for money equal to the aggregate supply of money;  (c) for each income level, there is a range of interest rates that will equate the aggregate demand for money with the aggregate demand for goods and services (GDP); (d) none of the above.

19. We would expect that the level of income that would equate total demand for and supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate).

20. For several decades, Japan was in a “liquidity trap.” Consequently: (a) further monetary stimulus had little to no impact on GDP; (b) interest rates became stuck at very high levels; (c) fiscal stimulus that pushed the LM curve outward could not bring interest rates up: (d) there was a systemic insufficiency of liquidity in Japanese financial markets.

21. If “inflation is always and everywhere a monetary phenomenon,” the which statement is most true? (a) excessive money supply growth likely is THE cause of inflation; (b) inflation has little to do with the spread between growth rates of actual and potential GDP; (c) excessive money supply growth serves as the “fuel” that keeps the price level rising; (d) the best solution to excess inflation is to rapidly and persistently increase growth in the M-1 money supply.

22. The research conclusion that too much money supply growth for too long results eventually in higher rates of inflation suggests that: (a) there is a stable, long-term relationship between money supply growth and inflation that can be estimated precisely; (b) the relationship between money supply growth and inflation, while discoverable, is also highly variable; (c) the relationship between money supply growth and inflation is immediate and fast-acting; (d) appropriate monetary policy can bring the inflation rate to the Fed’s target level with precision over the long-term.

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