1. Full employment is guaranteed by government.

2. People will always want to work if there is no welfare system.

3. Prices, including wages, adjust quickly to bring about full employment.

4. Monetary policy is used to moderate short-run fluctuations in the economy.

5. All of the above

52. Which policy tends to reduce both the rate of inflation and a balance of payments deficit?

(A) An increase in import tariffs

(B) An increase in taxes

(C) A reduction in the level of interest rates

(D) A rise in the country’s currency exchange rate

(E) All of the above

53. Which of the following best explains the difference between a country’s gross national product (GNP) and its gross domestic product (GDP)?

1. GNP measures all final goods and services produced in the public sector, whereas GDP measures only those produced in the private sector.

2. GNP measures all final goods and services produced in a nation during a year, whereas GDP measures only the value of output produced by domestic factors of production.

3. GNP measures all final goods and services produced by the productive factors located within a country, whereas GDP measures only the value of output produced by foreign-owned factors of production.

4. GNP measures the value of all the final goods and services produced by all of a country’s factors whether located within the country or abroad, whereas GDP measures the value of all the final goods and services produced within a country’s borders.

5. GNP measures trade with foreign countries, whereas GDP measures only domestic trade

54. Which of the following would tend to make expansionary fiscal policy most effective in changing gross domestic product?

1. A very low marginal propensity to consume

2. A very low rate of investment

3. A simultaneous decision by the Federal Reserve to increase the money supply

4. A vertical aggregate supply curve

5. A horizontal aggregate supply curve

55. Assume that the federal government is instituting a new health insurance program that results in equal increases in taxation. Output, the price level, and unemployment will most likely change in which of the following ways in the short run?

Output Price Level Unemployment

1. Increase Increase Increase

2. Increase Increase Decrease

3. Decrease Increase Decrease

4. Decrease Decrease Decrease

5. No change No change No change

56. The Federal Reserve can decrease the lending ability of the banking system by which of the following actions?

1. Buying government securities

2. Increasing the discount rate

3. Raising taxes

4. Printing less paper money

5. All of the above

57. Deficit spending by the government may result in crowding out because the spending

1. reduces the funds available for private investment

2. is usually financed by selling bonds to foreign banks

3. lowers the interest rate and thus discourages saving

4. leads to higher employment

5. All of the above

58. Which of the following are assets of a bank and at the same time the liabilities of the central bank?

1. Savings accounts and checking accounts

2. Coins and currency in its vault and its deposits in the Federal Reserve Bank

3. Securities issued by the United States Treasury and by state and local governments

4. Federal Reserve notes and coins and traveler’s checks

5. Loans and other interest-earning assets

59. When the Federal Reserve buys government bonds, which of the following can be expected to occur in the short run?