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Unformatted text preview: es a. causes both reserves and the monetary base to rise. b. causes reserves to rise, but the monetary base to decline. c. causes both reserves and the monetary base to decline. d. has no net effect on the monetary base. 40. This method of financing government spending is frequently called printing money because high‐powered money (the monetary base) is created in the process. a. Financing government spending with taxes. b. Financing government spending by selling bonds to the public, which pays for the bonds with currency. c. Financing government spending by selling bonds to the public, which pays for the bonds with checks. d. The finance of government spending through a Treasury sale of bonds that are then purchased by the Fed. 41. If moderate deficits put ________ pressure on interest rates, the Fed may ________ bonds, leading to an increase in high‐powered money. a. downward; buy b. downward; sell c. upward; sell d. upward; buy 42. Suppose that the economy is at the natural rate of output. In the absence of accommodating policy and everything else held constant, the net result of a negative supply shock is that a. aggregate output increases above the natural rate level, but only temporarily. b. the economy returns to full employment at a lower price level. c. the economy returns to full employment at the initial price level. d. the economy returns to full employment at a higher price level. 43. According to economists who believe in Ricardian Equivalence, when the government runs a deficit and issues bonds, a. the public works less to avoid these future taxes, causing the demand for bonds to decrease. b. the public recognizes that it will be subject to higher taxes in the future in order to pay off these bonds. c. the Fed must purchase bonds to keep the interest rate from rising. d. the Fed must sell bonds to keep the interest rate from rising. 44. The condition of a continually rising price level is defined as a. stagflation. b. inflation. c. stagnation. d. disinflation. 45. Financing government spending by selling bonds to the public, which pays for the bonds with currency, a. leads to a permanent increase in the monetary base. b. leads to a permanent decl...
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This note was uploaded on 04/25/2013 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.
- Spring '08
- The Land