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Unformatted text preview: prices increased dramatically. (Suppose the natural rate of output in the US is not affected by this.) Which of the following would stabilize the US economy, taking it back to long run equilibrium? A. The government increases taxes. B. The Fed increases the money supply. C. The government increases the level of government spending. D. [All of the above] E. [B and C only] *** 22. Which of the following correctly explains the slope of the money demand curve? A. As the price level increases, each dollar doesn’t buy as much, so people will demand more money. B. As the real interest rate increases, the opportunity cost of holding money is higher, so the quantity of money demanded decreases. *** C. As the real exchange rate increases, US goods become more valuable relative to foreign goods, so people don’t require as much money. D. [All of the above] 23. If the MPC = 0.6 and the government increases defense spending by $60 billion, the multiplier effect will result in a total spending increase of _______ . A. $100 billion B. $150 billion *** C. $120 billion D. $200 billion E. $36 billion 24. Suppose the domestic currency appreciates in the market for foreign currency exchange due to speculation. In the short run, this event will A. decrease aggregate demand. *** B. increase aggregate demand. C. increase short run aggregate supply. D. decrease short run aggregate supply. 25. Charlie can buy a piece of land today for $20,000, and can spend another $40,000 to build a small shoe factory. If, at the end of the first year, his business he can make $15,000 and he intends to sells the factory and land at the end of the year, what is the minimum price for the factory and land (a year from today) that makes the investment profitable today at an interest rate of 5%? A. $20,000 B. $48,000 *** C. $60,000 D. $75,000 26. A stock market crash will A. decrease the consumption dem...
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- Spring '08