1.If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of:

• $500

• $20

• $100

• $50

2.In which of the following situations is a budget surplus most likely to occur?

• When fiscal policy is expansionary and the economy is contracting

• When fiscal policy is contractionary and the economy is expanding

• When the economy is contracting

• When fiscal policy is expansionary

3.How do investment in technology and investment in capital differ?

• They have different effects on output because of the positive externalities associated with investments in capital.

• They have different effects on output because of the positive externalities associate with investments in technology.

• They have similar effects on output so they have no important differences from an economic point of view.

• They have the same effects on output but investments in technology are much more closely tied to the level of saving than investments in capital.

4.If banks hold excess reserves whereas before they did not, the money multiplier:

• Will become smaller

• Will become larger

• Might increase or might decrease

• Will be unaffected

5What would make foreigners want to buy more from the United States?

• Higher tariffs

• Higher interest rates in the United States

• Inflation in the United StatesA fall in the value of the dollar in the foreign exchange market