1. The Federal Reserve System regulates the money supply primarily by:
- controlling the production of coins at the United States mint.
- altering the reserve requirements of commercial banks and thereby the ability of banks to make loans.
- altering the reserves of commercial banks, largely through sales and purchases of government bonds.
- restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.
2. An rise in the marginal propensity to ____will reduce the size of expenditure multiplier and therefore the IS-curve will shift to the ____ and become steeper. If people save more and spend less, firms will experience an increase in unintended inventories. Firms will respond by decreasing production and national income will ____
- save, left, decrease.
- consume, right, increase.
- save, left, increase.
- consume, left, decrease
- save, right, decrease
3. Suppose a profit maximizing firm's short-run cost is TC = 700 + 60Q. If its demand curve is P = 300 - 15Q, what should it do in the short run?
- shut down
- continue operating in the short run even though it is losing money
- continue operating because it is earning an economic profit
- Cannot be determined from the above information.