1.National saving refers to:

A) disposable income minus consumption.

B) taxes minus government spending.

C) income minus consumption minus government spending.

D) income minus investment.

2.In a fractional-reserve banking system, banks create money when they:

A) accept deposits.

B) make loans.

C) hold reserves.

D) exchange currency for deposits.

3.The real interest rate is equal to the:

A) amount of interest that a lender actually receives when making a loan.

B) nominal interest rate plus the inflation rate.

C) nominal interest rate minus the inflation rate.

D) nominal interest rate.

4. In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:
A) increase.
B) decrease.

C) remain unchanged.
D) either increase or decrease, depending on whether consumption is greater or less than investment.

5. In the classical model with fixed income a decrease in the real interest rate could be the result of a(n):

A) increase in government spending.

B) increase in desired investment.

C) increase in taxes.

D) decrease in taxes.

6. Assets of banks include:

A) money market mutual funds.

B) currency in the hands of the public.

C) loans to customers.

D) demand deposits.

7. If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

A) $50 billion.

B) $100 billion.

C) $150 billion.

D) $600 billion.

8. If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

A) $100 billion.

B) $150 billion.

C) $600 billion.

D) $650 billion.

9. The general demand function for real balances depends on the level of income and the:

A) real interest rate.

B) nominalinterestrate.

C) rate of inflation.

D) price level.

10. If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease