TRUE OR FALSE.

1. It is generally expected that an economic downturn will lead to an increase in inflation.

2. Full employment output is defined as the output that can be achieved if everyone in the labor force has a job.

3. According to the Keynesian model, injections will be kept equal to leakages through adjustment in the market for loanable funds.

4. If the demand for loanable funds decreases, we would expect the interest rate to fall and the quantity of funds loaned to decrease.

5. Suppose that Paul’s income increases from $40,000 per year to $44,000 per year. At the same time, his consumption increases from $36,000 to $39,000 per year. Paul’s marginal propensity to consume is thus 0.75.

6. The percentage of the federal debt in the United States owed to foreign citizens and governments has steadily increased in recent years.

7. The balanced budget multiplier states that the effect of funding a $1 million increase in government spending with a $1 million increase in taxes will result in an increase in income (Y) of greater than $1 million.

8. A law requiring a balanced (federal) budget would make it more difficult to respond to a severe economic crisis.

9. The M1 measure of money includes the value held in checking accounts.

10. Every time a person makes a deposit at the bank, he or she directly increases the money supply held by the bank.