_____________________The Federal Reserve, the central bank of the United States, has been cutting the interest rate in order to stimulate the recessionary economy. Interest cuts by the Federal Reserve are supposed to: FILL IN THE BLANK  A). increase investment spending and thus increase GDP via the multiplier. B.) increase cash holding by the general public thus lowering their dependence on credit. C). increase government spending on the economic infrastructure and thus increase GDP through the multiplier process. D). lower the savings rate in the economy and stop leakages. _ E) all of the above

12. Of the following reasons why fine-tuning the economy is not likely to be successful, which one involves the difficulty of crafting and assembling a political consensus around a set of measures to counteract the economy's shift in direction?     a) Recognition lag     b) Policy lag     c) Implementation lag     d) Impact lag     e) None of the above

14. Of the following secondary effects which dissipate the strength or effectiveness of expansionary Keynesian macroeconomic policy, which one is associated with rising interest rates because of greater government borrowing to finance a budget deficit?     a) Crowding out effect     b) Inflation     c) transactions demand for money     d) sovereign debt crisis     e) All the above

20) Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium, but then the central bank must act to increase interest rates, aggregate supply must have shifted left. aggregate demand must have shifted left and aggregate supply must have shifted right. aggregate supply must have shifted right. aggregate demand must have shifted left.

5. Supply-side effects Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate demand (AD) curve and short-run aggregate supply (AS) curve for the economy. The long-run aggregate supply curve is represented by a vertical line at the potential GDP level of $6 trillion. The economy is initially producing at potential GDP. Suppose that fiscal authorities decide to decrease marginal tax rates. Assume that this change in marginal tax rates is perceived as a long-term change. Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther 8 100 8 PRICE LEVEL 8 9 8 True Potential GDP O False AS AD 10 QUANTITY OF OUTPUT (Trillions of dollars) 12 True or False! Supply side…