10. When the Fed lowers the federal funds rate, aggregate demand
(A) increases.
(B) decreases.
(C) stays the same.
(D) could increase, decrease or stay the same.

11. The output gap can be used to estimate the extend to which the Fed misses its goal of(A) moderate long-term interest rates. (B) stable prices.(C) maximum employment. (D) monetary policy.

12. A bank creates money by(A) lending its excess reserves (B) purchasing currency from the Federal Reserve(C) buying bonds from the Federal Reserve (D) printing more checks

13. Ricardo buys cola and popcorn. Cola sells for $0.50 a can and popcorn sells for $1 per bag. He is in consumer equilibrium. The price of a cola jumps to $1 per can. In his new consumer equilibrium, Ricardo's(A) marginal utility of cola will be equal to his marginal utility of popcorn.(B) marginal utility per dollar spent will be 2.(C) total utility will be higher.(D) marginal utility of cola will decrease.

14. Consider the change in the price of a book depicted in the above figure. The original budget line is BC. The new budget line is BD. As a result of this price change, the income effect can be represented by a movement from(A) point E to point F. (B) point E to point G.(C) point A to point G. (D) point A to point F.

15. In the above figure, the marginal cost curve is curve(A) A. (B) B. (C) C. (D) D.

16. The principle of increasing opportunity cost leads to(A) a production possibilities frontier (PPF) that is bowed inward from the origin.(B) a production possibilities frontier (PPF) that is bowed outward from the origin.(C) an inward shift of the production possibilities frontier (PPF).(D) an outward shift of the production possibilities frontier (PPF).

17. Because of changes in the ________, the long-run effect of a $10 increase in investment on realGDP equals ________.(A) interest rate; zero (B) interest rate; $10(C) money wage rate and price level; zero (D) money wage rate and price level; $10

18. The above table shows the marginal benefit from submarines for the only two citizens of a country.Submarines are a public good. If submarines cost $100 a piece to produce, what is the efficient quantity of submarines?(A) 0 (B) 1 (C) 2 (D) 3

19. The Coase theorem applies when property rights are given(A) to the victim of pollution but not to the polluter. (B) to the polluter but not to the victim.(C) to either the polluter or the victim. (D) neither to the polluter nor to the victim.

20. Reported GDP increases when, in fact, total production is unchanged wheni. there is a shift from household production to market production.ii. a previously illegal activity is legalized.(A) i only (B) ii only(C) Neither i nor ii (D) Both i and ii.

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