1			The interest rate commercial banks charge each other for very short term loans is known as:
			A)	Discount rate
			B)	Interbank rate
			C)	Central bank rate
			D)	None of the above
2			The central bank eliminates output gaps by:
			A)	Changing the tax rate
			B)	Changing government spending
			C)	Changing the money supply
			D)	None of the above
3			Which of the following components of planned aggregate expenditure is/are affected by a change in real interest rate? Consumption Investment Government spending Net exports
			A)	Component I only
			B)	Component I and II only
			C)	Component I and IV only
			D)	All of the components are affected by a change in real interest rate
4			If the economy has a recessionary gap, then the central bank should:
			A)	Increase the money supply and reduce real interest rate
			B)	Decrease the money supply and reduce the real interest rate
			C)	Increase the money supply and increase the real interest rate
			D)	Decrease the money supply and increase the real interest rate
5			If the MPR is steep, then this indicates that the central bank is:
			A)	Aggressive in pursuing inflation targets and will change interest rates slightly in response to a given change in inflation
			B)	Not aggressive in pursuing inflation targets and will change interest rates greatly in response to a given change in inflation
			C)	Not aggressive in pursuing inflation targets and will change interest rates slightly in response to a given change in inflation
			D)	Aggressive in pursuing inflation targets and will change interest rates greatly in response to a given change in inflation
6			Which of the following does not result in a shift in the money demand curve?
			A)	A change in the nominal interest rate
			B)	A change in output
			C)	A change in price levels
			D)	A change in technology
7			The central bank primarily controls the supply of money through:
			A)	The discount rate
			B)	The reserve requirement
			C)	Open market operations
			D)	None of the above
8			A central bank that wishes to reduce the money supply using open market operations should:
			A)	Buy bonds from the public
			B)	Sell bonds to the public
			C)	Change the discount rate
			D)	Change the reserve requirement
9			When graphing the relationship between the discount rate and money supply, the curve would be:
			A)	Upward sloping
			B)	Vertical
			C)	Horizontal
			D)	Downward sloping

Use the following information to answer questions 10 to 12:

PAE = 1,000 – 900r + 0.8Y

10			If the real interest rate is 4%, then the short run equilibrium output is:
			A)	$1,205
			B)	$2,250
			C)	$4,800
			D)	$4,820
11			Following question 10, and if the potential output is $4,900, then the economy has a:
			A)	Recessionary gap of $80
			B)	Expansionary gap of $80
			C)	Recessionary gap of $100
			D)	Expansionary gap of $3,695
12			The monetary policy required in this case is:
			A)	Decrease the real interest rate by 1.77%
			B)	Decrease the real interest rate by 2.22%
			C)	Increase the real interest rate by 1.77%
			D)	Increase the real interest rate by 2.22%