12. The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.
(A) capital and labor inputs
(B) technology
(C) the natural rate of unemployment
(D) all of the above

8. In the long run, larger budget deficits lead to ________. (A) higher saving levels (B) a fall in investment (C) lower interest rates (D) all of the above

9. When the Fed buys government securities in the open market, the money supply ________ because ________. (A) decreases； banks lose liquidity, they make fewer loans and checking account deposits decrease (B) increases； banks gain liquidity, they make more loans and checking account deposits increase (C) increases； banks lose liquidity, they make more loans and checking account deposits increase (D) decreases； banks gain liquidity, they make fewer loans and checking account deposits decrease 

10. M1 does not include cash that is held in ATMs or bank vaults, because ________. (A) no one really owns that money (B) that money is included in M2 (C) that money earns no interest (D) the right to access that money is counted already as bank deposits

11. Rising inflation causes quantity demanded to decline, because ________. (A) the central bank raises the nominal interest rate by more than the increase in expected inflation (B) households and businesses are reluctant to spend when prices rise (C) higher inflation causes the IS curve to shift to the left (D) all of the above

13. According to the "self-correcting mechanism" in the AD-AS framework, ________. (A) the aggregate demand curve shifts up or down as needed to bring the economy to full employment (B) the inflation rate changes as needed to move the economy along the short-run aggregate supply curve until output is at potential output (C) the long-run aggregate supply curve shifts until it intersects both the aggregate demand and short-run aggregate supply curves at a single point (D) none of the above

14. The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued? (A) Household and business spending would have been eroded shifting the AD curve to the left. (B) Unemployment would have risen and inflation would have fallen. (C) Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004. (D) all of the above 

15. Suppose that inflation is at the target rate and output has fallen substantially below potential output. A central bank with a primary objective of price stability should ________. (A) do nothing, because inflation cannot rise when unemployment is high (B) ease monetary policy, to avoid a decrease in the inflation rate (C) do nothing, because stabilizing economic activity is not a primary objective (D) ease monetary policy, because avoiding high unemployment is more important than avoiding high inflation

16. The term "sovereign debt crisis" applies when ________. (A) private businesses cannot borrow money because the government is borrowing so much (B) nations compete fiercely with each other to increase their borrowing (C) a government finds that the cost of borrowing is higher than it had anticipated (D) the debt of a particular government quickly loses value Graph 1: AD - AS Shocks

17. On the Graph 1 AD-AS Shocks, an example of a positive demand shock is the movement from point ________ to point ________. (A) F； G (B) H； I (C) F； H (D) H； F

18. The theory of purchasing power parity suggests that, in the long-run, exchange rates are determined by ________. (A) relative interest rate levels (B) relative price levels (C) the GDP values for the two countries (D) the most significant monetary authorities, including the Federal Reserve, European Central Bank, Bank of England and the Bank of Japan