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    IS curve shifts and the Federal Reserve

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    1. The Federal Reserve System regulates the money supply primarily by:

    controlling the production of coins at the United States mint.

    altering the reserve requirements of commercial banks and thereby the ability of banks to make loans.

    altering the reserves of commercial banks, largely through sales and purchases of government bonds.

    restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.

    2. An increase in the marginal propensity to ____will decrease the size of the expenditure multiplier (?) and therefore the IS-curve will shift to the ____ and become steeper. If people save more and spend less, firms will experience an increase in unintended inventories. Firms will respond by decreasing production and national income will ____

    save, left, decrease.
    consume, right, increase.
    save, left, increase.
    consume, left, decrease
    save, right, decrease

    3. Assume a profit maximizing firm's short-run cost is TC = 700 + 60Q. If its demand curve is P = 300 - 15Q, what should it do in the short run?

    shut down
    continue operating in the short run even though it is losing money
    continue operating because it is earning an economic profit
    Cannot be determined from the above information.

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    Solution Preview

    1. The Federal Reserve System regulates the money supply primarily by:

    altering the reserves of commercial banks, largely through sales and purchases of government bonds.

    Open market operations is the Fed's primary ...

    Solution Summary

    Multiple choice questions related to IS curve shifts and the regulation of the money supply.

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