Question 1: During one period in history, business investment spending dropped and our trade deficit got larger (imports were bigger than exports.) A reason this did not lead to a drop in GDP could have been:
A) consumer spending increased
B) government deficits declined
C) imports dropped relative to exports
D) exports dropped relative to imports
E) our exchange rate improved
Question 2: Assume the MPE is .75. If the government raises spending by $100 Billion the equilibrium level of GDP should (assuming Keynesian economics):
A) fall by $ 300 billion
B) rise by $ 300 billion
C) fall by $ 400 billion
D) rise by $ 400 billion
Question 3. In a period of high unemployment the Fed. would probably:
A) raise the fed funds rate
B) raise the discount rate
C) raise the required reserve ratio
D) buy bonds through open market operations
E) increase government spending and cut taxes