Question

1. Which of the following is incorrect?

a. The reserves held in excess of required reserves are excess reserves.

b. Total reserves equal required reserves plus excess reserves.

c. The reserves held to meet the reserve requirement are required reserves.

d. Banks decide how much excess reserves to hold, so excess reserves can be positive or negative.

2. As aggregate demand shifts left along the short-run aggregate supply curve,

a. unemployment is higher and inflation is lower.

b. unemployment and inflation are lower.

c. inflation is higher and unemployment is lower.

d. inflation and unemployment are higher.

Answer 1

(1) (d)

Excess reserve = Total reserve - Required reserve, and excess reserve is always non-negative.

(2) (a)

A leftward shift in AD curve decreases price level and decreases output, so unemployment increases.