Question 1

As a result of an increase in the growth rate of money supply,

Accepted Answer

A)  real GDP growth rate increases only in the short run, and the inflation rate increases in both the short run and the long run. 
B)  real GDP growth rate increases only in the long run, and the inflation rate increases only in the short run. 
C)  real GDP growth rate increases in both the short run and the long run, and the inflation rate increases only in the short run. 
D)  both the real growth rate and the inflation rate increase only in the short run. 
A)  real GDP growth rate increases only in the short run, and the inflation rate increases in both the short run and the long run. 
B)  real GDP growth rate increases only in the long run, and the inflation rate increases only in the short run. 
C)  real GDP growth rate increases in both the short run and the long run, and the inflation rate increases only in the short run. 
D)  both the real growth rate and the inflation rate increase only in the short run.

Question 2

Insolvent banks

Accepted Answer

A)  have liabilities that are greater than their assets. 
B)  have loan values that are too low compared to what they owe their depositors. 
C)  have on some occasions been recapitalized by the Treasury. 
D)  Each of these answers is correct. 
A)  have liabilities that are greater than their assets. 
B)  have loan values that are too low compared to what they owe their depositors. 
C)  have on some occasions been recapitalized by the Treasury. 
D)  Each of these answers is correct.

Question 3

Figure: Monetary Policy and Aggregate Demand   Reference: Ref 15-4 (Figure: Monetary Policy and Aggregate Demand) Using the figure, begin at Point a in this economy. Now suppose that due to an inflationary atmosphere, the Fed decides to decrease spending growth by 2 percent. What would you expect would happen in the short run and why?

Accepted Answer

AD would shift to the left bec

Question 4

Which of the following is included in M2?

Accepted Answer

A)  currency 
B)  checkable deposits 
C)  savings deposits 
D)  All three of these items are included in M2. 
A)  currency 
B)  checkable deposits 
C)  savings deposits 
D)  All three of these items are included in M2.

Question 5

Accepted Answer

The answer of  ...

Question 6

When the Fed set up a Term Auction Facility in 2007-2008, its goal was to

Accepted Answer

A)  inject a certain quantity of reserves into banks. 
B)  set the discount rate to a certain percentage. 
C)  tighten control on legal requirements on banks. 
D)  Each of these answers is correct. 
A)  inject a certain quantity of reserves into banks. 
B)  set the discount rate to a certain percentage. 
C)  tighten control on legal requirements on banks. 
D)  Each of these answers is correct.

Question 7

The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending.

Accepted Answer

A)  I and II only 
B)  III and IV only 
C)  I, II, and III only 
D)  I, II, III, and IV 
A)  I and II only 
B)  III and IV only 
C)  I, II, and III only 
D)  I, II, III, and IV

Question 8

If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

Accepted Answer

A) True 
 B)False

Question 9

The Fed will be most effective at changing the money supply when

Accepted Answer

A)  banks have low reserves and the money multiplier is small. 
B)  banks have low reserves and the money multiplier is large. 
C)  banks have high reserves and the money multiplier is small. 
D)  banks have high reserves and the money multiplier is large. 
A)  banks have low reserves and the money multiplier is small. 
B)  banks have low reserves and the money multiplier is large. 
C)  banks have high reserves and the money multiplier is small. 
D)  banks have high reserves and the money multiplier is large.

Question 10

If the Fed buys bonds in the open market, I. investment spending should increase. II. short-term interest rates should increase. III. inflation could increase.

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II, and III 
A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II, and III

Question 11

When the Federal Reserve buys bonds, the demand curve for bonds

Accepted Answer

A)  does not shift. 
B)  shifts outward. 
C)  shifts inward. 
D)  sometimes shifts inward and sometimes shifts outward. 
A)  does not shift. 
B)  shifts outward. 
C)  shifts inward. 
D)  sometimes shifts inward and sometimes shifts outward.

Question 12

To be considered money, an asset must be

Accepted Answer

A)  backed by gold or other precious metals. 
B)  widely accepted as a means of payment. 
C)  currency. 
D)  Each of these answers is correct. 
A)  backed by gold or other precious metals. 
B)  widely accepted as a means of payment. 
C)  currency. 
D)  Each of these answers is correct.

Question 13

If the value of a bank's liabilities is greater than its assets, there is a

Accepted Answer

A)  solvency crisis. 
B)  liquidity crisis. 
C)  liability crisis. 
D)  profitability crisis. 
A)  solvency crisis. 
B)  liquidity crisis. 
C)  liability crisis. 
D)  profitability crisis.

Question 14

Reference: Ref 15-3 (Table: Banking System) The banking system described in this table shows the positions held by four different banks. Which bank is illiquid but solvent?

Accepted Answer

A)  First National Bank 
B)  Second National Bank 
C)  Third National Bank 
D)  Fourth National Bank 
A)  First National Bank 
B)  Second National Bank 
C)  Third National Bank 
D)  Fourth National Bank

Question 15

M1 and M2 are the largest components of the money pyramid.

Accepted Answer

A) True 
 B)False

Question 16

What is the purpose of the Fed's structure?

Accepted Answer

A)  to give the President of the United States as many tools as possible to regulate the economy 
B)  to make sure all states are given equal access to monetary policy decisions 
C)  to keep the private sector out of the monetary policy making arena 
D)  to keep the power of the Fed dispersed 
A)  to give the President of the United States as many tools as possible to regulate the economy 
B)  to make sure all states are given equal access to monetary policy decisions 
C)  to keep the private sector out of the monetary policy making arena 
D)  to keep the power of the Fed dispersed

Question 17

Which of the following assets would you classify as being most liquid?

Accepted Answer

A)  small-time deposits 
B)  small-cut diamonds 
C)  an oil painting by Claude Monet 
D)  money market mutual funds 
A)  small-time deposits 
B)  small-cut diamonds 
C)  an oil painting by Claude Monet 
D)  money market mutual funds

Question 18

When the Fed conducts open market operations to decrease the monetary base, real GDP growth

Accepted Answer

A)  decreases only in the short run. 
B)  increases only in the short run. 
C)  decreases in both the short run and the long run. 
D)  increases in both the short run and the long run. 
A)  decreases only in the short run. 
B)  increases only in the short run. 
C)  decreases in both the short run and the long run. 
D)  increases in both the short run and the long run.

Question 19

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus,

Accepted Answer

A)  they are somewhat insulated from the political process. 
B)  the chairman of the board of governors also has a 14-year term. 
C)  every president of a federal reserve district bank will serve at least 14 years on the BOG. 
D)  the New York Federal Reserve District Bank President can only serve 14 years on the FOMC. 
A)  they are somewhat insulated from the political process. 
B)  the chairman of the board of governors also has a 14-year term. 
C)  every president of a federal reserve district bank will serve at least 14 years on the BOG. 
D)  the New York Federal Reserve District Bank President can only serve 14 years on the FOMC.

Question 20

If a reserve ratio is 20 percent, the money multiplier is 2.

Accepted Answer

A) True 
 B)False

Exam 32: Inflation and the Quantity Theory of Money

As a result of an increase in the growth rate of money supply,

Insolvent banks

Which of the following is included in M2?

When the Fed set up a Term Auction Facility in 2007-2008, its goal was to

The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending.

If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

The Fed will be most effective at changing the money supply when

If the Fed buys bonds in the open market, I. investment spending should increase. II. short-term interest rates should increase. III. inflation could increase.

When the Federal Reserve buys bonds, the demand curve for bonds

To be considered money, an asset must be

If the value of a bank's liabilities is greater than its assets, there is a

Reference: Ref 15-3 (Table: Banking System) The banking system described in this table shows the positions held by four different banks. Which bank is illiquid but solvent?

M1 and M2 are the largest components of the money pyramid.

What is the purpose of the Fed's structure?

Which of the following assets would you classify as being most liquid?

When the Fed conducts open market operations to decrease the monetary base, real GDP growth

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus,

If a reserve ratio is 20 percent, the money multiplier is 2.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters