1. Inflation is best defined as being: (a) a phenomenon caused exclusively be excessive money supply growth; (b) the increase in living standards associated with rising wages universally; (c) the economic outcome that results from inappropriate fiscal policy; (d) a general and sustained increase in the level of prices.

2. Which of the following is the most comprehensive measure of overall inflation in the United States? (a) the (implicit) GDP deflator; (b) the consumer price index; (c) the producer price index; (d) the inflation premium built into Treasury inflation-protected securities (TIPS).

3. The Federal Reserve's most preferred price index for setting monetary policy is the: (a) consumer price index; (b) the core personal consumption expenditures deflator; (c) the inflation premium built into Treasury inflation-protected securities (TIPS); (d) the Philadelphia Federal Reserve Bank's inflation survey of economists.

4. Suppose the implicit GDP deflator, a quarterly measure of the price level, increases from 108.3 in the second quarter to 109.7 in the third quarter. The Bureau of Economic Analysis will report that the price level changed by how many percent on an annualized basis? (a) 1.3%; (b) 1.4%; (c) 5.3%; (d) 16.7%.

5. What can best be said about communications policy of the Federal Reserve over the last couple of decades? (a) official communications and statements from unofficial sources within the Federal Reserve System should be taken with equal authority; (b) the only official statements are those made by the Chairman in speeches and testimonies; (c) greater transparency via communications can be used as an additional tool of policy implementation; (d) Federal Reserve officials should speak only to major media outlets, like the Wall Street Journal, Bloomberg and CNBC.

6. A persistent increase in the actual growth rate of real GDP in excess of the growth rate of potential real GDP likely will most result eventually in: (a) accelerating inflation; (b) a recession; (c) stagflation (rising inflation and falling real economic growth); (d) a looser monetary policy from the Federal Reserve.

7. For the most part, rising U.S. inflation is associated with: (a) a much stronger U.S. dollar in foreign exchange markets; (b) growth in aggregate demand at a pace faster than growth in aggregate supply; (c) the persistent increase in the size of the federal budget deficit; (d) Chinese tariffs on U.S. exports.

8. If growth in nominal GDP from one quarter to the next was 5.9% and prices, on average, went up by 2.0% during the same period, then real GDP likely: (a) increased by 3.9%; (b) increased by 7.9%; (c) increased by 11.8%; (d) cannot be determined with the information provided in this question.

9. Suppose a worker gets a 3% annualized wage increase and, over the year ahead, inflation averages 3%. Which of the following statements best describes the likely outcome for this worker? (a) the worker clearly is better off at the end of the year because that worker's buying power is now 5% greater; (b) the worker clearly is better off because the 3% inflation likely overstates how much the prices paid by that worker went up; (c) the worker is less well off because inflation wiped out the worker's increased spending power and the wage gain was subject to income taxes; (d) the worker is less well off because the wage increase increased costs to his/her employer, putting jobs at risk.

10. One oft-cited negative side effect of inflation is that: (a) inflation favors price takers; (b) inflation tends to result in lower interest rates immediately, hurting savers; (c) inflation contributes to a redistribution of wealth arbitrarily; (d) inflation reduces the real level of debt, making debt repayment over time more difficult for most borrowers.

11. An IS curve shows: (a) the locus of all combinations of interest rates and incomes that will result in realized investment and realized savings being equal to one another; (b) that realized savings are most likely a function of interest rates, because changes in interest rates result in changes in precautionary demand for money; (c) the combinations of investments and incomes that result in the supply and demand for money being equal to one another; (d) that increases in output typically are caused by increases in interest rates.

12. Suppose Congress passes legislation that will fund a $100 billion dollar effort to improve U.S. infrastructure. The likely short-run outcome will be: (a) shift to the left by the IS curve; (b) a shift to the right by the IS curve; (c) a flattening of the IS curve; (d) a movement down the IS curve a level consistent with lower interest rates and higher national income.

13. Which two relationships are most fundamental to the derivation of an IS curve? (a) inflation is a function of money supply and consumption is a function of disposable income; (b) real interest rates are a function of money supply and nominal interest rates are a function of the monetary base; (c) demand for money is a function of income and investment is a function of interest rates; (d) investment is a function of interest rates and savings are a function of income.

14. Growth in sustainable, or potential, real GDP is calculated roughly as the summation of: (a) personal consumption expenditures and gross private domestic investment; (b) productivity growth plus growth in the labor force; (c) productivity growth and money supply growth; (d) cyclically-sensitive output plus structurally-determined output.

15. Which of the following is not a component of aggregate savings? (a) private savings; (b) the government budget surplus; (c) foreign savings; (d) bank reserves.

16. A rise in interest rates can be associated with a decrease in investment, because: (a) businesses typically borrow in order to finance capital investment and interest is a cost; (b) businesses will invest when the marginal product of capital over time at least covers their interest expenses; (c) both (a) and (b) above; (d) a weakening economy and business outlook typically precedes a rise in interest rates.

17. If, over time, a relatively small change in interest rates becomes associated with a larger change in income, the IS curve likely: (a) flattened; (b) steepened; (c) shifted inward; (d) shifted outward.

18. Which statement best expresses the logic underlying the derivation of an LM curve? (a) for each level of interest rates, there is an income level that will equate transactions demand for money with speculative demand for money; (b) for each level of interest rates, there is a level of income that will make the level of aggregate demand for money equal to the aggregate supply of money; (c) for each income level, there is a range of interest rates that will equate the aggregate demand for money with the aggregate demand for goods and services (GDP); (d) none of the above.

19. We would expect that the level of income that would equate total demand for and supply of money would be: (a) roughly at the level of the Fed's interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate).

20. For several decades, Japan was in a "liquidity trap." Consequently: (a) further monetary stimulus had little to no impact on GDP; (b) interest rates became stuck at very high levels; (c) fiscal stimulus that pushed the LM curve outward could not bring interest rates up: (d) there was a systemic insufficiency of liquidity in Japanese financial markets.

21. If "inflation is always and everywhere a monetary phenomenon," the which statement is most true? (a) excessive money supply growth likely is THE cause of inflation; (b) inflation has little to do with the spread between growth rates of actual and potential GDP; (c) excessive money supply growth serves as the "fuel" that keeps the price level rising; (d) the best solution to excess inflation is to rapidly and persistently increase growth in the M-1 money supply.

22. The research conclusion that too much money supply growth for too long results eventually in higher rates of inflation suggests that: (a) there is a stable, long-term relationship between money supply growth and inflation that can be estimated precisely; (b) the relationship between money supply growth and inflation, while discoverable, is also highly variable; (c) the relationship between money supply growth and inflation is immediate and fast-acting; (d) appropriate monetary policy can bring the inflation rate to the Fed's target level with precision over the long-term.

23. The level of the money supply is determined by the level of economic activity and adjusted at the margin via the implementation of monetary policy by the Federal Reserve. Thus, the U.S. is said to have: (a) an "elastic currency;" (b) a gold standard; (c) a rule-based monetary policy; (d) an independent central bank.

24. The Employment Act of 1946 established the original monetary policy mandate of the Fed. It called for: (a) balancing the federal budget deficit; (b) elimination of frictional unemployment by 1950; (c) setting conditions in the economy and financial system conducive to the achievement of full employment of workers and price stability; (d) maximizing employment and financial market stability.

25. With respect to the Equation of Exchange, velocity can best be thought of as: (a) the number of times an individual dollar bill is spent in an average month; (b) the number of dollars of nominal GDP per dollar of money supply; (c) how quickly new orders for business inventories can be filled; (d) the ratio of money supply to inflation.

26. All other things remaining the same, the Equation of Exchange reminds us that an increase in money supply typically can be expected to show up as: (a) an increase in inflation only; (b) an increase in real GDP only; (c) partially an increase in real GDP and partially an increase in the price level; (d) a decline in current dollar GDP.

27. According to the Fisher Equation, the real rate of interest: (a) always is negative; (b) is the rate of interest paid on Treasury bills, notes and bonds; (c) is the rate of interest paid by the best, most credit-worthy corporate customers of banks; (d) is the rate of interest that would prevail in a world with a 0% expected inflation rate;

28. In forming inflation expectations for the U.S., many analysts look at: (a) inflation in less developed countries, especially those without an independent central bank; (b) real GDP growth over the 4-8 quarters just passed; (c) the long-term pattern of changes in unit labor costs; (d) performance of the stock market.

29. The sustained decline in U.S. inflation rates over the past quarter century likely reflects all of the following, except: (a) a combination of digitalization and technological advances that reduce production costs; (b) a weak U.S. dollar in foreign exchange markets; (c) more exact production processes; (d) globalization.

30. Which of the following statements is most true? (a) money supply increases cause bank reserves to decrease; (b) the Federal Reserve creates bank reserves through open market operations; (c) the Federal Reserve expands the money supply of the U.S. mainly by printing new currency (like $100 bills); (d) bank reserves are liabilities of the banks that cannot and do not earn any interest from any source.

31. A participant in the labor market who cannot find a job due to a mismatch between that worker's skills and available jobs is said to be: (a) frictionally unemployed; (b) marginally attached to the labor force; (c) seasonally unemployed; (d) structurally unemployed.

32. The U-3 unemployment rate measures the share of the labor force that is: (a) out of work and seeking employment actively; (b) employed part-time though seeking full-time employment; (c) out of work and either younger than age 16 or older than age 55; (d) no longer seeking employment and is counted as a "discouraged worker."

33. Monthly labor market reports issued by the Bureau of Labor Statistics primarily are based upon: (a) initial claims for unemployment insurance reported by the 50 states; (b) the National Income and Product Accounts; (c) an Establishment Survey and a Household Survey; (d) data collected by each of the 12 Federal Reserve Banks.

34. In recent years, the labor force participation rate in the United States is closest to: (a) 45%; (b) 65%; (c) 85%; (d) 90%.

35. The top chemist for an industrial company loses her job because the company goes out of business. This chemist is now teaching high school chemistry. We might say that she is: (a) under-employed; (b) a discouraged worker; (c) only marginally-attached to the labor force; (d) structurally unemployed.

36. Which of the following puts a virtual floor under the unemployment rate (a level below which it is unlikely to fall)? (a) there will always be cyclical unemployment; (b) there always will be unemployment among children; (c) there always will be discouraged workers; (d) there always will be "structural" unemployment (frictional plus structural unemployment).

37. Rising income inequality exacerbates rising wealth inequality partly because individuals with relatively higher incomes: (a) almost always pay less in taxes than individuals with relatively lower incomes; (b) tend to save more than their lower-income neighbors and can earn more non-wage and salary income; (c) tend to live predominantly in low-cost areas of the country; (d) tend to have more children than their lower-income counterparts who can contribute the their family's well-being.

38. Which of the following is the BEST way to define "Say's Law?" (a) supply creates its own demand; (b) continue to add capital until the marginal product of capital is zero; (c) equilibrium takes place at the intersection of a supply curve and a demand curve; (d) the act of producing output in a closed economy generates enough income to buy back all of the output produced.

39. Which of the following is NOT generally considered a determinant of the U.S. labor force participation rate? (a) the level of "discouragement" among unemployed persons; (b) cultural factors, such as the willingness and ability of caregivers to work; (c) frictional unemployment; (d) demographics.

40. China and India tend to have higher sustained growth in real GDP than most developed market countries, because: (a) China and India have relatively more rapid population growth; (b) China's and India's growth rates are measured off a smaller base than those of developed economies; (c) China and India have made rapid real economic growth a top national priority; (d) all of the above.

41. The M-1 monetary aggregate includes only the forms of money that are: (a) most liquid; (b) in savings accounts; (c) the highest interest-earning assets; (d) backed up by the gold reserves of the United States.

42. The Solow model implies all of the following, except: (a) supply creates its own demand; (b) countries that devote a relatively larger share of output to investment will be wealthier; (c) growth will be faster the farther away a country's capital stock is from its steady-state; (d) new ideas are the driving force behind long-run economic growth.

43. Which of the following is LEAST likely to be a cause of long-term secular slowness in increases in U.S. labor productivity? (a) transition of the economy increasingly toward services and away from manufacturing; (b) falling levels of the capital to labor ratio; (c) deglobalization and the shift of production from places outside the U.S. to places within the U.S.; (d) tighter labor markets and the infusion of more and more workers with below-average skills.

44. Which of the following is a standard assumption of most growth models? (a) all investment should go strictly toward replacing depreciated capital goods; (b) there is a diminishing marginal return to capital investment; (c) investment funding is best spent on industries with the weakest productivity growth in order to bring them up to speed; (d) capital investment is the only truly important source of real economic growth.

45. Which of the following best represents the one constant and two variables in the Solow Growth Model? (a) inflation, plus capital and labor; (b) productivity, plus the rental rate of capital and wages; (c) autonomous consumption, plus capital spending and the stock of capital; (d) productivity, plus labor and capital inputs.

46. U.S. net exports since the 1980s have been uniformly: (a) determined by the level of tariffs; (b) negative; (c) a function of fiscal policy; (d) excluded from GDP calculations by the Bureau of Economic Analysis.

47. All other things remaining the same, a new fiscal stimulus package normally can be expected to: (a) result in a net drop in national income and lower interest rates; (b) be financed by a tax increase of equal magnitude; (c) shift the IS curve to the right to a new equilibrium with higher interest rates and higher national income; (d) be financed by a spending decrease of equal magnitude.

48. Passage of the Federal Reserve Act of 1913 came largely in response to: (a) a series of financial panics over the previous half century; (b) a massive inflow of gold to the United States that caused the money supply to soar and inflation to result; (c) the need for financing of military operations in World War I; (d) a desire to become the only major country in the world with a central bank.

49. Which of the following is NOT considered to be central to the Federal Reserve's monetary policy mandate? (a) setting conditions conducive to maximum sustainable real economic growth (via maximum employment); (b) setting conditions conducive to price stability; (c) setting conditions conducive to maximum wealth creation in the U.S.; (d) promoting stable financial markets.

50. A critical factor that determines the effectiveness of U.S. monetary policy likely is: (a) the ability of the central bank to anchor inflation expectations; (b) the correlation between money supply growth and stock market performance; (c) the determination to allow interest rates to fall below 0% if necessary; (d) the Fed's responsibility to supervise and regulate investment companies.

51. Which statement about the Federal Open Market Committee is untrue? (a) the Secretary of Treasury always is a voting member of the Committee on monetary policy decisions; (b) the President of the New York Fed, by tradition, always is a voting member on policy matters; (c) the Committee formulates, but does not implement, monetary policy; (d) its policy decisions do not require a consensus among voting members.

52. An open market operation designed to add reserves to the banking system would include: (a) issuance of new Treasury securities by the Fed; (b) instructing the Bureau of Engraving and Printing to print more currency (Federal Reserve notes); (c) takes place eight times a year only, immediately after an FOMC meeting; (d) the New York Fed buying securities in either permanently or temporarily.

53. Which of the following is the Fed's most important policy interest rate? (a) federal funds rate; (b) the rate on 2-year Treasury notes; (c) the rate on 10-year Treasury notes; (d) the rate on 30-year fixed-rate mortgages.

54. In which market would a bank with excess reserves attempt to sell reserves to a bank with insufficient reserves? (a) Treasury bill market? (b) federal funds market; (c) bond market; (d) NASDAQ.

55. When compared with monetarist theory, Keynesian theory places greater emphasis on: (a) changes in supply of money as a determinant of GDP and inflation; (b) totally discounts the role of monetary policy in determining GDP and inflation; (c) fiscal policy as a determinant of money supply (d) changes in interest rates as a prerequisite to GDP growth and inflation.

56. Over time, the flattening and shifting inward of the traditional Phillips Curve suggests that: (a) the relationship between inflation and unemployment is stronger than ever; (b) a 1% change in the inflation is now associated with smaller changes than before in the unemployment rate; (c) every unemployment rate is now associated with a lower inflation rate than previously; (d) the U.S. now has an R* much higher than 1%.

57. According to the modern Phillips Curve, current inflation statistically is the summation of: (a) the real inflation rate and inflation expectations; (b) the previous period's inflation and the product of short-run real economic growth and the sensitivity of inflation to it; (c) productivity growth and growth in the labor force; (d) labor compensation and productivity growth.

58. Almost always, the normal Treasury yield curve tends to: (a) be unaffected by monetary policy; (b) be monotonically upward sloping; (c) demonstrate that as time to maturity increases, expected yields tend to decline: (d) be affected by inflation expectations.

59. All things remaining the same, the yield on a five-year Treasury note can be expected to revert to which level? (a) the Fed's 2% inflation target; (b) the level of inflation expectations over a 5-year period; (c) the average expected yield on Treasury securities 1, 2, 3, 4, and 5 years from maturity; (d) the S&P 500 dividend yield.

60. Which of the following is NOT a lesson to draw from the work of the Federal Reserve under Chairman Volcker when combatting stagflation? (a) fiscal policy is a critical complement to monetary policy when fighting high inflation rates; (b) choking off the supply of bank reserves can strangle money supply growth; (c) the process of strangling money supply growth reduces inflation expectations and eventually brings down long-term interest rates; (d) lower long-term interest rates would help to stimulate demand for the most interest-rate sensitive components of the economy.

61. In response both to Great Financial Crisis and the Covid-19 Crisis, the Federal Reserve: (a) performed reverse repurchase agreements daily; (b) engaged in permanent open market operations that expanded the Fed's asset holdings; (c) sold Treasury securities and sold mortgage-backed securities; (d) increased its federal funds target range to between 2.00% and 2.25%.

62. The possibility that even a relatively or seemingly minor event somewhere in the world could spread and disrupt the entire real economy is known as: (a) operational risk; (b) credit risk; (c) a liquidity trap; (d) systemic risk.

63. A key function of microprudential supervision is to uncover: (a) the most effective monetary policy tools; (b) banking practices that jeopardize the safety and soundness of the financial system; (c) digital threats to the real economy; (d) obsolete international agreements hampering the U.S. banking system.

64. Development of new housing tracts in New Mexico is counted in GDP under: (a) personal consumption expenditures for durable goods; (b) personal consumption expenditures on housing services; (c) gross private domestic investment; (d) business fixed investment.

65. The Federal Open Market Committee of the Fed consists of: (a) the 7 members of the Board of Governors; (b) the Presidents of the 12 Federal Reserve Banks; (c) the 7 Governors and 12 Presidents; (d) the 7 Governors, the 12 Presidents and the Secretary of the Treasury.