QUESTION 1

1. The Central Bank's single most important stabilizing weapon is:
2. A.changes in bank reserves.
3. B.consumer-credit controls.
4. C.the issuing and redemption of gold certificates.
5. D.open-market operations.

QUESTION 2

1. If the Central Bank has correctly interpreted economic conditions, a contraction in the money-supply could:
2. A.reduce aggregate demand.
3. B.increase unemployment.
4. C.reduce output.
5. D.lower inflation.
6. E.any one of the above, depending upon circumstance.

QUESTION 3

1. A Fed open-market purchase:
2. A.increases only banks' assets.
3. B.increases banks' assets and liabilities together.
4. C.has no effect banks' balance sheets.
5. D.increases banks' assets and reduces their liabilities.
6. E.increases only banks' liabilities.

QUESTION 4

1. An increase in the money supply:
2. A.lowers interest rates for all time.
3. B.raises interest rates for all time.
4. C.cannot affect the interest rate since it is a dimensionless pure number.
5. D.does none of the above.

QUESTION 5

1. Assume that the banking system keeps no excess reserves and the required reserve ratio is 1 to 4.The purchase of $1 billion of securities by the Federal Reserve Board would:
2. A.reduce the money supply by $5 billion.
3. B.decrease the money supply by $4 billion.
4. C.increase the money supply by $4 billion.
5. D.increase the reserves of member banks by $250 million.
6. E.increase the reserves of member banks by $4 billion.

QUESTION 6

1. The effectiveness of monetary policy in a recession will be reduced or destroyed if:
2. A.interest rates cannot be forced down much because the level of borrowing is highly responsive to small changes in the level of the interest rate.
3. B.the Fed finds that security prices start to go up as soon as it begins its easy-money operations.
4. C.the asset or liquidity demand for money is very low.
5. D.the value of the multiplier is very high.
6. E.All of the above.
7. F.None of the above.

QUESTION 7

1. Suppose that the supply of moneywasfixed.An increase in the demand for money should be expected to cause:
2. A.the equilibrium rate of interest to climb.
3. B.the equilibrium quantity of money demanded to climb.
4. C.either answer A or B, depending upon circumstance.
5. D.both answers A and B, without reservations.
6. E.none of the above without some sort of accommodating Fed policy adjustment.

QUESTION 8

1. The reserve demand schedule, by itself shows that lower money supplies are initially consistent with:
2. A.lower investment.
3. B.higher GDP.
4. C.lower interest rates.
5. D.higher interest rates.
6. E.lower GDP.

QUESTION 9

1. When we speak of money's advantage over barter, we are primarily speaking of money's role as:
2. A.A) a store of value or wealth.
3. B.B) a precautionary hedge.
4. C.C) a medium of exchange.
5. D.D) a unit of account.
6. E.E) none of the above.

QUESTION 10

1. Assuming a required 25 percent reserve ratio, a small bank which receives a cash deposit of $1,000 is in a position to:
2. A.lend out an extra $4,000.
3. B.lend out an extra $250.
4. C.lend out an extra $1,000.
5. D.lend out an extra $750.
6. E.lend out an extra $25000.

QUESTION 11

1. If a deposit of $200 in the banking system can lead to a total expansion in bank deposits of $500, then the required reserve ratio must be:
2. A.2.5 percent.
3. B.40 percent.
4. C.4 percent.
5. D.25 percent.
6. E.400 percent.