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.

QUESTION 12

1. Assuming no excess reserves, if the public converts $50 million of currency into demand deposits, this will, in the end:
2. A.increase bank excess reserves.
3. B.increase bank reserves.
4. C.leave the assets of the bank unchanged.
5. D.require banks to reduce their outstanding loans.

QUESTION 13

1. Required reserve ratios are the same for all forms of deposits at all types of financial institutions.
2. True
3. False

QUESTION 14

1. Even a small bank can loan out several dollars for each dollar deposited with them.
2. True
3. False

QUESTION 15

1. If the reserve requirement were 100%, then the money multiplier would equal 1.
2. True
3. False

QUESTION 16

1. If the reserve requirement were 100%, then the money multiplier would equal 1, indicating that the banking system could "create money."
2. True
3. False

QUESTION 17

1. A person who left her job to look for another job would be classified as:
2. A.cyclically unemployed.
3. B.no longer in the labor force.
4. C.structurally unemployed.
5. D.a discouraged worker.
6. E.frictionally unemployed.

QUESTION 18

1. A program that helped match the skills of unemployed workers to the needs of potential employers might lower structural unemployment.
2. True
3. False

QUESTION 19

1. An individual that has not looked for work in the past 2 weeks is considered out of the labor force.
2. True
3. False

QUESTION 20

1. Okun's Law suggests that every increase of 4 percent in GDP above potential GDP can be expected to be associated with:
2. A.a 2 percent reduction in unemployment.
3. B.a 1 percent increase in inflation.
4. C.an increase in unemployment of 1 percentage point.
5. D.a reduction in inflation of 1 percentage point.
6. E.none of the above.

QUESTION 21

1. Lower oil prices lowers production costs and thereby lowers aggregate supply.
2. True
3. False

QUESTION 22

1. Aggregate supply describes the behavior of the production side of the economy.
2. True
3. False

QUESTION 23

1. One difference between the short-run and long-run aggregate supply curves is that:
2. A.the short-run aggregate supply curve is vertical, and the long-run aggregate supply curve is flat.
3. B.the long-run aggregate supply curve assumes that prices are inflexible.
4. C.the short-run aggregate supply curve is more likely to be at potential GDP.
5. D.the short-run aggregate supply curve slopes upward because prices are less flexible in the short-run.
6. E.none of the above.

QUESTION 24

1. Which of the following should be expected to shift the aggregate demand curve to the right?
2. A.C) a reduction in labor force participation.
3. B.A) an increase in government spending.
4. C.D) an increase in taxes.
5. D.E) a decrease in the money-supply.
6. E.B) a reduction in net exports.

QUESTION 25

1. Structural unemployment is defined as:
2. A.incessant movement of people between regions and jobs or thorough different stages of the life cycle.
3. B.a mismatch between the supply of and the demand for workers.
4. C.when the overall demand for labor is low.
5. D.when people are not looking for work.
6. E.none of the above.

QUESTION 26

1. The intersection of the supply and the demand schedules for money determines:
2. A.the equilibrium interest rate.
3. B.the equilibrium supply of money (M1).
4. C.the level of nominal GDP.
5. D.answers A and B.
6. E.all of the above.

QUESTION 27

1. A decrease in the reserve requirement would cause banks to make fewer loans and the money supply to decline.
2. True
3. False

QUESTION 28

1. Which of the following can have an impact on aggregate supply?
2. A.inputs.
3. B.technology.
4. C.wages.
5. D.import prices.
6. E.all of the above.

QUESTION 29

1. If the central bank wants to increase money supply, then it can ------- reserve ratio.
2. A.increase
3. B.decrease
4. C.not change
5. D.none of the above

QUESTION 30

1. An increase in interest rate could -------- checking account deposits
2. A.increase
3. B.decrease
4. C.not affect
5. D.none of the above

QUESTION 31

1. Total output may decrease when interest rate increases because investment may decrease
2. True
3. False

QUESTION 32

1. Which of the following is a function of the financial system?
2. A.transfers resources across time, sectors, and regions.
3. B.manages risks for the economy.
4. C.pools and subdivides funds, depending upon the need of the individual saver or investor.
5. D.clearinghouse functions.
6. E.all of the above.

QUESTION 33

1. When people switch their preferences away from currency toward bonds, the interest rate will drop and investment will be stimulated.
2. True
3. False

QUESTION 34

1. The objectives of Central Banks include
2. A.economic stability.
3. B.high inflation.
4. C.low employment.
5. D.unstable exchange rate.
6. E.all of the above.

QUESTION 35

1. Which of the following should be expected to shift the aggregate demand curve to the left?
2. A.an increase in government spending.
3. B.an increase in the money-supply.
4. C.an increase in labor force participation.
5. D.a reduction in net exports.
6. E.a decrease in taxes.

QUESTION 36

1. Which of the following would contribute to a leftward shift in the aggregate demand curve?
2. A.An increase in the money supply.
3. B.An increase in government purchases of goods and services.
4. C.Technological advances.
5. D.All of the above.
6. E.None of the above.

QUESTION 37

1. The "peak" of the business cycle comes when economic activity is at its lowest.
2. True
3. False

QUESTION 38

1. Which of the following situations would you expect to see during a period of economic recession?
2. A.Falling tax receipts.
3. B.Falling corporate profits.
4. C.Falling employment claims.
5. D.Falling stock prices.
6. E.All of the above.

QUESTION 39

1. Which of the following are typical characteristics of an expansion?
2. A.Consumer purchases increase sharply.
3. B.The demand for labor rises.
4. C.Business inventories of durable goods increase.
5. D.All of the above.
6. E.Choices A and B only.

QUESTION 40

1. Required reserve ratios:
2. A.exist primarily to ensure that deposits are safe.
3. B.exist to penalize banks that are members of the Federal Reserve System.
4. C.exist primarily to help the Fed control the money supply.
5. D.exist for all of the above reasons.
6. E.exist for none of the above reasons.

QUESTION 41

1. Regardless of what you pay for a stock, you get paid back the value of the original principal, plus interest, when it matures.
2. True
3. False

QUESTION 42

1. An asset is said to be illiquid if it can be converted quickly into cash.
2. True
3. False

QUESTION 43

1. The riskiness of an investment is measured by the average of the returns on the investment.
2. True
3. False

QUESTION 44

1. M2 includes checking accounts but not saving accounts.
2. True
3. False

QUESTION 45

1. Most paper currency in the United States is not backed by precious metals such as gold or silver.
2. True
3. False

QUESTION 46

1. The discount rate is determined by the forces of supply and demand in the money market.
2. True
3. False

QUESTION 47

1. By selling government securities in the open market, the Federal Reserve authorities hope ultimately to accomplish:
2. A.an equal increase in bank reserves and Federal Reserve notes.
3. B.a decrease in bank reserves.
4. C.an increase in bank reserves larger than the original purchases by the appropriate multiple.
5. D.an increase in bank reserves by the amount of the original purchase.
6. E.a decrease in bank reserves by the amount of the original purchase.

QUESTION 48

1. The link from monetary policy to changes in real macroeconomic variables is one that:
2. A.depends upon the sensitivity of both investment and the demand for money to changes in the interest rate.
3. B.depends only upon the sensitivity of investment to changes in the interest rate.
4. C.is direct, and works automatically within the walls of domestic banks.
5. D.depends only upon the sensitivity of demand for money to changes in the interest rate.
6. E.depends not at all on the interest rate.

QUESTION 49

1. Bonds tend to be riskier investments than stocks.
2. True
3. False

QUESTION 50

1. Assuming a 20% reserve ratio, an increase in deposits of $200,000 could eventually result in:
2. A.a $40,000 increase in the money supply.
3. B.a $1 million increase in the money supply.
4. C.there would be no change in the money supply.
5. D.a $1.5 million increase in the money supply.
6. E.a $160,000 increase in the money supply.

QUESTION 51

1. The fundamental explanation of why commercial banks can create money lies in:
2. A.fractional reserves.
3. B.the consumption function.
4. C.maintaining a marginal propensity to consume less than 1.
5. D.private ownership.
6. E.the Federal Reserve or other central banks.

QUESTION 52

1. A rise in the interest rate will cause the investment schedule to shift up and out.
2. True
3. False

QUESTION 53

1. Interest rates affect investment and consumption spending on consumer durables.
2. True
3. False

QUESTION 54

1. When a central bank wishes to decrease the quantity of money held by the public, it:
2. A.sells securities.
3. B.buys securities.
4. C.sells goods or services.
5. D.buys goods or services.

E.does none of the above, since its function is not to change the quantity of publicly held money.

QUESTION 55

1. The balances kept on deposit at the Federal Reserve by commercial banks are considered assets of the Federal Reserve.
2. True
3. False

QUESTION 56

1. An open-market sale increases the liabilities of the Federal Reserve.
2. True
3. False

QUESTION 57

1. A Central Bank's open-market operation designed to increase the money supply would seek to sell government bonds.
2. True
3. False

QUESTION 58

1. Which of the following would not usually be associated with a movement up the AD schedule?
2. A.A higher level of interest rates.
3. B.A booming stock market.
4. C.A reduction in output.
5. D.All of the above.
6. E.None of the above.

QUESTION 59

1. People who are voluntarily unemployed may or may not be part of the labor force in the official statistics, but they would never be counted as employed.
2. True
3. False

QUESTION 60

1. An individual that has not looked for work in the past 2 weeks is considered out of the labor force.
2. True
3. False

QUESTION 61

1. One of the similarities between microeconomic and macroeconomic demand is that both:
2. hold income constant.
3. rely on the substitution effect to explain demand.
4. rely on the money-supply effect to explain demand.
5. vary inversely with price.
6. hold the prices of all other goods constant.