Question 1

The federal funds market refers to the market where ________.

Accepted Answer

A)  banks obtain loans of reserves from one another 
B)  the federal government borrows overnight funds from the Fed 
C)  the Fed obtains loans of reserves from the central banks of other nations 
D)  there are no predetermined rates of interest on loans and the highest bidding borrower gets the loan 
A)  banks obtain loans of reserves from one another 
B)  the federal government borrows overnight funds from the Fed 
C)  the Fed obtains loans of reserves from the central banks of other nations 
D)  there are no predetermined rates of interest on loans and the highest bidding borrower gets the loan

Question 2

Printing money to meet government budget deficits ________.

Accepted Answer

A)  helps combat inflation 
B)  increases the demand for money 
C)  increases real income 
D)  increases the money supply in the economy 
A)  helps combat inflation 
B)  increases the demand for money 
C)  increases real income 
D)  increases the money supply in the economy

Question 3

Suppose that the Federal Reserve increases the federal funds rate by 1 percent.What would we expect to happen to the long-term expected real interest rate?

Accepted Answer

A)  It would increase by less than 1 percent. 
B)  It would not change. 
C)  It would decrease by less than 1 percent. 
D)  It would decrease by exactly 1 percent. 
A)  It would increase by less than 1 percent. 
B)  It would not change. 
C)  It would decrease by less than 1 percent. 
D)  It would decrease by exactly 1 percent.

Question 4

Suppose that the money supply increases by 20 percent.If there is no inflation,what does the quantity theory of money tell us must happen to real GDP?

Accepted Answer

A)  It must increase by more than 20 percent. 
B)  It must increase by less than 20 percent. 
C)  It must increase by exactly 20 percent. 
D)  None of the above are correct. 
A)  It must increase by more than 20 percent. 
B)  It must increase by less than 20 percent. 
C)  It must increase by exactly 20 percent. 
D)  None of the above are correct.

Question 5

Which of the following is likely to happen when the Fed raises the federal funds rate?

Accepted Answer

A)  The long-term interest rate will fall. 
B)  Economic activity will increase. 
C)  The labor demand curve shifts to the right. 
D)  The labor demand curve shifts to the left. 
A)  The long-term interest rate will fall. 
B)  Economic activity will increase. 
C)  The labor demand curve shifts to the right. 
D)  The labor demand curve shifts to the left.

Question 6

Which of the following equations is correct?

Accepted Answer

A)  Growth rate of nominal GDP = Inflation ‒ Growth rate of real GDP. 
B)  Growth rate of nominal GDP = Inflation + Growth rate of real GDP. 
C)  Growth rate of nominal GDP = Inflation ÷ Growth rate of interest rates. 
D)  Growth rate of nominal GDP = Growth rate of interest rates ÷ Inflation. 
A)  Growth rate of nominal GDP = Inflation ‒ Growth rate of real GDP. 
B)  Growth rate of nominal GDP = Inflation + Growth rate of real GDP. 
C)  Growth rate of nominal GDP = Inflation ÷ Growth rate of interest rates. 
D)  Growth rate of nominal GDP = Growth rate of interest rates ÷ Inflation.

Question 7

When an asset is traded for goods and services,it serves the function of a ________.

Accepted Answer

A)  store of value 
B)  unit of account 
C)  loanable fund 
D)  medium of exchange 
A)  store of value 
B)  unit of account 
C)  loanable fund 
D)  medium of exchange

Question 8

Which of the following statements is true?

Accepted Answer

A)  The currency in circulation in any economy is likely to be equal to the total money supply in the economy. 
B)  The currency in circulation in any economy is likely to be less than the total money supply in the economy. 
C)  In the United States, currency in circulation accounts for more than 50 percent of the total money supply. 
D)  In the United States, currency in circulation accounts for less than 1 percent of the money supply. 
A)  The currency in circulation in any economy is likely to be equal to the total money supply in the economy. 
B)  The currency in circulation in any economy is likely to be less than the total money supply in the economy. 
C)  In the United States, currency in circulation accounts for more than 50 percent of the total money supply. 
D)  In the United States, currency in circulation accounts for less than 1 percent of the money supply.

Question 9

Differentiate between the adaptive expectations and the rational expectations models of inflation.

Accepted Answer

The adaptive expectations model of infla

Question 10

Suppose that inflation were 2 percent and unemployment were 10 percent.Which of the elements of the Fed's dual mandate would it be failing?

Accepted Answer

A)  Price stability 
B)  Maximum (sustainable) employment 
C)  Both 
D)  Neither 
A)  Price stability 
B)  Maximum (sustainable) employment 
C)  Both 
D)  Neither

Question 11

Inflation expectations are an economic agent's beliefs about ________.

Accepted Answer

A)  past inflation rates 
B)  present inflation rates 
C)  future inflation rates 
D)  all of the above 
A)  past inflation rates 
B)  present inflation rates 
C)  future inflation rates 
D)  all of the above

Question 12

Which of the following is likely to happen to the demand curve for reserves if the federal funds rate increases,everything else remaining constant?

Accepted Answer

A)  The demand curve for reserves will shift to the right. 
B)  The demand curve for reserves will shift to the left. 
C)  There will be a downward movement along the demand curve for reserves. 
D)  There will be an upward movement along the demand curve for reserves. 
A)  The demand curve for reserves will shift to the right. 
B)  The demand curve for reserves will shift to the left. 
C)  There will be a downward movement along the demand curve for reserves. 
D)  There will be an upward movement along the demand curve for reserves.

Question 13

Which of the following statements is true?

Accepted Answer

A)  The discount window in the United States is operated by the government. 
B)  The discount window is accessible only to well-performing banks. 
C)  The discount window operates only in periods of economic expansion. 
D)  Loans obtained from the discount window have a very high interest rate. 
A)  The discount window in the United States is operated by the government. 
B)  The discount window is accessible only to well-performing banks. 
C)  The discount window operates only in periods of economic expansion. 
D)  Loans obtained from the discount window have a very high interest rate.

Question 14

Economists often refer to the government revenue obtained from money creation as ________.

Accepted Answer

A)  liquid revenue 
B)  an inflation tax 
C)  windfall revenue 
D)  a supplementary tax 
A)  liquid revenue 
B)  an inflation tax 
C)  windfall revenue 
D)  a supplementary tax

Question 15

The cost of inflation will be minimized if ________.

Accepted Answer

A)  the growth rate of inflation exceeds the growth rate of wages 
B)  the growth rate of inflation equals the growth rate of wages 
C)  the money supply is increased during times of high inflation 
D)  taxes are increased during the periods of high inflation 
A)  the growth rate of inflation exceeds the growth rate of wages 
B)  the growth rate of inflation equals the growth rate of wages 
C)  the money supply is increased during times of high inflation 
D)  taxes are increased during the periods of high inflation

Question 16

When did the U.S.dollar change most recently from being convertible to non-convertible?

Accepted Answer

A)  Before 1850 
B)  Between 1850 and 1900 
C)  Between 1900 and 1950 
D)  Since 1950 
A)  Before 1850 
B)  Between 1850 and 1900 
C)  Between 1900 and 1950 
D)  Since 1950

Question 17

If the Fed conducted open market operations,what would the direct effect of this be?

Accepted Answer

A)  Changing the quantity of reserves supplied 
B)  Changing the reserve requirement 
C)  Changing the interest rate paid on reserves 
D)  Any of the above 
A)  Changing the quantity of reserves supplied 
B)  Changing the reserve requirement 
C)  Changing the interest rate paid on reserves 
D)  Any of the above

Question 18

Scenario: Bookland is a country that produces only books. In 1990, Bookland produced 10,000 books at a market price of $10 each. In 1991, Bookland produced 11,000 books at a market price of $12 each.
-Refer to the scenario above.The nominal GDP in Bookland in 1991 was ________.

Accepted Answer

A)  $110,000 
B)  $120,000 
C)  $132,000 
D)  $144,000 
A)  $110,000 
B)  $120,000 
C)  $132,000 
D)  $144,000

Question 19

One advantage of using an inflation tax over other methods of tax collection is that ________.

Accepted Answer

A)  the revenue from inflation tax is extremely high 
B)  the collection of inflation tax is more organized 
C)  people who evade other taxes also feel the burden of an inflation tax 
D)  inflation tax only affects individuals with a high income 
A)  the revenue from inflation tax is extremely high 
B)  the collection of inflation tax is more organized 
C)  people who evade other taxes also feel the burden of an inflation tax 
D)  inflation tax only affects individuals with a high income

Question 20

A firm takes out a 2-year loan at a nominal interest rate of 7 percent.It believes that the inflation rate will be 2 percent this year and 4 percent next year.What annual average real interest rate does the firm expect to pay?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent 
A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent

The federal funds market refers to the market where ________.

Printing money to meet government budget deficits ________.

Suppose that the Federal Reserve increases the federal funds rate by 1 percent.What would we expect to happen to the long-term expected real interest rate?

Suppose that the money supply increases by 20 percent.If there is no inflation,what does the quantity theory of money tell us must happen to real GDP?

Which of the following is likely to happen when the Fed raises the federal funds rate?

Which of the following equations is correct?

When an asset is traded for goods and services,it serves the function of a ________.

Which of the following statements is true?

Differentiate between the adaptive expectations and the rational expectations models of inflation.

Suppose that inflation were 2 percent and unemployment were 10 percent.Which of the elements of the Fed's dual mandate would it be failing?

Inflation expectations are an economic agent's beliefs about ________.

Which of the following is likely to happen to the demand curve for reserves if the federal funds rate increases,everything else remaining constant?

Which of the following statements is true?

Economists often refer to the government revenue obtained from money creation as ________.

The cost of inflation will be minimized if ________.

When did the U.S.dollar change most recently from being convertible to non-convertible?

If the Fed conducted open market operations,what would the direct effect of this be?

Scenario: Bookland is a country that produces only books. In 1990, Bookland produced 10,000 books at a market price of $10 each. In 1991, Bookland produced 11,000 books at a market price of $12 each. -Refer to the scenario above.The nominal GDP in Bookland in 1991 was ________.

One advantage of using an inflation tax over other methods of tax collection is that ________.

A firm takes out a 2-year loan at a nominal interest rate of 7 percent.It believes that the inflation rate will be 2 percent this year and 4 percent next year.What annual average real interest rate does the firm expect to pay?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, Supply, and Equilibrium

The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates

Aggregate Incomes

Economic Growth

Why Isn't the Whole World Developed?

Employment and Unemployment

Credit Markets

Short-Run Fluctuations

Countercyclical Macroeconomic Policy

Macroeconomics and International Trade

Open Economy Macroeconomics

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Exam 11: The Monetary System

The federal funds market refers to the market where ________.

Printing money to meet government budget deficits ________.

Suppose that the Federal Reserve increases the federal funds rate by 1 percent.What would we expect to happen to the long-term expected real interest rate?

Suppose that the money supply increases by 20 percent.If there is no inflation,what does the quantity theory of money tell us must happen to real GDP?

Which of the following is likely to happen when the Fed raises the federal funds rate?

Which of the following equations is correct?

When an asset is traded for goods and services,it serves the function of a ________.

Which of the following statements is true?

Differentiate between the adaptive expectations and the rational expectations models of inflation.

Suppose that inflation were 2 percent and unemployment were 10 percent.Which of the elements of the Fed's dual mandate would it be failing?

Inflation expectations are an economic agent's beliefs about ________.

Which of the following is likely to happen to the demand curve for reserves if the federal funds rate increases,everything else remaining constant?

Which of the following statements is true?

Economists often refer to the government revenue obtained from money creation as ________.

The cost of inflation will be minimized if ________.

When did the U.S.dollar change most recently from being convertible to non-convertible?

If the Fed conducted open market operations,what would the direct effect of this be?

Scenario: Bookland is a country that produces only books. In 1990, Bookland produced 10,000 books at a market price of $10 each. In 1991, Bookland produced 11,000 books at a market price of $12 each. -Refer to the scenario above.The nominal GDP in Bookland in 1991 was ________.

One advantage of using an inflation tax over other methods of tax collection is that ________.

A firm takes out a 2-year loan at a nominal interest rate of 7 percent.It believes that the inflation rate will be 2 percent this year and 4 percent next year.What annual average real interest rate does the firm expect to pay?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, Supply, and Equilibrium

The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates

Aggregate Incomes

Economic Growth

Why Isn't the Whole World Developed?

Employment and Unemployment

Credit Markets

Short-Run Fluctuations

Countercyclical Macroeconomic Policy

Macroeconomics and International Trade

Open Economy Macroeconomics

Filters