Question 1

Which of the following is true of the quantity of reserves demanded?

Accepted Answer

A)  The quantity of reserves demanded is constant over time for almost every bank. 
B)  The quantity of reserves demanded increases as the federal funds rate falls. 
C)  The quantity of reserves demanded increases as the inflation rate increases. 
D)  The quantity of reserves demanded increases at a constant rate over time. 
A)  The quantity of reserves demanded is constant over time for almost every bank. 
B)  The quantity of reserves demanded increases as the federal funds rate falls. 
C)  The quantity of reserves demanded increases as the inflation rate increases. 
D)  The quantity of reserves demanded increases at a constant rate over time.

Question 2

Suppose that the money supply increases by 10 percent while real GDP increases by 6 percent.What does the quantity theory of money predict the inflation rate will be?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  10 percent 
D)  16 percent 
A)  4 percent 
B)  6 percent 
C)  10 percent 
D)  16 percent

Question 3

The paper currency used by the United States at the beginning of the Civil War was referred to as a demand note because ________.

Accepted Answer

A)  it was used to create the demand for various goods and services 
B)  demand for the currency was kept constant over the entire period of Civil War 
C)  the currency could be exchanged for gold as and when demanded 
D)  it was limited in supply and there was always an excess demand for the currency in the country 
A)  it was used to create the demand for various goods and services 
B)  demand for the currency was kept constant over the entire period of Civil War 
C)  the currency could be exchanged for gold as and when demanded 
D)  it was limited in supply and there was always an excess demand for the currency in the country

Question 4

The paper currency that is currently used in the United States is an example of ________ money.

Accepted Answer

A)  hard 
B)  fiat 
C)  commodity 
D)  price-indexed 
A)  hard 
B)  fiat 
C)  commodity 
D)  price-indexed

Question 5

Which of the following statements is true of the federal funds market?

Accepted Answer

A)  No banks are refused loans in the federal funds market. 
B)  In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. 
C)  The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. 
D)  Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks. 
A)  No banks are refused loans in the federal funds market. 
B)  In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. 
C)  The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. 
D)  Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks.

Question 6

If there are no changes in inflation expectations,a fall in the federal funds rate ________.

Accepted Answer

A)  decreases the long-term nominal interest rate and increases the long-term expected interest rate 
B)  increases the long-term nominal interest rate and decreases the long-term expected interest rate 
C)  decreases both the long-term nominal interest rate and the long-term expected interest rate 
D)  increases both the long-term nominal interest rate and the long-term expected interest rate 
A)  decreases the long-term nominal interest rate and increases the long-term expected interest rate 
B)  increases the long-term nominal interest rate and decreases the long-term expected interest rate 
C)  decreases both the long-term nominal interest rate and the long-term expected interest rate 
D)  increases both the long-term nominal interest rate and the long-term expected interest rate

Question 7

Everything else remaining unchanged,what will happen if the Fed sells government bonds in the open market and the value of borrowed reserves is zero?

Accepted Answer

A)  It will cause the equilibrium federal funds rate to rise, but there will be no change in the equilibrium quantity of reserves. 
B)  It will cause the equilibrium federal funds rate to fall, but there will be no change in the equilibrium quantity of reserves. 
C)  It will cause the equilibrium federal funds rate to rise and the equilibrium quantity of reserves to fall. 
D)  It will cause both the equilibrium federal funds rate and the equilibrium quantity of reserves to fall. 
A)  It will cause the equilibrium federal funds rate to rise, but there will be no change in the equilibrium quantity of reserves. 
B)  It will cause the equilibrium federal funds rate to fall, but there will be no change in the equilibrium quantity of reserves. 
C)  It will cause the equilibrium federal funds rate to rise and the equilibrium quantity of reserves to fall. 
D)  It will cause both the equilibrium federal funds rate and the equilibrium quantity of reserves to fall.

Question 8

A business's cost of changing prices is referred to as ________.

Accepted Answer

A)  shoe leather costs 
B)  menu costs 
C)  intangible costs 
D)  inflation taxes 
A)  shoe leather costs 
B)  menu costs 
C)  intangible costs 
D)  inflation taxes

Question 9

Scenario: An economy produces only cell phones. In 2015, the economy manufactured 275 cell phones, and each cell phone sold for $200. In 2016, the economy manufactured 280 cell phones, but the price of each cell phone fell to $180.
-Refer to the scenario above.Using 2015 as the base year,what was the real GDP of the economy in 2016?

Accepted Answer

A)  $47,000 
B)  $49,500 
C)  $55,000 
D)  $56,000 
A)  $47,000 
B)  $49,500 
C)  $55,000 
D)  $56,000

Question 10

Which of the following is likely to happen when the interest rate falls?

Accepted Answer

A)  The equilibrium wage rate will fall. 
B)  The labor demand curve will shift to the right. 
C)  Economic activity will reduce. 
D)  The nominal GDP will decrease. 
A)  The equilibrium wage rate will fall. 
B)  The labor demand curve will shift to the right. 
C)  Economic activity will reduce. 
D)  The nominal GDP will decrease.

Question 11

The slope of the supply curve of reserves can be attributed to the fact that ________.

Accepted Answer

A)  the Fed fixes the supply of reserves 
B)  the quantity of reserves supplied increases with the federal funds rate 
C)  the quantity of reserves supplied decreases with the federal funds rate 
D)  the supply of reserves is arbitrarily set by the World Bank 
A)  the Fed fixes the supply of reserves 
B)  the quantity of reserves supplied increases with the federal funds rate 
C)  the quantity of reserves supplied decreases with the federal funds rate 
D)  the supply of reserves is arbitrarily set by the World Bank

Question 12

When the Fed buys or sells government bonds to private banks in exchange for reserves,it is referred to as ________.

Accepted Answer

A)  seigniorage 
B)  reserve targeting 
C)  the Fed's dual mandate 
D)  an open market operation 
A)  seigniorage 
B)  reserve targeting 
C)  the Fed's dual mandate 
D)  an open market operation

Question 13

Physical currency in circulation makes up approximately what percentage of the U.S.money supply (as measured by M2)?

Accepted Answer

A)  ~5 percent 
B)  ~10 percent 
C)  ~25 percent 
D)  ~50 percent 
A)  ~5 percent 
B)  ~10 percent 
C)  ~25 percent 
D)  ~50 percent

Question 14

Suppose that inflation were 6 percent and unemployment were 4 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 15

As a goal for the Federal Reserve,price stability is usually interpreted as annual inflation of approximately ________.

Accepted Answer

A)  0 percent 
B)  1 percent 
C)  2 percent 
D)  3 percent 
A)  0 percent 
B)  1 percent 
C)  2 percent 
D)  3 percent

Question 16

The supply curve of reserves is a(n)________ line.

Accepted Answer

A)  downward-sloping 
B)  upward-sloping 
C)  vertical 
D)  horizontal 
A)  downward-sloping 
B)  upward-sloping 
C)  vertical 
D)  horizontal

Question 17

Which of the following methods for influencing the federal funds rate was first approved by Congress for use by the Federal Reserve during the 2007−2009 recession?

Accepted Answer

A)  Changing the quantity of reserves supplied 
B)  Changing the reserve requirement 
C)  Changing the interest rate paid on reserves 
D)  None of the above 
A)  Changing the quantity of reserves supplied 
B)  Changing the reserve requirement 
C)  Changing the interest rate paid on reserves 
D)  None of the above

Question 18

Which of the following is a role played by the Fed in the U.S.economy?

Accepted Answer

A)  It acts as a direct source of funds for new businesses and startups. 
B)  It makes political decisions during periods of recessions. 
C)  It acts as a lender of last resort in case of bank runs. 
D)  It determines the import duty on raw materials being imported into the country. 
A)  It acts as a direct source of funds for new businesses and startups. 
B)  It makes political decisions during periods of recessions. 
C)  It acts as a lender of last resort in case of bank runs. 
D)  It determines the import duty on raw materials being imported into the country.

Question 19

Economists believe that ________ is useful to stimulate the economy in the short run by cutting real wages and real interest rates.

Accepted Answer

A)  hyperinflation 
B)  modest inflation 
C)  negative inflation 
D)  zero inflation 
A)  hyperinflation 
B)  modest inflation 
C)  negative inflation 
D)  zero inflation

Question 20

When prices rise,________.

Accepted Answer

A)  money demand tends to fall 
B)  money supply tends to rise 
C)  menu costs fall 
D)  consumers' purchasing power falls 
A)  money demand tends to fall 
B)  money supply tends to rise 
C)  menu costs fall 
D)  consumers' purchasing power falls

Which of the following is true of the quantity of reserves demanded?

Suppose that the money supply increases by 10 percent while real GDP increases by 6 percent.What does the quantity theory of money predict the inflation rate will be?

The paper currency used by the United States at the beginning of the Civil War was referred to as a demand note because ________.

The paper currency that is currently used in the United States is an example of ________ money.

Which of the following statements is true of the federal funds market?

If there are no changes in inflation expectations,a fall in the federal funds rate ________.

Everything else remaining unchanged,what will happen if the Fed sells government bonds in the open market and the value of borrowed reserves is zero?

A business's cost of changing prices is referred to as ________.

Which of the following is likely to happen when the interest rate falls?

The slope of the supply curve of reserves can be attributed to the fact that ________.

When the Fed buys or sells government bonds to private banks in exchange for reserves,it is referred to as ________.

Physical currency in circulation makes up approximately what percentage of the U.S.money supply (as measured by M2)?

Suppose that inflation were 6 percent and unemployment were 4 percent.Which of the elements of the Fed's dual mandate would it be failing?

As a goal for the Federal Reserve,price stability is usually interpreted as annual inflation of approximately ________.

The supply curve of reserves is a(n)________ line.

Which of the following methods for influencing the federal funds rate was first approved by Congress for use by the Federal Reserve during the 2007−2009 recession?

Which of the following is a role played by the Fed in the U.S.economy?

Economists believe that ________ is useful to stimulate the economy in the short run by cutting real wages and real interest rates.

When prices rise,________.

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

Which of the following is true of the quantity of reserves demanded?

Suppose that the money supply increases by 10 percent while real GDP increases by 6 percent.What does the quantity theory of money predict the inflation rate will be?

The paper currency used by the United States at the beginning of the Civil War was referred to as a demand note because ________.

The paper currency that is currently used in the United States is an example of ________ money.

Which of the following statements is true of the federal funds market?

If there are no changes in inflation expectations,a fall in the federal funds rate ________.

Everything else remaining unchanged,what will happen if the Fed sells government bonds in the open market and the value of borrowed reserves is zero?

A business's cost of changing prices is referred to as ________.

Which of the following is likely to happen when the interest rate falls?

The slope of the supply curve of reserves can be attributed to the fact that ________.

When the Fed buys or sells government bonds to private banks in exchange for reserves,it is referred to as ________.

Physical currency in circulation makes up approximately what percentage of the U.S.money supply (as measured by M2)?

Suppose that inflation were 6 percent and unemployment were 4 percent.Which of the elements of the Fed's dual mandate would it be failing?

As a goal for the Federal Reserve,price stability is usually interpreted as annual inflation of approximately ________.

The supply curve of reserves is a(n)________ line.

Which of the following methods for influencing the federal funds rate was first approved by Congress for use by the Federal Reserve during the 2007−2009 recession?

Which of the following is a role played by the Fed in the U.S.economy?

Economists believe that ________ is useful to stimulate the economy in the short run by cutting real wages and real interest rates.

When prices rise,________.

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