Question 1

Which of the following is most likely to lead to an increase in the demand for U.S. dollars in the foreign exchange market?

Accepted Answer

A)  U.S. firms purchasing raw materials from Japan 
B)  U.S. speculators expecting the value of the German mark to rise 
C)  The Fed intervening in the foreign exchange market and devaluing the dollar 
D)  Speculative outflows of money from the United States to Britain because of higher interest rates in Britain 
E)  Japanese cars becoming more popular in the United States 
A)  U.S. firms purchasing raw materials from Japan 
B)  U.S. speculators expecting the value of the German mark to rise 
C)  The Fed intervening in the foreign exchange market and devaluing the dollar 
D)  Speculative outflows of money from the United States to Britain because of higher interest rates in Britain 
E)  Japanese cars becoming more popular in the United States

Question 2

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP.?Figure 13.3
  
-Refer to Figure 13.3. When this economy is in equilibrium:

Accepted Answer

A)  investment spending is equal to $800 billion. 
B)  the interest rate is equal to 4 percent. 
C)  there is an excess demand for money. 
D)  the price level will equal $5. 
E)  real GDP will equal $500 billion. 
A)  investment spending is equal to $800 billion. 
B)  the interest rate is equal to 4 percent. 
C)  there is an excess demand for money. 
D)  the price level will equal $5. 
E)  real GDP will equal $500 billion.

Question 3

The transactions demand for money exists because:

Accepted Answer

A)  people want to maintain a speculative cash reserve. 
B)  people are insensitive to interest rate fluctuations and prefer to hoard money. 
C)  people want to be prepared for unplanned emergency expenditures. 
D)  people prefer cash over bank deposits. 
E)  people do not receive their income at the same time they spend it. 
A)  people want to maintain a speculative cash reserve. 
B)  people are insensitive to interest rate fluctuations and prefer to hoard money. 
C)  people want to be prepared for unplanned emergency expenditures. 
D)  people prefer cash over bank deposits. 
E)  people do not receive their income at the same time they spend it.

Question 4

If you believe that the price of U.S. government bonds will soon fall, you will want to increase your speculative money demand.

Accepted Answer

A) True 
 B)False

Question 5

All the following affect short-run operating targets of the FOMC, except:

Accepted Answer

A)  the federal funds rate. 
B)  the rate of inflation. 
C)  the budget deficit. 
D)  the foreign exchange rate. 
E)  the growth of real GDP. 
A)  the federal funds rate. 
B)  the rate of inflation. 
C)  the budget deficit. 
D)  the foreign exchange rate. 
E)  the growth of real GDP.

Question 6

Which of the following actions of the Fed will increase money supply in the U.S. directly?

Accepted Answer

A)  Purchase U.S. government bonds 
B)  Increase the federal funds rate 
C)  Increase the reserve requirement 
D)  Increase the discount rate 
E)  Ban sales of private mutual funds 
A)  Purchase U.S. government bonds 
B)  Increase the federal funds rate 
C)  Increase the reserve requirement 
D)  Increase the discount rate 
E)  Ban sales of private mutual funds

Question 7

The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

Accepted Answer

A) True 
 B)False

Question 8

If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:

Accepted Answer

A)  11.5 percent. 
B)  15 percent. 
C)  8 percent. 
D)  3.5 percent. 
E)  13.5 percent. 
A)  11.5 percent. 
B)  15 percent. 
C)  8 percent. 
D)  3.5 percent. 
E)  13.5 percent.

Question 9

-Refer to Table 13.1. Given a reserve requirement of 8 percent, what is the amount of excess reserves?

Accepted Answer

A)  $2,800 
B)  $224 
C)  $936 
D)  $1,640 
E)  -$256 
A)  $2,800 
B)  $224 
C)  $936 
D)  $1,640 
E)  -$256

Question 10

The table given below shows the assets and liabilities of the National Bank. Assume that this is the only bank in the economy.?
  
-Refer to Table 13.2. If the Fed increased the reserve requirement from 10 percent to 25 percent, the money supply in the whole banking system could now potentially:

Accepted Answer

A)  decrease by $12,900. 
B)  decrease by $1,272.50. 
C)  increase by $7,875. 
D)  decrease by $7,875. 
E)  increase by $3,150. 
A)  decrease by $12,900. 
B)  decrease by $1,272.50. 
C)  increase by $7,875. 
D)  decrease by $7,875. 
E)  increase by $3,150.

Question 11

If the FOMC purchases government bonds priced at $5,000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:

Accepted Answer

A)  increase by $5,000. 
B)  increase by $4,000. 
C)  increase by $1,000. 
D)  decrease by $5,000. 
E)  decrease by $1,000. 
A)  increase by $5,000. 
B)  increase by $4,000. 
C)  increase by $1,000. 
D)  decrease by $5,000. 
E)  decrease by $1,000.

Question 12

Identify the correct statement.

Accepted Answer

A)  District banks of the Fed hold reserves in the form of deposits at the Fed. 
B)  Commercial banks in each district make loans to the Fed. 
C)  The Fed sells U.S. government securities for the U.S. Treasury. 
D)  The district banks of the Fed print money and supply currency to the Fed. 
E)  The Fed holds the reserves of the commercial banks but it does not issues checks. 
A)  District banks of the Fed hold reserves in the form of deposits at the Fed. 
B)  Commercial banks in each district make loans to the Fed. 
C)  The Fed sells U.S. government securities for the U.S. Treasury. 
D)  The district banks of the Fed print money and supply currency to the Fed. 
E)  The Fed holds the reserves of the commercial banks but it does not issues checks.

Question 13

After the year 2000, the FOMC changed some of its operating procedures. In particular, it stopped setting:

Accepted Answer

A)  explicit interest rates for commercial banks to charge. 
B)  explicit ranges for money growth targets. 
C)  explicit number of government bonds to be bought and sold. 
D)  standardized real GDP targets. 
E)  explicit numbers for the targeted natural rates of unemployment. 
A)  explicit interest rates for commercial banks to charge. 
B)  explicit ranges for money growth targets. 
C)  explicit number of government bonds to be bought and sold. 
D)  standardized real GDP targets. 
E)  explicit numbers for the targeted natural rates of unemployment.

Question 14

Assume that the Fed increases the money supply when there is substantial unemployment in the economy. According to the quantity theory of money, if velocity is constant, then:

Accepted Answer

A)  the price level will decrease. 
B)  real GDP will decrease. 
C)  nominal GDP will increase. 
D)  nominal GDP will decrease. 
E)  real GDP will remain constant while price level will decrease. 
A)  the price level will decrease. 
B)  real GDP will decrease. 
C)  nominal GDP will increase. 
D)  nominal GDP will decrease. 
E)  real GDP will remain constant while price level will decrease.

Question 15

The Fed controls the money supply in the U.S. economy largely through its ability to influence bank reserves and the money creating power of commercial banks.

Accepted Answer

A) True 
 B)False

Question 16

To keep the U.S. dollar from depreciating against the euro, the U.S. Federal Reserve must:

Accepted Answer

A)  buy euros and sell U.S. dollars. 
B)  buy both euros and U.S. dollars. 
C)  sell euros and buy U.S. dollars. 
D)  sell both euros and U.S. dollars. 
E)  buy U.S. government bonds 
A)  buy euros and sell U.S. dollars. 
B)  buy both euros and U.S. dollars. 
C)  sell euros and buy U.S. dollars. 
D)  sell both euros and U.S. dollars. 
E)  buy U.S. government bonds

Question 17

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

Accepted Answer

A)  Open market purchases of government securities 
B)  An increase in the discount rate 
C)  An increase in the reserve requirement 
D)  A reduction in loans to the U.S. Treasury 
E)  A more lenient supervision of savings and loan institutions 
A)  Open market purchases of government securities 
B)  An increase in the discount rate 
C)  An increase in the reserve requirement 
D)  A reduction in loans to the U.S. Treasury 
E)  A more lenient supervision of savings and loan institutions

Question 18

The Federal Open Market Committee consists of:

Accepted Answer

A)  the 12-member Board of Governors. 
B)  seven members of the Board of Governors and five district presidents. 
C)  the president of the New York district bank and the members of the Council of Economic Advisers. 
D)  the chairman of the Board of Governors and five district presidents. 
E)  seven members of the Board of Governors and a nine-member board of directors of the district banks. 
A)  the 12-member Board of Governors. 
B)  seven members of the Board of Governors and five district presidents. 
C)  the president of the New York district bank and the members of the Council of Economic Advisers. 
D)  the chairman of the Board of Governors and five district presidents. 
E)  seven members of the Board of Governors and a nine-member board of directors of the district banks.

Question 19

If a depreciation of the British pound is to be prevented, the U.S. Federal Reserve has to buy British pounds and sell U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 20

The sum of the coins and currencies in the bank's vault and its deposit in the Fed is called:

Accepted Answer

A)  vault cash. 
B)  transaction deposits. 
C)  legal reserves. 
D)  required reserves. 
E)  loanable funds. 
A)  vault cash. 
B)  transaction deposits. 
C)  legal reserves. 
D)  required reserves. 
E)  loanable funds.

Exam 13: Monetary Policy

Which of the following is most likely to lead to an increase in the demand for U.S. dollars in the foreign exchange market?

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP.?Figure 13.3 -Refer to Figure 13.3. When this economy is in equilibrium:

The transactions demand for money exists because:

If you believe that the price of U.S. government bonds will soon fall, you will want to increase your speculative money demand.

All the following affect short-run operating targets of the FOMC, except:

Which of the following actions of the Fed will increase money supply in the U.S. directly?

The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:

-Refer to Table 13.1. Given a reserve requirement of 8 percent, what is the amount of excess reserves?

The table given below shows the assets and liabilities of the National Bank. Assume that this is the only bank in the economy.? -Refer to Table 13.2. If the Fed increased the reserve requirement from 10 percent to 25 percent, the money supply in the whole banking system could now potentially:

If the FOMC purchases government bonds priced at $5,000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:

Identify the correct statement.

After the year 2000, the FOMC changed some of its operating procedures. In particular, it stopped setting:

Assume that the Fed increases the money supply when there is substantial unemployment in the economy. According to the quantity theory of money, if velocity is constant, then:

The Fed controls the money supply in the U.S. economy largely through its ability to influence bank reserves and the money creating power of commercial banks.

To keep the U.S. dollar from depreciating against the euro, the U.S. Federal Reserve must:

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

The Federal Open Market Committee consists of:

If a depreciation of the British pound is to be prevented, the U.S. Federal Reserve has to buy British pounds and sell U.S. dollars.

The sum of the coins and currencies in the bank's vault and its deposit in the Fed is called:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchapterange Rates and Financial Links Between Countries

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