Question 1

Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion.Then, according to the equation of exchange, the velocity of money equals 8.

Accepted Answer

A) True 
 B)False

Question 2

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
  Refer to Table 13.2 and calculate the legal reserves of the bank.

Accepted Answer

A) $425 
B) $5, 450 
C) $1, 725 
D) $2, 150 
E) $1, 500 
A) $425 
B) $5, 450 
C) $1, 725 
D) $2, 150 
E) $1, 500

Question 3

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
  Refer to Table 13.2.Calculate the change in the bank's excess reserves if the reserve requirement is decreased from 10% to 5%.

Accepted Answer

A) +$272.5 
B) +$236 
C) -$2, 360 
D) -$1877.5 
E) -$3, 210 
A) +$272.5 
B) +$236 
C) -$2, 360 
D) -$1877.5 
E) -$3, 210

Question 4

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 5

The Federal Reserve (Fed)was created by the Congress as an independent agency.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following monetary policies will increase money supply?

Accepted Answer

A) An increase in the discount rate 
B) An increase in the reserve requirement 
C) Open market purchases by the Fed 
D) The Fed selling government bonds 
E) An increase in the federal funds rate 
A) An increase in the discount rate 
B) An increase in the reserve requirement 
C) Open market purchases by the Fed 
D) The Fed selling government bonds 
E) An increase in the federal funds rate

Question 7

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

Accepted Answer

A) U.S.President. 
B) Judiciary. 
C) Congress. 
D) International Monetary Fund. 
E) State governments. 
A) U.S.President. 
B) Judiciary. 
C) Congress. 
D) International Monetary Fund. 
E) State governments.

Question 8

The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets is called the:

Accepted Answer

A) speculative demand for money. 
B) wealth demand for money. 
C) risk interest in money. 
D) precautionary demand for money. 
E) transactions demand for money. 
A) speculative demand for money. 
B) wealth demand for money. 
C) risk interest in money. 
D) precautionary demand for money. 
E) transactions demand for money.

Question 9

The Fed has set a uniform reserve requirement of 3 percent for all deposits in the U.S.banking system.

Accepted Answer

A) True 
 B)False

Question 10

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   Assume the economy is in equilibrium as illustrated by Figure 13.3.Based on the equation of exchange, what is the velocity of money?

Accepted Answer

A) 10 
B) 6 
C) 5 
D) 20 
E) 2 
A) 10 
B) 6 
C) 5 
D) 20 
E) 2

Question 11

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

Accepted Answer

A) sterilization. 
B) a currency crisis. 
C) coordinated intervention. 
D) an application of special drawing rights. 
E) a floating exchange rate system. 
A) sterilization. 
B) a currency crisis. 
C) coordinated intervention. 
D) an application of special drawing rights. 
E) a floating exchange rate system.

Question 12

What is the current market price of a bond that pays $200 per year indefinitely and has a current yield of 16 percent?

Accepted Answer

A) $800 
B) $1250 
C) $3, 200 
D) $8, 000 
E) $12, 500 
A) $800 
B) $1250 
C) $3, 200 
D) $8, 000 
E) $12, 500

Question 13

Increased demand for U.S.products by foreign residents will lead to a depreciation of the U.S.dollar relative to foreign currencies.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

Accepted Answer

A) A United States resident who is traveling to the Greek Islands 
B) An American investor who intends to buy Japanese government bonds 
C) A resident of Australia who is traveling to Belgium 
D) A British importer of U.S.beef 
E) A U.S.company that is importing avocados from Mexico 
A) A United States resident who is traveling to the Greek Islands 
B) An American investor who intends to buy Japanese government bonds 
C) A resident of Australia who is traveling to Belgium 
D) A British importer of U.S.beef 
E) A U.S.company that is importing avocados from Mexico

Question 15

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 16

In order to use inflation targeting, a central bank must:

Accepted Answer

A) be independent of fiscal policy. 
B) be dependent on fiscal policy. 
C) focus on money supply. 
D) focus on unemployment. 
E) focus on stable exchange rates. 
A) be independent of fiscal policy. 
B) be dependent on fiscal policy. 
C) focus on money supply. 
D) focus on unemployment. 
E) focus on stable exchange rates.

Question 17

An excess demand for money will result in all the following, except:

Accepted Answer

A) an excess supply of bonds. 
B) a rise in investment spending. 
C) a fall in bond prices. 
D) a fall in consumption spending. 
E) a fall in equilibrium real GDP. 
A) an excess supply of bonds. 
B) a rise in investment spending. 
C) a fall in bond prices. 
D) a fall in consumption spending. 
E) a fall in equilibrium real GDP.

Question 18

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

Accepted Answer

A) selling U.S.dollars and buying yen. 
B) selling both U.S.dollars and yen. 
C) buying U.S.dollars and selling yen. 
D) buying both U.S.dollars and yen. 
E) buying U.S.Treasury securities. 
A) selling U.S.dollars and buying yen. 
B) selling both U.S.dollars and yen. 
C) buying U.S.dollars and selling yen. 
D) buying both U.S.dollars and yen. 
E) buying U.S.Treasury securities.

Question 19

The Board of Governors is the body responsible for setting and implementing monetary policy targets for the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 20

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

Accepted Answer

A) sell both its own currency and foreign exchange. 
B) buy its own currency and sell foreign exchange. 
C) buy both its own currency and foreign exchange. 
D) sell its own currency and buy foreign exchange. 
E) revalue its own currency. 
A) sell both its own currency and foreign exchange. 
B) buy its own currency and sell foreign exchange. 
C) buy both its own currency and foreign exchange. 
D) sell its own currency and buy foreign exchange. 
E) revalue its own currency.

Exam 22: Monetary Policy

Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion.Then, according to the equation of exchange, the velocity of money equals 8.

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2 and calculate the legal reserves of the bank.

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2.Calculate the change in the bank's excess reserves if the reserve requirement is decreased from 10% to 5%.

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

The Federal Reserve (Fed)was created by the Congress as an independent agency.

Which of the following monetary policies will increase money supply?

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets is called the:

The Fed has set a uniform reserve requirement of 3 percent for all deposits in the U.S.banking system.

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 Assume the economy is in equilibrium as illustrated by Figure 13.3.Based on the equation of exchange, what is the velocity of money?

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

What is the current market price of a bond that pays $200 per year indefinitely and has a current yield of 16 percent?

Increased demand for U.S.products by foreign residents will lead to a depreciation of the U.S.dollar relative to foreign currencies.

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

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:

In order to use inflation targeting, a central bank must:

An excess demand for money will result in all the following, except:

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

The Board of Governors is the body responsible for setting and implementing monetary policy targets for the Federal Reserve System.

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

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

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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