Question 1

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

Question 2

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.

Question 3

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

Question 4

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.

Question 5

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.

Question 6

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

Question 7

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

Question 8

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.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Accepted Answer

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

Question 16

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

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

Question 18

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.

Question 19

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

Question 20

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

Exam 11: The Monetary System

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

When prices rise,________.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

Exam 11: The Monetary System

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When prices rise,________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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