Multiple choice questions



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MULTIPLE CHOICE QUESTIONS

1. The organization responsible for conducting monetary policy in the United States is the

_____ a. Comptroller of the Currency.

_____ b. Federal Reserve System.

_____ c. U.S. Treasury.

_____ d. Bureau of Monetary Affairs.


2. Federal funds are

_____ a. funds raised by the federal government in the bond market.

_____ b. loans made by the Federal Reserve System to banks.

_____ c. loans made by banks to the Federal Reserve System.

_____ d. loans made by banks to each other.

3. Securities are ________ for the person who buys them, but are _________ for the individual or firm that issues them.

_____ a. assets; liabilities

_____ b. negotiable; nonnegotiable

_____ c. liabilities; assets

_____ d. nonnegotiable; negotiable


4. A borrower who takes out a loan usually has better information about the potential returns and risk of the investment projects he plans to undertake than does the lender. This inequality of information is called

_____ a. moral hazard.

_____ b. reverse causation.

_____ c. asymmetric information.

_____ d. adverse selection.
5. During periods of rapidly rising prices

_____ a. money fails to serve as a good store of value.

_____ b. money fails to serve as a unit of account.

_____ c. money fails to serve as a medium of exchange.

_____ d. money fails to serve as a standard of value.

6. Banks’ holdings of securities consist primarily of

_____ a. Treasury and government agency securities.

_____ b. tax-exempt municipal securities.

_____ c. state and local government securities.

_____ d. corporate securities.


7. The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as _________, reserves increase by the amount of the open market purchase.

_____ a. deposits; deposits

_____ b. deposits; currency

_____ c. currency; currency

_____ d. currency; deposits

8. The Fed uses three policy tools to manipulate the money supply: __________, which affect the monetary base; changes in ____________, which affect the monetary base by influencing the quantity of discount loans; and changes in ____________, which affect the money multiplier.

_____ a. open market operations; the discount rate; margin requirements.

_____ b. open market operations; the discount rate; reserve requirements.

_____ c. the discount rate; open market operations; reserve requirements.

_____ d. the discount rate; open market operations; margin requirements.

9. The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the _________; changes in the discount rate, which affect the ____________ by influencing the quantity of discount loans; and changes in reserve requirements, which affect the __________.

_____ a. money multiplier; monetary base; monetary base

_____ b. monetary base; money multiplier; monetary base

_____ c. monetary base; monetary base; money multiplier

_____ d. money multiplier; money multiplier; monetary base

10. Open market purchases raise the ___________ thereby raising the ___________.

_____ a. money multiplier; money supply

_____ b. money multiplier; monetary base

_____ c. monetary base; money supply

_____ d. monetary base; money multiplier

11. If the Federal Reserve wants to drain reserves from the banking system, it will

_____ a. purchase government securities.

_____ b. lower the discount rate.

_____ c. sell government securities.

_____ d. raise reserve requirements.

12. The discount rate is

_____ a. the interest rate the Fed charges on loans to banks.

_____ b. the price the Fed pays for government securities.

_____ c. the interest rate that banks charge their most preferred customers.

_____ d. the price banks pay the Fed for government securities.
13. Discount policy

_____ a. can be used to signal the Fed’s intentions about future monetary policy.

_____ b. is no longer important in preventing financial panics since the creation of the FDIC.

_____ c. is the Fed’s preferred method for changing the level of reserves in the banking system.

_____ d. only (b) and (c) of the above.
14. The goal for high employment should seek a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the

_____ a. frictional level of unemployment.

_____ b. structural level of unemployment.

_____ c. natural rate level of unemployment.

_____ d. Keynesian rate level of unemployment.

15. Which of the following is not an operating target?

_____ a. Nonborrowed reserves

_____ b. Monetary base

_____ c. Federal funds interest rate

_____ d. Discount rate


16. Which of the following help explain inflationary money growth?

_____ a. The federal government’s commitment to high employment since 1946

_____ b. One-shot supply shocks

_____ c. One-shot tax cuts

_____ d. All of the above
17. The combination of a successful wage push by workers and the government’s commitment to high employment leads to

_____ a. demand-pull inflation.

_____ b. supply-side inflation.

_____ c. supply-shock inflation.

_____ d. cost-push inflation.

18. If the Fed responds by increasing the money supply in response to a successful wage push by workers, monetary policy is said to be

_____ a. accomplishing.

_____ b. nonaccommodating.

_____ c. nonaccomplishing.

_____ d. accommodating.


19. If workers continually demand higher wages, which are accommodated by expansionary monetary policy, the resulting inflation is known as

_____ a. demand-pull inflation.

_____ b. supply-side inflation.

_____ c. supply-shock inflation.

_____ d. cost-push inflation.
20. The Keynesian analysis of aggregate demand indicates that changes in the money supply

_____ a. have no effect on aggregate demand.

_____ b. shift the aggregate demand curve in the opposite direction of the change in the money supply.

_____ c. shift the aggregate demand curve in the same direction of the change in the money supply.

_____ d. move the economy along the aggregate demand curve rather than shifting it.
21. The Keynesian analysis of aggregate demand indicates that a change in taxes

_____ a. shifts the aggregate demand curve in the same direction as the change in taxes.

_____ b. shifts the aggregate demand curve in the direction opposite to that of the change in taxes.

_____ c. moves the economy along the aggregate demand curve rather than shifting it.

_____ d. has no effect on aggregate demand.
22. Along a given aggregate supply curve an increase in the price level leads to an increase in aggregate output because

_____ a. firms increase production in response to higher profits.

_____ b. workers work more hours, due to the increase in the real wage.

_____ c. workers work more hours, due to the decrease in the real wage.

_____ d. none of the above are true.
23. An adverse or negative supply shock causes the aggregate __________ curve to shift to the ______________.

_____ a. demand; right

_____ b. demand; left

_____ c. supply; right

_____ d. supply; left

24. The Phillips curve indicates that when the labor market is _______, production costs will ___________ and the aggregate supply curve will shift in.

_____ a. easy; rise

_____ b. easy; fall

_____ c. tight; fall

_____ d. tight; rise

25. The expectations-augmented Phillips curve implies that as expected inflation rises, nominal wages ________ to prevent real wages from ________.

_____ a. fall; rising

_____ b. fall; falling

_____ c. rise; falling



_____ d. rise; rising

Multiple-Choice Answers





  1. B

  2. D

  3. A

  4. C

  5. A

  6. A

  7. D

  8. B

  9. C

  10. C

  11. C

  12. A

  13. A

  14. C

  15. D

  16. A

  17. D

  18. D

  19. D

  20. C

  21. B

  22. A

  23. D

  24. D

  25. C







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