Exam Name___________________________________ 1) heopportunitycostofholdingmoneyisthe T A) asewithwhichanassetcanbecomemoney. e B) riceofgoodsandservices. p C) evelofwageandrentalincome. l D) nterestrate. i 2) hentheinterestraterises,thequantityofmoneydemandeddecreasesbecause W A) hepricelevelalsorisesandpeopledecreasetheirdemandformoney. t B) eopleshiftfundsfrommoneyholdingstointerest-bearingassets. p C) eoplemovefundsfrominterest-bearingassetsintomoney. p D) eoplewillbuyfewergoodsandholdlessmoney. p 3) henrealGDPincreases,thedemandformoney W A) ncreases. i B) ecreases.

es. d C) ecannotmakeapredictionwithoutadditionalinformation. w D) taysthesame. s 4) _______realGDPincreasesthedemandformoneyand________theinterestrate _ decreasesthequantityofmoneydemanded. A) ncreasing;increasing I B) ecreasing;decreasing D C) ncreasing;decreasing I D) ecreasing;increasing D 5) hedemandformoneycurve T A) shorizontal. i B) asanegativeslope. h C) asapositiveslope. h D) svertical. i

6) ntheabovefigure,supposetheeconomyisinitiallyonthedemandformoney I curveMD1.Whatistheeffectofafallintheinterestrate? A) herewouldbeamovementupwardalongthedemandformoneycurveMD1. T

B) hedemandformoneycurvewouldshiftrightwardtoMD2. T C) hedemandformoneycurvewouldshiftleftwardtoMD0. T D) herewouldbeamovementdownwardalongthedemandformoneycurve T MD1.

7) nthefigureabove,anincreaseinthemonetarybasewouldcreateachangesuchas I a A) ovementfrompointatopointbalongthesupplyofmoneycurveMS0. m B) hiftfromthesupplyofmoneycurveMS1tothesupplyofmoneycurveMS0. s C) hiftfromthesupplyofmoneycurveMS0tothesupplyofmoneycurveMS1. s D) ovementfrompointbtopointaalongthesupplyofmoneycurveMS0. m 8) nthemoneymarket,iftheinterestrateexceedstheequilibriuminterest,thereisa I surplusofmoney.Howisthesurpluseliminated? A) heFederalReservewilldestroycurrency,reducingthequantityofmoney. T B) hehighinterestrateincreasesthedemandformoney,eliminatingthe T surplus. C) eoplebuybondstoridthemselvesofthesurplusmoney,biddinguptheir P priceandpushinginterestratesdown. D) ankswilllendoutthesurplus,loweringinterestrates. B

 9) nthefigureabove,iftheinterestrateis8percent,peopledemand$0.1trillion I A) essmoneythanthequantitysuppliedandtheinterestratewillfall. l B) oremoneythanthequantitysuppliedandtheinterestratewillfall. m C) essmoneythanthequantitysuppliedandtheinterestratewillrise. l D) oremoneythanthequantitysuppliedandtheinterestratewillrise. m 10) nthefigureabove,iftheinterestrateis4percent,thereisa$0.1trillionexcess I A) emandformoneyandtheinterestratewillrise. d B) emandformoneyandtheinterestratewillfall. d C) uantityofmoneyandtheinterestratewillrise. q D) uantityofmoneyandtheinterestratewillfall. q 11) ntheshortrun,whichofthefollowingactionslowertheinterestrate? I A) decreaseinbondprices a B) decreaseinthequantityofmoney a C) decreaseinthedemandformoney a D) nincreaseinthedemandformoney a 12) hichofthefollowingisoneoftheFedspolicygoals? W A) xchangerate e B) onetarybase m C) elpthePresidentwinreelection h D) ricelevelstability p 13)Thecoreinflationrate,measuredbythecoreCPI,measureschangesinthe A)pricesofallconsumergoodsexceptfoodandfuel. B)priceofonlytwoconsumergoods:foodandfuel C)pricesofallconsumergoodsexcepthealthcare. D)pricesofallconsumergoods 14)Whichofthefollowingbodiesareresponsiblefortheconductofmonetarypolicy? A)Congress B)thePresident C)theFederalReserveSystem D)CongressandthePresident, jointly 15) heFederalOpenMarketCommitteemeets________timesperyear. T

A) 6 2 B)52 C)2 D)8 16)Thefederalfundsrateistheinterestrate A)onthe30-yeartreasurybond. B)alsoknownastheprimerate. C)bankschargeeachotheronovernightloans. D)onthe3-monthTreasurybill. 17) heTaylorruleusesthreevariablestodeterminethetargetforthefederalfunds T rate.WhichofthefollowingisNOToneofthosevariables? A)monetarybase B)outputgap C)inflationrate D)equilibriumrealinterestrate 18) ftheFedfollowstheTaylorruleandtheeconomygoesintoarecession,theFed I would A) educetaxrates. r B) ncreasegovernmentexpenditures. i C) owerthefederalfundsrate. l D) oneoftheaboveanswersarecorrect. N 19) hentheFedsellsgovernmentsecuritiestoabank,howaretheFedsassets W affected? A)TheamountoftheFedsgovernmentsecuritiesdecreases. B)TheamountoftheFedsgovernmentsecuritiesincreases. C)TheamountofreservesheldattheFeddecreases. D)TheamountofreservesheldattheFedincreases. 20) ftheFedbuysU.S.governmentsecurities, I A) hediscountratewillrise. t B) ankreserveswilldecrease. b C) hefederalfundsratewillrise. t D) hefederalfundsratewillfall. t 21) ftheFedsellsU.S.governmentsecurities, I A) heU.S.Treasurygainssomerevenue. t B) ankreservesincrease. b C) hefederalfundsraterises. t D) oneoftheaboveanswersiscorrect. N 22)Inanopenmarketpurchase,theFed________governmentsecurities,which ________bankreserves. A)buys,increases B)sells,decreases C)sells,increases D)buys,decreases 23) nthemarketforbankreserves,ifthefederalfundsratetargetishigherthanthe I federalfundsrate,theFedwilltakeactionto________reserves. A)decreasethesupplyof B)increasethesupplyof C)decreasethedemandfor D)increasethedemandfor 24)IftheFedincreasesthemonetarybase,the A)demandformoneydecreases. B)federalfundsratefalls. C)quantityofmoneydecreases. D)federalfundsraterises. 25) heTaylorrule T

A) stheruleactuallyfollowedbytheFed. i B) gnorespricelevelstabilitytofocusonrespondingtofluctuationsinrealGDP. i C) ocusesononlyfluctuationsinrealGDP. f D) howshowtheFedcouldsetthefederalfundsrate. s 26) onetarypolicyaffectsrealGDPby M A) reatingbudgetdeficits. c B) hangingaggregatedemand. c C) hangingaggregatesupply. c D) reatingbudgetsurpluses. c 27) ong-terminterestratesare________thanshort-termbecauselong-termloansare L ________thanshort-termloans. A)lower;safer B)higher;riskier C)lower;riskier D)higher;safer 28)WhentheFedlowersthefederalfundsrate,aggregatedemand A) ouldincrease,decreaseorstaythesame. c B)increases. C)staysthesame. D)decreases. 29) hentheFedlowersthefederalfundsrate,itleadsto W A) heFedsellinggovernmentsecurities. t B) decreaseinthequantityofmoney. a C) decreaseindemanddeposits. a D) nincreaseinlendingbybanks. a 30) ftheU.S.interestraterises,theexchangeratevalueofthedollar________andnet I exports________. A) ises;decrease r B) alls;decrease f C) ises;increase r D) alls;increase f 31) hentheFedraisesthefederalfundsrate,other W A) nterestratesrise,consumption,investmentandnetexportsdecrease,andthe i aggregatedemandcurveshiftsleftward. B) nterestratesfall,consumption,investmentandnetexportsdecrease,andthe i aggregatedemandcurveshiftsleftward. C) nterestratesrise,consumption,investmentandnetexportsincrease,andthe i aggregatedemandcurveshiftsrightward. D) nterestratesfall,consumption,investmentandnetexportsincrease,andthe i aggregatedemandcurveshiftsrightward. 32) nanAS/ADfigure,loweringthefederalfundsrateinitiallyshiftsthe I A) ong-runAScurveleftward. l B) Dcurverightward. A C) Dcurveleftward. A D) ong-runAScurverightward. l 33) heshort-runeffectofloweringthefederalfundsrate T A) aisesthepricelevelandincreasesrealGDP. r B) aisesthepricelevelanddecreasesrealGDP. r C) owersthepricelevelanddecreasesrealGDP. l D) owersthepricelevelandincreasesrealGDP. l 34) ntheshort-run,loweringthefederalfundsratewillshiftthe________curve I

________ and________realGDP. A) ggregatedemand;leftward;increases a B) ggregatedemand;leftward;decreases a C) ggregatesupply;rightward;increases a D) ggregatedemand;rightward;increases a 35) nordertocombatarecession,theFedwill________thefederalfundsratethereby I ________thequantityofmoney. A) aise;decrease r B) ower;increase l C) ower;decrease l D) aise;increase r

36) ntheabovefigure,iftheeconomyisinitiallyatpointa,theshort-runeffectofacut I inthefederalfundsrateisgivenbymovementfrompoint A) topointb,increasingoutputanddecreasingtheunemploymentrate. a B) topointb,increasingoutputandtheunemploymentrate. a C) topointd,decreasingoutputandincreasingtheunemploymentrate. a D) topointc,keepingoutputandtheunemploymentrateconstant. a 37) iltonFriedmansk-percentrulesaystosettherateofgrowthofthequantityof M moneyequalto A) herateofgrowthofpotentialGDP. t B) heunemploymentrate. t C) constant. a D) herealinterestrate. t 38) nderak-percentrule,iftheeconomygoesintoaexpansion,theFedwould U A) ncreasethequantityofmoney. i B) aisethefederalfundsrate. r C) owertaxratestokeeprevenueconstant. l D) oneoftheaboveanswersarecorrect. N 39)Inflationtargetsareusuallyspecifiedas A)aspecificinflationratetarget,forexample,1percent. B)theshort-terminterestraterateminus2percent.

C)arangefortheinflationrate. D)deviationsfromtheinflationrate. 40) hediscountrateis T A) heinterestratetheFedchargesonloanstobanks. t B) heinterestratethatbankschargetheirmostpreferredcustomers. t C) hepricetheFedpaysforgovernmentsecurities. t D) hepricebankspaytheFedforgovernmentsecurities. t 41) titsinception,theFederalReservewasintendedtobe A A) regulatorofbankholdingcompanies. a B) heissuerofgovernmentdebt. t C) heTreasurysbanker. t D) lender-of-last-resort. a 42) hemostcommondefinitionthatcentralbankersuseforpricestabilityis T A) ninflationrateofzeropercent. a B) owandstableinflation. l C) ighandstableinflation. h D) owandstabledeflation. l 43) heFederalReserveSystemwascreatedto T A) akeiteasiertofinancebudgetdeficits. m B) romoterapideconomicgrowth. p C) owertheunemploymentrate. l D) romotefinancialmarketstability. p 44) hetypeofmonetarypolicythatisusedinCanada,NewZealand,andtheUnited T Kingdomis A) nterest-ratetargeting. i B) onetarytargeting. m C) nflationtargeting. i D) argetingwithanimplicitnominalanchor. t 45) ccordingtotheTaylorrule,theFedshouldraisethefederalfundsinterestrate A wheninflation________theFedsinflationtargetorwhenrealGDP________the Fedsoutputtarget. A) isesabove;dropsbelow r B) ropsbelow;risesabove d C) ropsbelow;dropsbelow d D) isesabove;risesabove r 46) heprimaryindicatoroftheFedsstanceonmonetarypolicyis T A) hegrowthrateofM2. t B) hediscountrate. t C) hegrowthrateofthemonetarybase. t D) hefederalfundsrate. t 47) hetimeittakestheFEDorCongresstochangeeconomicpolicyis T A) recognitionlag. a B) responselag. a C) nimplementationlag. a D) oneoftheabove N 48) hetimeittakesforaneweconomicpolicytoaffectbehaviorintheeconomyis T A) nimplementationlag. a B) recognitionlag. a C) responselag. a D) oneoftheabove N

49) heimplementationlagforfiscalpolicyislongerthanformonetarypolicybecause T A) onetarypolicychangesmorequicklyaffectbehaviorthanthanfiscalpolicy m changes B) iscalpolicychangesmorequicklyaffectbehaviorthanmonetarypolicy f changes. C) ttakeslongerfortheFEDtoactthanCongress. i D) ttakeslongerforCongresstoactthantheFED. i 50) ngeneral,monetarypolicyhasalonger__________lagthanfiscalpolicybut I shorter__________lag. A) mplementation;recognition i B) ecognition;response r C) esponse;implementation r D) mplementation;response i 51) hecriticsofstabilizationpolicysuchasMiltonFriedmanarguethatmonetary T policyiscomparabletotheFoolintheShower.Thismeansthat A) olicyinitiativesareperfectinmaintainingtheeconomy. p B) olicyinitiativesareperfectlytimed. p C) olicyinitiativesareoftendestabilizingbecauseoftimelags. p D) olicyinitiativesalwaysimpactatthepropertimeinstabilizingtheeconomy. p 52) heFederalReservespolicytoleanagainstthewindmeansthat T A) heFEDlowersrequiredreservesastheeconomybooms. t B) heFEDslowsmoneygrowthastheeconomybooms. t C) heFEDraisestaxesastheeconomybooms. t D) heFEDincreasesmoneygrowthastheeconomybooms. t 53) uringperiodsofstagflation,anincreaseinthemoneysupplywill D A) ncreaseinflationandlowerthelevelofoutput. i B) ncreaseinflationandthelevelofoutput. i C) ncreaseexports. i D) owerinflationandthelevelofoutput. l

 1) D 2) B 3) A 4) A 5) B 6) D 7) C 8) C 9) A 10) A 11) C 12) D 13) A 14) C 15) D 16) C 17) A 18) C 19) A 20) D 21) C 22) A 23) A 24) B 25) D 26) B 27) B 28) B 29) D 30) A 31) A 32) B 33) A 34) D 35) B 36) A 37) C 38) D 39) C 40) A 41) D 42) B 43) D 44) C 45) D 46) D 47) C 48) C 49) D 50) C 51) C

52) B 53) B