Honors Economics- Monetary Policy
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- 1.When money is used as a standard of value, a person is
- A.
Earning more money
- B.
Purchasing a necessity
- C.
Making a financial transaction
- D.
Making price comparisons among products
- E.
Writing a check for groceries
- 2.Which of the following characteristics of money could be found in bars of gold?
- A.
Portability
- B.
Uniformity
- C.
Stability in value
- D.
Durability
- E.
Acceptability
- 3.When money is used as a medium of exchange, a person is
- A.
Making price comparisons among products
- B.
Earning more money than before
- C.
Writing a check for groceries
- D.
Holding onto their money for a future trip
- 4.The M1 definition of money includes which of the following
- A.
Currency
- B.
Demand deposits
- C.
Savings accounts and small time deposits
- 5.What is the result of the equation of exchange of the velocity of money remains constant and the money supply increases?
- A.
Nominal GDP must increase
- B.
Nominal GDP must decrease
- C.
Aggregate supply will shift
- D.
LRAS will shift
- E.
Aggregate demand will shift
- 6.If the legal reserve requirement is 25%, the value of the simple deposit expansion multiplier is
- A.
2
- B.
4
- C.
5
- D.
10
- E.
1.0
- 7.Which of the following is most likely to increase the velocity of money?
- A.
Decrease in price level
- B.
Decrease in interest rates
- C.
Higher frequency of paychecks
- D.
Increase in unemployment rate
- E.
Decrease in personal income
- 8.Vault cash and reserve accounts are similiar in that each
- A.
Earns no interest
- B.
Provides for bank's use of large amounts of cash
- C.
Is maintained by bank at a fixed percentage set by federal reserve
- D.
Is part of the money supply
- E.
Is kept on account at federal reserve
- 9.
- 10.
- 11.Reserves, the money supply and interest rates are most likely to change in which of the following ways when the Fed sells bonds?
- A.
Reserves: increase, MS: increase, IR: increase
- B.
Reserves: increase, MS: increase, IR: decrease
- C.
Reserves: decrease, MS: increase, IR: decrease
- D.
Reserves: decrease, MS: decrease, IR: increase
- E.
Reserves: decrease, MS: decrease, IR: decrease
- 12.Which of the following actions by the Fed will result in an increase in bank's excess reserves?
- A.
Buying bonds on an open market
- B.
Selling bonds on an open market
- C.
Increasing the discount rate
- D.
Increasing the reserve requirement
- E.
Increasing the federal funds rate
- 13.
- 14.Suppose the Fed buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20% and the banks hold no excess reserves, what will happen to the total money supply?
- A.
It will be unchanged
- B.
It will contract by $2,000,000
- C.
It will contract by $800,000
- D.
It will expand by $2,000,000
- E.
It will expand by $800,000
- 15.Which of the following does the Fed use most often to combat a recession?
- A.
Selling securities
- B.
Buying securities
- C.
Reducing the reserve requirement
- D.
Increasing the discount rate
- E.
Increasing the federal funds rate
- 16.To reduce inflation, the Fed could
- A.
Expand the money supply in order to raise interest rates, which increases investment
- B.
Expand the money supply in order to lower interest rates, which increases investment
- C.
Contract the money supply in order to lower interest rates, which increases investment
- D.
Contract the money supply in order to raise interest rates, which decreases investment
- E.
Buy bonds and decrease the discount rate to encourage borrowing
- 17.Which of the following combinations of monetary policy actions would definitely cause a decrease in aggregate demand?
- A.
Discount rate: decrease, OMO: buy bonds, RRR: decrease
- B.
Discount rate: decrease, OMO: sell bonds, RRR: decrease
- C.
Discount rate: increase, OMO: buy bonds, RRR: increase
- D.
Discount rate: increase, OMO: sell bonds, RRR: decrease
- E.
Discount rate: increase, OMO: sell bonds, RRR: increase
- 18.Expansionary Monetary Policy results in which of the following in the short run?
- A.
The money supply increases
- B.
The interest rate decreases
- C.
The interest rate increases
- D.
Bond prices decreases
- 19.Suppose the economy is experiencing rising unemployment, slowing increases in real GDP and modest inflation. The Fed decides to follow an expansionary policy. A) Describe what this policy might include. B) If the policy is effective, explain the short-run effect it would have on each of the following: I. Interest rates II. Investment III. Price level IV. GDP V. Employment
- 20.The Fed Board of Governors determines that it is appropriate to follow a contractionary policy. A) Would the monetary policy be to increase or decrease the money supply? B) Describe the policy the Fed is likely to take and explain how its action achieves the goal following a contractionary policy. C) If the policy is effective, explain the short-run effect it would have on each of the following: I. Interest rates II. Investment III. Price level IV. GDP V. Employment
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