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ECON 213 Exam Questions with Answers 100% Verified Correct|
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ECON 213 Exam Questions with Answers 100% Verified Correct|
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ECON 213 Exam Questions with Answers 100%Verified Correct|
1) If money demand is extremely sensitive to changes in the interest rate (money demand is
highly "elastic"), the money demand curve becomes almost horizontal. If the Fed increaes the
money supply under these circumstances, then the interest rate will
A) fall substantially and investment and consumer spending will change very little.
B) rise substantially and investment and consumer spending will rise substantially.
C) fall substantially and investment and consumer spending will fall substantially.
D) change very little and investment and consumer spending will change very little. - ✔✔C)
fall substantially and investment and consumer spending will fall substantially.
2) An increase in real GDP can
A) decrease money demand and decrease the interest rate.
B) increase money demand and increase the interest rate.
C) decrease money demand and increase the interest rate.
D) increase money demand and decrease the interest rate. - ✔✔B) increase money demand
and increase the interest rate.
3) A decrease in real GDP can
A) decrease money demand and decrease the interest rate.
B) increase money demand and decrease the interest rate.
C) increase money demand and increase the interest rate.
D) decrease money demand and increase the interest rate. - ✔✔A) decrease money demand
and decrease the interest rate.
4) The federal funds rate is
A) the interest rate on a Treasury Bill.
,B) the interest rate a bank charges its best customers.
C) the interest rate a bank charges each other for overnight loans.
D) the interest rate the Fed charges commercial banks. - ✔✔C) the interest rate a bank
charges each other for overnight loans.
5) The federal funds rate
A) is determined administratively by the Fed.
B) is determined directly by firm demand for funds.
C) is determined directly by household demand for funds.
D) is determined by the supply and demand of bank reserves. - ✔✔D) is determined by the
supply and demand of bank reserves.
6) The Fed can increase the federal funds rate by
A) buying Treasury bills, which decreases bank reserves.
B) selling Treasury bills, which decreases bank reserves.
C) buying Treasury bills, which increases bank reserves.
D) selling Treasury bills, which increases bank reserves. - ✔✔B) selling Treasury bills, which
decreases bank reserves.
7) As the Fed increases the money supply and lowers the interest rate, this will
A) decrease the value of the dollar and lower net exports.
B) decrease spending on consumer durables.
C) decrease spending on new homes.
D) artificially increase investment projects by firms in the short run. - ✔✔D) artificially
increase investment projects by firms in the short run.
8) If the Fed lowers its target for the federal fund rate, this indicates that
A) the Fed is attempting to combat inflation.
, B) the Fed is pursuing an expansionary monetary policy.
C) the Fed is pursuing a contractionary monetary policy.
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP. -
✔✔B) the Fed is pursuing an expansionary monetary policy.
9) If the Fed raises its target for the federal fund rate, this indicates that
A) the Fed is pursuing an expansionary monetary policy.
B) the Fed is attempting to combat deflation.
C) The Fed is concerned that the growth in aggregate demand is too slow to keep up with
potential GDP.
D) the Fed is pursuing a contractionary monetary policy. - ✔✔D) the Fed is pursuing a
contractionary monetary policy.
10) Which of the following describes what the Fed would do to pursue an expansionary
monetary policy?
A) Use discount policy to raise the discount rate.
B) The Fed would raise the reserve requirement.
C) Use open market operations to buy Treasury bills.
D) Use open market operations to sell Treasury bills. - ✔✔C) Use open market operations to
buy Treasury bills.
11) Rising prices erode the value of money as a ________ and a ________.
A) medium of exchange; store of value
B) unit of barter; unit of account
C) store of value; unit of barter
D) store of value; unit of liquidity - ✔✔A) medium of exchange; store of value
12) The Fed's two main monetary policy targets are
A) the money supply and short term interest rates.
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