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ECO 213 - exam 3 with complete solutions 2024_2025.
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ECO 213 - exam 3 with complete solutions 2024_2025.
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ECO 213 - exam 3 with complete solutions2024/2025
1) 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 - ANSWER-A) medium of exchange; store of
value
2) The Fed's two main monetary policy targets are
A) the money supply and short term interest rates.
B) the inflation rate and real GDP
C) short term interest rates and real GDP.
D) the money supply and the inflation rate. - ANSWER-A) the money supply and
short term interest rates.
3) The money demand curve has a negative slope because
A) lower interest rates cause households and firms to switch from money to
financial assets.
B) lower interest rates cause households and firms to switch from financial
assets to money.
C) lower interest rates cause households and firms to switch from money to
bonds.
,D) lower interest rates cause households and firms to switch from money to
stocks. - ANSWER-B) lower interest rates cause households and firms to switch
from financial assets to money.
4) Which of the following is NOT a goal of monetary policy?
A) price stability
B) low unemployment
C) maximizing the value of the dollar relative to other currencies
D) economic growth - ANSWER-C) maximizing the value of the dollar relative to
other currencies
5) Money demand will increase if the price level ________ or if real GDP ________.
A) decreases; decreases
B) decreases; increases
C) increases; decreases
D) increases; increases - ANSWER-D) increases; increases
6) An increase in real GDP
A) increases the buying and selling of goods and increases the demand for
money as a medium of exchange.
B) decreases the buying and selling of goods and decreases the demand for
money as a medium of exchange.
C) decreases the buying and selling of goods and increases the demand for
money as a medium of exchange.
D) increases the buying and selling of goods and decreases the demand for
money as a medium of exchange. - ANSWER-A) increases the buying and selling
of goods and increases the demand for money as a medium of exchange.
7) When the market price of a financial asset ________ its interest rate will
________.
A) falls; rise
B) rises; rise
C) falls; fall
, D) rises; does not change - ANSWER-A) falls; rise
8) Suppose the Fed raises the money supply. Which of the following is true?
A) At the original interest rate, the quantity of money demanded is equal to the
quantity of money supplied.
B) The interest rate must rise for the money market to clear.
C) At the original interest rate, the quantity of money demanded is greater than
the quantity of money supplied.
D) At the original interest rate, the quantity of money demanded is less than the
quantity of money supplied. - ANSWER-D) At the original interest rate, the
quantity of money demanded is less than the quantity of money supplied.
9) All else equal, an increase in the money supply will
A) have no affect on the interest rate.
B) decrease the interest rate.
C) decrease the equilibrium quantity of money in the economy.
D) increase the interest rate. - ANSWER-B) decrease the interest rate.
10) If the Fed FOMC buys Treasury bills through an open market purchase, this
will
A) shift the money supply curve to the left.
B) shift the money supply curve to the right.
C) shift the money demand curve to the right.
D) shift the money demand curve to the left. - ANSWER-B) shift the money supply
curve to the right.
11) 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.
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