AP Econ Unit 4
10. The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by (A) a decrease in taxes (B) a decrease in the money supply (C) an increase in government spending (D) an increase in consumption spending (E) an increase in the price level
B
A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent, the bank's excess reserves equal (A) $10 million (B) $20 million (C) $80 million (D) $100 milion (E) $200 milion
B
A barter economy is different from a money economy in that a barter economy (A) encourages specialization and division of labor (B) involves higher costs for each transaction (C) eliminates the need for a double coincidence of wants (D) has only a few assets that serve as a medium of exchange (E) promotes market exchanges
B
A commercial bank's ability to create money depends on which of the following? (A)The existence of a central bank (B) A fractional reserve banking system (C) Gold or silver reserves backing up the currency (D) A large national debt (E) The existence of both checking accounts and savings accounts
B
All of the following are components of the money supply EXCEPT (A) paper money (B) gold bullion (C) checkable deposits (D) coins (E) demand deposits
B
An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run? Nominal Interest Rates / Bond Prices (A) Increase / No change (B) Increase / Decrease (C) No change / Increase (D) Decrease/ increase (E) Decrease / Decrease
B
An increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output? (A) Decrease Decrease (B) Decrease increase (C) Increase Decrease (D) Increase No change (E) No change Increase
B
An increase in the price level will most likely cause which of the following? (A) A leftward shift of the aggregate demand curve (B) An increase in the demand for money (C) An increase in the real interest rate (D) A decrease in the nominal interest rate (E) An increase in the supply of money
B
A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is Assets: Total Reserves: $15,000 Securities:70,000 Loan:15,000 Liabilities: Demand Deposits; $100,000 (A) $15,000 (B) $12,000 (C) $3,000 (D) $1,800 (E) 0
C
According to both monetarists and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate? (A) the demand for money decreases and market interest rates decrease (B) the demand for money increases and market interest rates increase (C) the supply of money increases and market interest rates decrease (D) the supply of money increases and market interest rates increase (E) both the demand for money and the supply of money increase and market interest rates increase
C
A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run? Nominal Interest Rate / Aggregate Demand (A) Increase / Decrease (B) Increase / increase (C) Increase / Not change (D) Decrease / Decrease (E) Decrease / increase
A
According to the Keynesian model, which of the following would increase aggregate demand? (A) An increase in autonomous investment (B) An increase in the discount rate M. (C) A decrease in unemployment compensation payments (D) A decrease in government expenditures accompanied by an equal reduction in taxes (E) A decrease in government expenditures on public works
A
An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways? Demand for Money/Nominal Interest Rates (A) Increase / Increase (B) Increase / Decrease (C) Increase / Indeterminate (D) Decrease / Increase (E) Decrease / Decrease
A
If aggregate demand is growing faster than long run aggregate supply, the Federal Reserve is most likely to (A) sell securities on the open market (B) increase bond prices (C) increase income taxes (D) decrease the discount rate (E) decrease the required reserve ratio
A
If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease? (A) Purchases of government bonds by the central bank (B) Transfer payments (C) Reserve requirements (D) Government expenditures (E) Investment in basic infrastructure
A
If money stock decreases but nominal gross domestic product remains constant, which of the following has occurred? (A) Income velocity of money has increased. (B) Income velocity of money has decreased. (C) Price level has increased. (D) Price level has decreased. (E) Real output has decreased.
A
If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should (A) increase the money supply when government spending is increased (B) increase the money supply when government spending is decreased (C) decrease the money supply when government spending is increased (D)increase interest rates when government spending is increased (E) decrease interest rates when government spending is decreased
A
If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production? (A) Government spending increases. (B) Government spending decreases. (C) Personal income taxes are increased. (D) The Federal Reserve sells bonds on the open market. (E) The Federal Reserve buys bonds on the open market.
A
If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will lead to a proportional (A) an increase in the nominal output (B) decrease in the price level (C) decrease in the nominal interest rate (D)decrease in the real interest rate (E) decrease in the unemployment rate.
A
In the Keynesian model, an expansionary monetary policy will lead to (A) lower real interest rates and more investment (B) lower real interest rates and lower prices (C) higher real interest rates and lower prices (D) higher real interest rates and higher real income (E) higher nominal interest rates and more investment
A
In the narrowest definition of money, M1, savings accounts are excluded because they are (A) not a medium of exchange (B) not insured by federal deposit insurance (C) available from financial institutions other than banks (D) a store of purchasing power (E) interest-paying accounts
A
The Federal Reserve can cause an increase in interest rates in an attempt to (A) reduce inflation (B) reduce cyclical unemployment (C) reduce structural unemployment (D) increase aggregate demand (E) increase investment spending
A
The demand for money increases when national income increases because (A) spending on goods and services increases (B) interest rates increase (C) the budget deficit increases (D) the money supply increases (E) the public becomes more optimistic about the future
A
Under a fractional reserve banking system, banks are required to (A) keep part of their demand deposits as reserves (B) expand the money supply when requested by the central bank (C) insure their deposits against losses and bank runs (D) pay a fraction of their interest income in taxes (E) charge the same interest rate on all their loans
A
Under which of the following conditions would a restrictive monetary policy be most appropriate? (A) High inflation (B) High unemployment (C) Full employment with stable prices (D) Low interest rates (E) A budget deficit
A
When the federal Reserve buys government securities on the open market, which of the following will decrease in the short run? (A) Interest rates (B) Taxes (C) investment (D) The account of money loaned by banks (E) The money supply
A
Which of the following actions by the Federal Reserve of the United States increases the money supply? (A) Buying government bonds on the open market (B) Selling government bonds on the open market (C) Increasing the reserve requirement (D) increasing the discount rate (E) Increasing the federal funds rate
A
Which of the following is most likely to increase if the public decides to increase its holdings of currency? (A) the interest rate (B) the price level (C) disposable personal income (D) employment (E) the reserve requirement
A
Which of the following most undermines the ability of a nation's currency to store value? (A) A decrease in the purchasing power of the currency (B) The use of credit and debit cards as mediums of exchange (C) An increase in the prices of federal bonds (D) Appreciation of the currency in the international money market (E) An increase in the supply of foreign currencies in the international money market
A
Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy? (A) Interest rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease. (B) Interest rates increase, investment and consumption spending decrease, aggregate demand increases, and output and prices decrease. (C) Interest rates increase, investment and consumption spending increase, aggregate demand decreases, and output and prices decrease. (D) Interest rates decrease, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease. (E) Interest rates decrease, investment and consumption spending decrease, aggregate demand decreases, and output and prices increase.
A
Assume that the economy is in equilibrium. If AD increases, nominal interest rates and bond prices will most likely change in which of the following ways? Nominal Interest Rates Bond Prices (A) Increase increase (B) Increase Decrease (C) Increase No change (D) Decrease increase (E) Decrease Decrease
B
Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of (A) $800 (B) $900 (C) $1,000 (D) $1,100 (E) $1,200
B
Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet? Liabilities/Required Reserves (A) Increase by $200/Increase by $170 (B) Increase by $200/increase by $30 (C) increase by $200/Not change (D) Decrease by $200/Decrease by $30 (E) decrease by $200/Decrease by $170
B
Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A$1 million increase in new reserves will result in (A) an increase in the money supply of $5 million (B) an increase in the money supply of less than $5 million (C) a decrease in the money supply of $1 million (D) a decrease in the money supply of $5 million (E) a decrease in the money supply of more than $5 million
B
Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is (A) $2,000 (B) $8,000 (C) $10,000 (D) $20,000 (E) $50,000
B
If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be (A) 5% B) 15% (C) 25% (D) 35% (E) 45%
B
Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true? (A) The borrower would benefit. (B) The lender would benefit. (C) The real interest rate would be lower than expected. (D) The nominal interest rate would be higher than expected. (E) The nominal interest rate would increase.
B
Of the following, the most liquid asset is (A) mutual funds (B) currency (C) time deposits (D) demand deposits (E) savings deposits
B
Suppose the required reserve ration is 20 percent and a single bank with no excess reserves receives a $100 deposit from a new customer. The bank now has excess reserves equal to (A) $20 (B) $80 (C) $100 (D) $400 (E) $500
B
If the reserve requirement is 20 percent, the existence of $100 worth of excess reserves in the banking system can lead to a maximum expansion of the money supply equal to (A) $20 (B) $100 (C) $300 (D) $500 (E) $750
D
The federal funds rate is the interest rate that (A) the Federal Reserve charges the federal government on its loans (B) banks charge one another for short-term loans (C) banks charge their best customers (D) equalizes the yield on government bonds and corporate bonds (E) is equal to the inflation rate
B
Under which of the following circumstances would increasing the money supply be most effective in increasing real gross domestic product? Interest Rates/Employment/Business Optimism (A) high/full/high (B) high/less than full/high (C) low/full/high (D) low/full/low (E) low/less than full/low
B
Which of the following constitutes the largest component of the United States money supply (M1)? (A) Silver certificates (B) Checkable deposits (demand deposits) (C) Currency (paper money) (D) Coins (E) Large certificates of deposit
B
Which of the following is true of the quantity of money demanded? (A) It rises when interest rates rise, because the return from holding money increases (B) It falls when interest rates rise, because the opportunity cost of holding money increases (C) It remains constant when interest rates rise, as long as inflation remains constant eases (D) it rises when interest rates rise, as long as inflation is declining. (E) It falls when the money supply increases, as long as inflation remains constant
B
Which of the following policy combinations is most likely to cure a severe recession? Open-Market Operations/Taxes/Government Spending (A) Buy securities/Increase/Decrease (B) Buy securities/Decrease/increase (C) Buy securities/Decrease/Decrease (D) Sell securities/Decrease/Decrease (E) Sell securities/Increase/increase
B
Which of the following will cause an increase in aggregate demand? (A) An increase in the price level (B) A decrease in income taxes (C) An increase in the demand for money (D) A decrease in the supply of money (E) A decrease in government transfer payments
B
Which of the following would be included as a liability on a commercial bank's balance sheet? (A) Consumer loans (B) Demand deposits (C) Net worth (D) Bank reserves (E) Treasury bonds
B
All of the following changes will shift the investment demand curve to the right EXCEPT (A) a decrease in the corporate income tax rate (B) an increase in the productivity of new capital goods (C) an increase in the real interest rate (D) an increase in corporate profits (E) an increase in real gross domestic product
C
An inflationary gap could be reduced by (A) an increase in government spending (B) an increase in the supply of money (C) an increase in the income tax rate (D) a decrease in the discount rate (E) a decrease in the reserve requirement
C
Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run? Interest Rates / Investment (A) Increase / Increase (B) Increase / Decrease (C) Decrease / Increase (D) Decrease / Decrease (E) No change / Increase
C
If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to (A) pursue an expansionary monetary policy because it is required to do so by law whenever output is below the full employment level (B) pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the full-employment level (C) lower the discount rate and buy bonds on the open market to generate an increase in output (D) lower the discount rate and sell bonds on the open market to generate an increase in output (E) raise the discount rate and lower the required reserve ratio to generate an increase in output
C
If nominal gross domestic product in a country is $1,600 and the money supply is $400, what is the velocity of money? (A) 400 (B) 10 (C) 4 (D) 2 (E) 0.5
C
If the economy is in a severe recession, which of the following policy actions is most appropriate? (A) Keeping the money supply constant and reducing budget deficits (B) Decreasing government spending and taxes by the same amount (C) Increasing both the money supply and government spending (D) Increasing both the federal funds rate and taxes (E) Decreasing the money supply and increasing taxes
C
If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of (A) the unemployment rate (B) real output (C) the price level (D) nominal interest rates (E) real interest rates
C
In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations? Bond Prices/Interest Rates (A) No change / Increase (B) Increase / Increase (C) Increase / Decrease (D)Decrease / Increase (E) Decrease / Decrease
C
Open market operations refer to which of the following activities? (A) The buying and selling of stocks in the New York stock market (B) The loans made by the Federal Reserve to member commercial banks (C) The buying and selling of government securities by the Federal Reserve (D) The government's purchases and sales of municipal bonds (E) The government's contribution to net exports
C
Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be (A) $10 (B) $100 (C) $900 (D) $1,000 (E) $1,100
C
Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money Supply is (A) $1,600 billion (B) $1,800 billion (C) $2,000 billion (D) $2,200 billion (E) $2,400 billion
C
The Federal Reserve can increase the money supply by (A) selling gold reserves to the banks (B) selling foreign currency holdings (C) buying government bonds on the open market (D) buying gold from foreign central banks (E) borrowing reserves from foreign governments
C
The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when (A) interest rates are high (B) the velocity of money is rising (C) people hold a portion of their money in the form of currency (D) the unemployment rate is low (E) the government's budget is in deficit
C
The real value of the United States dollar is determined by (A) federal regulations regarding purchasing power (B) the value of the gold backing the dollar (C) the goods and services it will buy (D) the money multiplier (E) the marginal propensity to consume
C
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes? (A) Transactions (B) Unforeseen expenditures (C) Speculation (D) Illiquidity (E) Exchange
C
Which of the following government policies can reduce the rate of inflation in short run? (A) Providing investment tax credits for businesses (B) Reducing personal income tax rates (C) Selling bonds on the open market (D) Decreasing the reserve requirement (E) Decreasing the discount rate
C
Which of the following is NOT a function of flat money? (A) A standard of deferred payment (B) A unit of account (C) A Source of intrinsic value (D) A store of value (E) A medium of exchange
C
Which of the following is most likely to occur when the Fed buys government bonds on the open market? (A) The demand for money will decrease (B) The government's debt will decrease (C) Interest rates will decrease (D) The discount rate will increase (E) Investment demand will decrease
C
Which of the following most likely occur in an economy if more money is demanded than is supplied? (A) The amount of investment spending will increase. (B) Interest rates will decrease, (C) Interest rates will increase. (D) The demand for money will shift to the left. (E) The demand curve for money will shift to the right.
C
Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? (A) An open-market purchase of government securities by the central bank and a decrease in the the federal funds rate (B) An open-market sale of government securities by the central bank and an increase in the federal funds rate (C) A decrease in taxes and an open-market purchase of government securities by the central bank (D) An increase in government spending and an open-market sale of government securities by the central bank (E) An increase in taxes and an increase in the federal funds rate
C
Which of the following policy choices represents a combination of fiscal and monetary policies designed to bring the economy out of a recession? (A) Decreasing both taxes and the money supply (B) Increasing both taxes and the money supply (C) Increasing government spending and decreasing the federal funds rate (D) Increasing both taxes and the discount rate (E) Engaging in deficit spending and government bond sales
C
Which of the following will lead to an increase in the money supply? (A) A decrease in income tax rates (B) A decrease in government spending (C) Open-market purchase of securities by the central bank (D) increased borrowing by the federal government by issuing new bonds (E) An increase in the discount rate
C
An increase in the money supply will have the greatest effect on real GDP if (A) the marginal propensity to consume is low (B) unemployment is very low (C) investment spending is not sensitive to interest rates (D) the quantity of money demanded is not very sensitive to interest rates E) the required reserve ratio is high
D
Assume that the reserve requirement for demand deposits is 20 percent, that the banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will A) increase by $10,000 B) increase by $50,000 C) decrease by $10,000 D) decrease by $50,000 E) not change
D
BANK A Assets/ Liabilities Actual reserves $1,000/ Demand deposits $5,000 Loans $4,000 BANK B Assets/ Liabilities Actual reserves $100/ Demand deposits $600 Loans $500 BANK C. Assets/ Liabilities Actual reserves $10/ Demand deposits $100 Loans $90 Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent? (A) Bank A has no excess reserves. (B) Bank B has no excess reserves. (C) Bank B can increase its loans by $500. (D) Bank B can increase its loans by $40. (E) Bank C has excess reserves.
D
If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following? (A) Slow economic growth (B) An appreciating domestic currency (C) Rising unemployment (D) Rising price levels (E) Rising imports and declining exports
D
If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000? (A) $100,000 (B) $90,333 (C) $10,000 (D) $9,000 (E) $1,000
D
If the Fed pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run? Output Price Level (A) Increase increase (B) Increase No change (C) Increase Decrease (D) Decrease Decrease (E) Decrease increase
D
If the Federal Reserve institutes a policy to reduce inflation, which of the following is most likely to increase? (A) Tax rates (B) Investment (C) Government spending (D) Interest rates (E) Gross domestic product
D
If the Federal Reserve lowers the reserve requirement, which of the following would most likely occur? (A) Imports will rise, decreasing the trade deficit. (B) The rate of saving will increase. (C) Unemployment and inflation will both increase. (D) Businesses will purchase more factories and equipment. (E) The budget deficit will increase.
D
If the annual interest rate is 5 percent, then the present value of $1.00 received one year from now is closest to (A) $1.50 (B) $1.05 (C) $1.00 (D) $0.95 (E) $0.05
D
If the required reserve ratio is 10 percent, required reserves are $10 million, and currency in circulation is equal to $20 million, M One will at most be equal to A) $20 million B) $30 million C) $90 million D) $120 million E) $150 million
D
In the long run, an increase in aggregate demand due to an expansion in the money supply will increase A) price level and real output B) nominal output and real output C) nominal output but not the price level D) nominal output and the price level E) real output but not the price level
D
Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run? (A) Gross domestic product (B) The labor force participation rate (C) The price level (D) Unemployment (E) Wage levels
D
Suppose that the Fed is committed to keeping the nominal interest rate fixed. To maintain the interest rate target in the face of an expansionary fiscal policy, the Fed can do which of the following? (A) increase the prime rate (B) Increase the discount rate (C) Increase the federal funds rate (D) Engage in open-market purchases (E) Engage in open-market sales
D
The money demanded for the purpose of purchasing goods and services is known as (A) an asset demand (B) a derived demand (C) excess reserves (D) a transactions demand (E) balance of payments
D
The transaction demand for money is very closely associated with money's use as a (A) store of value (B) standard unit of account (C) measure of value (D) medium of exchange (E) standard of deferred payment
D
When a central bank sells securities in the open market, which of the following set of events is most likely to follow? (A) An increase in the money supply, a decrease in interest rates, and an increase in aggregate demand (B) An increase in the money supply, an increase in interest rates, and a decrease in aggregate demand (C) An increase in interest rates, and increase in the government budget deficit, and a movement toward trade surplus (D) A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand for (E) A decrease in the money supply, a decrease in interest rates, and a decrease in aggregate demand
D
When an economy is operating below the full- employment level of output, an appropriate monetary policy would be to increase which of the following? (A) The discount rate (B) The required reserve ratio (C) The international value of the dollar (D) Open market purchases of government bonds (E) Government expenditure on goods and services
D
When the central bank sells government bonds on the open market, which of the following will most likely increase? (A) Bank reserves (B) Price of bonds (C) Money supply (D) Nominal interest rates (E) The required reserve ratio
D
Which Federal Reserve action can shift the aggregate demand curve to the left? (A) Lowering the federal funds rate (B) Lowering income taxes (C) Lowering reserve requirements (D) Raising the discount rate (E) Raising government spending on national defense
D
Which of the following actions by the Fed reduces the ability of the banking system to create money? (A) Decreasing the federal funds rate (B) Decreasing the discount rate (C) Increasing the money supply (D) Increasing the reserve requirement (E) Buying government bonds on the open market
D
Which of the following combinations of economic policies would be most effective to correct a severe recession? Taxes / Money Supply (A) Increase / Increase (B) Increase / Decrease (C) Increase / No change (D) Decrease / Increase (E) Decrease / Decrease
D
Which of the following could cause simultaneous increases in inflation and unemployment? (A) A decrease in government spending (B) A decrease in the money supply (C) A decrease in the velocity of money (D) An increase in inflationary expectations (E) An increase in the overall level of productivity
D
Which of the following monetary and fiscal policy combinations would most likely result in a decrease in aggregate demand? Discount Rate/Open-Market Operations/Government Spending (A)Lower/Buy bonds/Increase (B) Lower/Buy bonds/Decrease (C) Raise/Sell bonds/Increase (D) Raise/Buy bonds/Increase (E) Raise/Sell bonds/Decrease
D
Which of the following will lead to a decrease in a nation's money supply? (A) A decrease in income tax rates (B) A decrease in the discount rate (C) An open market purchase of government securities by the central bank (D) An increase in reserve requirements (E) An increase in government expenditures on goods and services
D
With an upward-sloping aggregate supply curve, an increase in the money supply will affect the price level and real gross domestic product (GDP) in the short run in which of the following ways? Price Level / Real GDP (A) Decrease / Decrease (B) Decrease / Increase (C) Increase / Decrease (D) Increase / Increase (E) No change / No change
D
Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will (A) decrease by more than half (B) decrease by half (C) decrease by less than half (D) exactly double (E) increase by less than double
E
Commercial banks can create money by (A) transferring depositors' accounts at the Federal Reserve for conversion to cash (B) buying Treasury bills from the Federal Reserve (C) sending vault cash to the Federal Reserve (D)maintaining a 100 percent reserve requirement (E) lending excess reserves to customers
E
During a mild recession, if policy makers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate? (A) Equal increases in government expenditure and taxes (B) An increase in government expenditure only (C) an increase in transfer payments (D) an increase in the reserve requirement (E) purchase of government securities by the Federal Reserve
E
Expansionary monetary policy can affect the economy through which of the following chains of events? (A) increasing the discount rate lowers the real interest rate, which raises investment. (B) Reducing taxes lowers the discount rate, which raises consumption. (C) Increasing government expenditures lowers the interest rate, which raises investment. (D) Increasing the reserve requirement decreases the interest rate, which increases investment (E) Buying bonds increases the money supply, which lowers the interest rate.
E
The required reserve ratio is 0.2 and the Fed sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply? (A) An increase of $1 million (B) An increase of $1.2 million (C) An increase of $5 million (D) A decrease of $1.2 million (E) A decrease of $5 million
E
For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply? Unemployment Rate/ Inflation Rate (A) 10% / 2% (B) 10% / 5% (C) 10% / 10% (D) 5% / 5% (E) 5% / 10%
E
If an economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in (A) the velocity of money (B) real output (C) interest rates (D) unemployment (E) the price level
E
If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways? Money Multiplier / Money Supply (A) Increase / Increase (B) Increase / Decrease (C) Increase / No change (D) Decrease / No change (È) Decrease / Decrease
E
If the public's desire to hold money as currency increases, what will the impact be on the banking system? (A) Banks would be more able to reduce unemployment. (B) Banks would be more able to decrease aggregate supply. (C) Banks would be less able to decrease aggregate supply. (D) Banks would be more able to expand credit. (E) Banks would be less able to expand credit.
E
If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds on the open market, the money supply will (A) increase by a maximum of $9,000 (B) increase by a maximum of $90,000 (C) decrease by a maximum of $9,000 (D) decrease by a maximum of $10,000 (E) decrease by a maximum of $100,000
E
In the short run, an expansionary monetary policy Would most likely result in which of the following changes in the price level and real gross domestic product (GDP) ? Price Level/ Real GDP (A) Decrease / increase (B) No change/Decrease (C) Increase/ No change (D) Increase/ Decrease (E) Increase/ Increase
E
One way in which the Federal Reserve works to change the United States money supply is by changing the (A) number of banks in operation (B) velocity of money (C) price level (D) prime rate (E) discount rate
E
Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. The combined actions will result in (A) an increase in unemployment and a decrease in the interest rate (B) an increase in unemployment and an increase in the interest rate (C) an increase in the real gross domestic product and a decrease in the interest rate (D) an increase in the real gross domestic product and an increase in the interest rate (E) an increase in the real gross domestic product and an indeterminate change in the interest rate
E
The Federal Reserve decreases the federal funds rate by (1 point) O (A) decreasing the reserve requirement 0 (B) decreasing the discount rate 0 (C) increasing the discount rate O (D) selling government bonds on ihe open market 0 (E) buying government bonds on the open market e
E
Which of the following is a determinant of the amount of money the commercial banking system can create? (A) The marginal propensity to consume (B) The marginal propensity to save (C) The total number of banks (D) The size of the federal debt (E) The reserve requirement
E
Which of the following is true of the opportunity cost of holding cash? (A) It is zero. (B) It is represented by the value of the dollar. (C) It is equal to the price level. (D) It decreases as the price level rises. (E) It increases as the interest rate rises.
E
Which of the following would most likely cause the United States economy to fall into a recession? (A) An increase in welfare payments (B) An increase in exports (C) A decrease in savings by consumers (D) A decrease in the required reserve ratio (E) An open market sale by the Federal Reserve
E
With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate Quantity of Money (A) Increase Decrease (B) Increase Not change (C) Decrease Decrease (D) Decrease increase (E) Decrease Not change
E
Which of the following will lower the prices of a country's outstanding government bonds? (1 point) a 0 (A) An open-market purchase of government bonds by the country's central bank T Bond V J O (B) A decrease in the required reserve ratio for the country's commercial banks AAST/ fy 'L NO) An outflow of financial capital to other countries (D) A decrease in the country's government spending C DLA "SE 0 (E) A decrease in inflationary expectations in the country as IX
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