Econ #6
If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will: A) Increase the excess reserves of member banks and thus increase the money supply B) Increase the excess reserves of member banks and thus decrease the money supply C) Decrease the excess reserves of member banks and thus decrease the money supply D) Decrease the excess reserves of member banks and thus increase the money supply
C
A decrease in the interest rate will cause a(n): A) Increase in the transactions demand for money B) Decrease in the transactions demand for money C) Decrease in the amount of money held as an asset D) Increase in the amount of money held as an asset
D
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the non-bank public, this action has the potential to increase money supply by a maximum of: A) $16 billion, but only by $14 billion if the securities are purchased directly from commercial banks B) $14 billion, but by $16 billion if the securities are purchased directly from commercial banks C) $16 billion, and also by $16 billion if the securities are purchased directly from commercial banks D) $14 billion, and by $20 billion if the securities are purchased directly from commercial banks
C
According to the Taylor rule, if the inflation rate is one percentage point below the target of 2%, then the Fed should: A) Raise the real federal funds rate by one percentage point B) Lower the real federal funds rate by one percentage point C) Raise the real federal funds rate by half of a percentage point D) Lower the real federal funds rate by half of a percentage point
D
Benefits from international trade are based on the following differences, except: A) In resource endowments B) In technological capabilities C) In product quality and other attributes D) In income levels
D
Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate? A) Buy government securities in the open market and increase taxes B) Buy government securities in the open market and decrease taxes C) Sell government securities in the open market and increase government spending D) Sell government securities in the open market and decrease government spending
D
What policy tool of the Federal Reserve relies on bank borrowing to be effective? A) Open-market operations B) Check collection C) The reserve ratio D) The discount rate
D
When the Fed buys government securities in the open market, it: A) Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate B) Increases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate C) Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus increasing the Federal funds rate D) Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate
D
An increase in nominal GDP will: A) Increase the transactions demand and the total demand for money B) Decrease the transactions demand and the total demand for money C) Increase the transactions demand for money but decrease the total demand for money D) Decrease the transactions demand for money but increase the total demand for money
A
Refer to the figure above. Which change would be consistent with an attempt by the Federal Reserve to rein in inflation? A) Shifting Sf1 to Sf2 B) Shifting Sf4 to Sf3 C) Shifting Sf3 to Sf1 D) Shifting Sf4 to Sf2
A
Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below. Refer to the graphs and information above. It can be deduced that: A) Greece has a comparative advantage in chemicals B) Greece has the absolute advantage in both products C) Italy has a comparative advantage in chemicals D) It is more costly in terms of resources to produce steel in Italy
A
Adam Smith recognized the benefits from trade based on ____, and David Ricardo recognized the benefits from trade based on ____: A) Comparative advantage; resource endowments B) Absolute advantage; comparative advantage C) Absolute advantage; resource endowments D) Comparative advantage; absolute advantage
B
Compared to fiscal policy, monetary policy has a much shorter: A) Recognition lag B) Administrative lag C) Operational lag D) Effects lag
B
The interest rate that banks charge one another for the loan of excess reserves is the: A) Prime interest rate B) Federal funds rate C) Discount rate D) Interest on reserves
B
The transactions demand for money will shift to the: A) Left when nominal GDP increases B) Left when nominal GDP decreases C) Right when nominal GDP decreases D) Right when the interest rate increases
B
An increase in the money supply, ceteris paribus, usually: A) Increases the interest rate and increases aggregate demand B) Increases the interest rate and decreases aggregate demand C) Decreases the interest rate and increases aggregate demand D) Decreases the interest rate and decreases aggregate demand
C
Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be: A) $125 B) $175 C) $200 D) $225
C
Specialization and trade based on comparative advantage allow nations to attain the following results, except: A) Higher combined output B) Higher consumption and standard of living C) Rising total employment D) Consuming combinations of products that are outside their PPCs
C
The principle of comparative advantage indicates that mutually beneficial international trade can take place only when: A) Tariffs are eliminated B) Transportation costs are almost zero C) Relative costs of production differ between nations D) A country can produce more of some product than other nations can
C
An increase in the money supply is likely to reduce: A) The general price level B) Nominal income C) Money demand D) Interest rates
D
