question
Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ____. If the economy moves into a recession, the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.
a) the gold standard
b) the monetarist school of thought
c) the taylor rule
d) inflation targeting
a) the gold standard
b) the monetarist school of thought
c) the taylor rule
d) inflation targeting
answer
c) the taylor rule
question
Where does the short run Phillips curve intersect the long run Phillips curve?
a) at the point where the rate of inflation and the unemployment rate are equal
b) at the point where actual inflation is equal to expected inflation
c) at the natural rate of inflation
d) there is no intersection between the short run and long run Phillips curve
a) at the point where the rate of inflation and the unemployment rate are equal
b) at the point where actual inflation is equal to expected inflation
c) at the natural rate of inflation
d) there is no intersection between the short run and long run Phillips curve
answer
b) at the point where actual inflation is equal to expected inflation
question
The key to understanding the short run trade off behind the Phillips curve that an increase in inflation will decrease unemployment if the inflation is ____ by both workers and firms
a) ignored
b) unexpected
c) perfectly predicted
d) expected
a) ignored
b) unexpected
c) perfectly predicted
d) expected
answer
b) unexpected
question
If actual inflation is less than expected inflation, which of the following will be true?
a) real wages will rise
b) real wages will fall
c) the Phillips curve will be a vertical line
d) the unemployment rate will fall
a) real wages will rise
b) real wages will fall
c) the Phillips curve will be a vertical line
d) the unemployment rate will fall
answer
a) real wages will rise
question
Suppose there is a recessionary gap in the economy. Which of the following would be the best response by the Federal Reserve to return the economy to equilibrium?
a) decrease taxes
b) increase government spending
c) open market sale
d) open market purchasee
a) decrease taxes
b) increase government spending
c) open market sale
d) open market purchasee
answer
d) open market purchase
question
The long run Phillips curve is _____ than the short run Phillips curve
a) flatter
b) more volatile
c) less stable
d) steeper
a) flatter
b) more volatile
c) less stable
d) steeper
answer
d) steeper
question
If one US dollar could be exchanged for one Canadian dollar in 1970, and one US dollar can now be exchanged for 1.13 Canadian dollars, which of the following is true?
a) the US dollar lost value against the Canadian dollar
b) the Canadian dollar lost value against the US dollar
c) the Canadian dollar gained value against the US dollar
d) both A and C are true
a) the US dollar lost value against the Canadian dollar
b) the Canadian dollar lost value against the US dollar
c) the Canadian dollar gained value against the US dollar
d) both A and C are true
answer
b) the Canadian dollar lost value against the US dollar
question
If the economy is fallowing below potential real GDP, which of the following would be an appropriate monetary policy to bring the economy back to long run equilibrium? An increase in
a) taxes
b) government purchases
c) oil prices
d) the money supply and a decrease in interest rates
a) taxes
b) government purchases
c) oil prices
d) the money supply and a decrease in interest rates
answer
d) the money supply and a decrease in interest rates
question
Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency
a) are valued inversely relative to the size of its GDP
b) should earn the same real rate of return
c) will equalize nominal interest rates across countries
d) allow one to buy the same amount of goods and services
a) are valued inversely relative to the size of its GDP
b) should earn the same real rate of return
c) will equalize nominal interest rates across countries
d) allow one to buy the same amount of goods and services
answer
d) allow one to buy the same amount of goods and services
question
An increase in the demand for American-made goods in foreign countries will
a) increase the demand for dollars on the foreign exchange market
b) decrease the supply of dollars on the foreign exchange market
c) increase the supply of dollars on the foreign exchange market
d) decrease the demand for dollars on the foreign exchange market
a) increase the demand for dollars on the foreign exchange market
b) decrease the supply of dollars on the foreign exchange market
c) increase the supply of dollars on the foreign exchange market
d) decrease the demand for dollars on the foreign exchange market
answer
a) increase the demand for dollars on the foreign exchange market
question
The price level in the economy between 2007 and 2008 rose from 100 to 105. Between 2008 and 2009, the price level rose from 105 to 110.25. How does the short run Phillips curve predict the unemployment rate will change as a result?
a) the unemployment rate would not change because there is no change in the rate of inflation
b) the unemployment rate will decrease because inflation increased
c) the unemployment rate will decrease because inflation decreased
d) the unemployment rate will increase because inflation increased
a) the unemployment rate would not change because there is no change in the rate of inflation
b) the unemployment rate will decrease because inflation increased
c) the unemployment rate will decrease because inflation decreased
d) the unemployment rate will increase because inflation increased
answer
a) the unemployment rate would not change because there is no change in the rate of inflation
question
If workers and firms know that the Federal Reserve is following and expansionary monetary policy, workers and firms will expect inflation to ____ and will adjust wages so that the real wage _____
a) increases; decreases
b) increase; remains unchanged
c) increase; increases
d) decrease; decreases
a) increases; decreases
b) increase; remains unchanged
c) increase; increases
d) decrease; decreases
answer
b) increase; remains unchanged
question
An expansionary monetary policy in the United States should
a) decrease the dollar price of imports
b) decrease the foreign currency price of US exports
c) decrease net exports
d) cause the dollar to appreciate
a) decrease the dollar price of imports
b) decrease the foreign currency price of US exports
c) decrease net exports
d) cause the dollar to appreciate
answer
b) decrease the foreign currency price of US exports
question
What is the NAIRU?
a) the non-accelerating inflation rate of unemployment
b) the natural acceleration inflation rate of unemployment
c) the non-governmental agency of inflationary rate unions
d) the new accrual index of real unemployment
a) the non-accelerating inflation rate of unemployment
b) the natural acceleration inflation rate of unemployment
c) the non-governmental agency of inflationary rate unions
d) the new accrual index of real unemployment
answer
a) the non-accelerating inflation rate of unemployment
question
Suppose you are negotiating a cost of living raise with your boss. Under which of the following circumstances would you ask for the largest raise?
a) Federal Reserve targets inflation at its current value
b) Federal Reserve policy raises the unemployment rate above the natural rate
c) Federal Reserve policy targets inflation at levels below its current value
d) Federal Reserve policy lowers the unemployment rate below the natural rate
a) Federal Reserve targets inflation at its current value
b) Federal Reserve policy raises the unemployment rate above the natural rate
c) Federal Reserve policy targets inflation at levels below its current value
d) Federal Reserve policy lowers the unemployment rate below the natural rate
answer
d) Federal Reserve policy lowers the unemployment rate below the natural rate
question
An increase in the interest rate should _____ the demand for dollars and value of the dollar, and net exports should _____
a) increase; not change
b) decrease; decrease
c) increase; decrease
d) decrease; increase
a) increase; not change
b) decrease; decrease
c) increase; decrease
d) decrease; increase
answer
c) increase; decrease
question
Suppose you withdraw $500 from your checking account and bury it in a jar in your backyard. If the required reserve ratio is 10%, and banks do not keep any excess reserves, checking account deposits in the banking system could drop by
a) $0
b) $50
c) $500
d) $5000
a) $0
b) $50
c) $500
d) $5000
answer
d) $5000
question
The purchase of $1 million in Treasury securities by the Federal Reserve will result in which of the following
a) increase in the interest rate
b) decrease in the interest rate
c) decrease in the money supply
d) no change in the interest rate
a) increase in the interest rate
b) decrease in the interest rate
c) decrease in the money supply
d) no change in the interest rate
answer
b) decrease in the interest rate
question
Assets
Reserves = $7000
Loans = $46000
Liabilities
Deposits = $50000
Net Worth = $3000
Refer to the chart above. If the required reserve ratio is 10 percent, the bank can make a maximum loan of
a) $2000
b) $5000
c) $6300
d) $45000
Reserves = $7000
Loans = $46000
Liabilities
Deposits = $50000
Net Worth = $3000
Refer to the chart above. If the required reserve ratio is 10 percent, the bank can make a maximum loan of
a) $2000
b) $5000
c) $6300
d) $45000
answer
a) $2000
question
When I save my money in my piggy bank for a year, I am using money as a
a) medium of exchange
b) unit of account
c) store of value
d) standard of deferred payment
a) medium of exchange
b) unit of account
c) store of value
d) standard of deferred payment
answer
c) store of value
question
If the Fed is using policy to combat inflation, what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?
a) demand for the dollar falls and the foreign exchange value of the dollar rises
b) demand for the dollar rises and the foreign exchange value of the dollar falls
c) demand for the dollar rises and the foreign exchange value of the dollar rises
d) demand for the dollar falls and the foreign exchange value of the dollar falls
a) demand for the dollar falls and the foreign exchange value of the dollar rises
b) demand for the dollar rises and the foreign exchange value of the dollar falls
c) demand for the dollar rises and the foreign exchange value of the dollar rises
d) demand for the dollar falls and the foreign exchange value of the dollar falls
answer
c) demand for the dollar rises and the foreign exchange value of the dollar rises
question
In the long run, the Phillips Curve is a ______ at ______
a) vertical line; the expected rate of inflation
b) vertical line; the natural rate of unemployment
c) negatively sloped line; the intersection of aggregate demand and short run aggregate supply
d) horizontal line; 0% inflation
a) vertical line; the expected rate of inflation
b) vertical line; the natural rate of unemployment
c) negatively sloped line; the intersection of aggregate demand and short run aggregate supply
d) horizontal line; 0% inflation
answer
b) vertical line; the natural rate of unemployment
question
What can the Federal Reserve do to reduce the natural rate of unemployment?
a) follow contractionary monetary policy that will increase inflation
b) follow expansionary monetary policy that will reduce inflation
c) follow expansionary monetary policy that will increase inflation
d) nothing
a) follow contractionary monetary policy that will increase inflation
b) follow expansionary monetary policy that will reduce inflation
c) follow expansionary monetary policy that will increase inflation
d) nothing
answer
d) nothing
question
The balance of payments includes which three accounts?
a) the net investment account, the net exports account, and the net transfers account
b) the capital flows account, the financial account, and the trade account
c) the current account, the financial account, an the capital account
d) the balance of trade account, the net foreign investment account, and the statistical discrepancy
a) the net investment account, the net exports account, and the net transfers account
b) the capital flows account, the financial account, and the trade account
c) the current account, the financial account, an the capital account
d) the balance of trade account, the net foreign investment account, and the statistical discrepancy
answer
c) the current account, the financial account, an the capital account
question
Suppose the price of the dollar in pesos changes from 100 pesos to 180 pesos per dollar. Suppose at the same time the price level in the United States falls by 50%. This means that
a) the dollar has appreciated in real terms against the peso
b) the dollar has depreciated in real terms against the peso
c) there has been no change in the value of the dollar against the peso
d) not enough information
a) the dollar has appreciated in real terms against the peso
b) the dollar has depreciated in real terms against the peso
c) there has been no change in the value of the dollar against the peso
d) not enough information
answer
b) the dollar has depreciated in real terms against the peso
question
Suppose that the interest rates in the United States and Canada are equal. If the Fed pursues expansionary monetary policy, which of the following is likely to result?
a) capital inflows to the United States, capital outflows from Canada
b) capital inflows to the United States, capital inflows to Canada
c) capital outflows from the United States, capital inflows to Canada
d) capital outflows from the United States, capital outflows from Canada
a) capital inflows to the United States, capital outflows from Canada
b) capital inflows to the United States, capital inflows to Canada
c) capital outflows from the United States, capital inflows to Canada
d) capital outflows from the United States, capital outflows from Canada
answer
c) capital outflows from the United States, capital inflows to Canada
question
If the dollar appreciates, how will aggregate demand in the United States be affected?
a) aggregate demand will shift to the left as imports increase
b) aggregate demand will shift to the left as exports increase
c) aggregate demand will shift to the right as imports increase
d) aggregate demand will shift to the right as exports increase
a) aggregate demand will shift to the left as imports increase
b) aggregate demand will shift to the left as exports increase
c) aggregate demand will shift to the right as imports increase
d) aggregate demand will shift to the right as exports increase
answer
a) aggregate demand will shift to the left as imports increase
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