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1) In the Keynesian cross diagram, an increase in investment spending because
companies become more optimistic about investment profitability causes the aggregate
demand function to shift ________ and the equilibrium level of aggregate output to
________, everything else held constant
A) up; rise
B) up; fall
C) down; rise
D) down; fall
2) If the Fed decides to reduce bank reserves, it can
A) purchase government bonds
B) extend discount loans to banks
C) sell government bonds
D) print more currency
3) If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is immediate, then the
A) interest rate will fall
B) interest rate will rise
C) interest rate will fall immediately below the initial level when the money supply
grows
D) interest rate will rise immediately above the initial level when the money supply
grows
4) Discovery of new gold in Alaska will ________ the ________ of gold, ________ its
price, everything else held constant
A) increase; demand; increasing
B) decrease; demand; decreasing
C) decrease; supply; increasing
D) increase; supply; decreasing
5) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to depreciate, everything else
held constant
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
6) US Treasury bills pay no interest but are sold at a ________ That is, you will pay a
lower purchase price than the amount you receive at maturity
A) premium
B) collateral
C) default
D) discount
7) High inflation can spiral out of control when
A) expected inflation increases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation
B) expected inflation decreases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation
C) expected inflation increases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation
D) expected inflation decreases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation
8) The European System of Central Banks signals the stance of its monetary policy by
setting a target for the
A) federal funds rate
B) overnight cash rate
C) lombard rate
D) reserve rate
9) The portfolio theories of money demand state that when income (and therefore,
wealth) is higher, the demand for the money asset will ________ and the demand for
real money balances will be ________
A) rise; higher
B) rise; lower
C) fall; higher
D) fall; lower
10) If the dollar appreciates from 15 Brazilian reals per dollar to 20 reals per dollar, the
real depreciates from ________ per real to ________ per real
A) $067; $050
B) $033; $050
C) $075; $050
D) $050; $067
E) $050; $075
11) Under a fixed exchange rate regime, a country that depletes its international
reserves in an attempt to keep its currency from ________ will be forced to ________
its currency
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue
12) Which of the following statements best explains how the use of money in an
economy increases economic efficiency?
A) Money increases economic efficiency because it is costless to produce
B) Money increases economic efficiency because it discourages specialization
C) Money increases economic efficiency because it decreases transactions costs
D) Money cannot have an effect on economic efficiency
13) The real bills doctrine was the guiding principle for the conduct of monetary policy
during the
A) 1910s
B) 1940s
C) 1950s
D) 1960s
14) An increase in the interest rate
A) increases the demand for money
B) increases the quantity of money demanded
C) decreases the demand for money
D) decreases the quantity of money demanded
