Money and Banking
Chapter Exam Questions
Course Introduction
This course explores the fundamental principles of money, financial institutions, and banking systems within modern economies. Students examine the creation and management of money, the role of central banks, and the mechanics of monetary policy. The course analyzes how banks operate as financial intermediaries, the process of money supply expansion, and the impact of interest rates on economic activity. Attention is also given to contemporary issues such as digital currencies, banking regulation, and the effects of global financial crises. Through case studies and real-world examples, students develop an understanding of the complexities of the monetary and banking sectors and their significance in shaping economic outcomes.
Recommended Textbook
Macroeconomics 10th Edition by William Boyes
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Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) Which of the following sayings best represents the concept of opportunity costs?
A) "A glass can be half empty or half full."
B) "When in Rome, do as the Romans do."
C) "There is no such thing as a free lunch."
D) "No taxation without representation."
E) "What's up?"
Answer: C
Q2) Ronnie waits one hour in queue to buy a ticket to a rock concert. The opportunity cost of buying the $28 ticket:
A) is Ronnie's best alternative use of the sum of $28 spent on the ticket.
B) is Ronnie's best alternative use of the one hour it took to wait in queue.
C) is the revenue of $28 earned by the ticket agent.
D) is Ronnie's best alternative use of both $28 and the one hour spent in the queue.
E) cannot be measured because there is no opportunity cost associated with consumption.
Answer: D
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Chapter 2: Scarcity and Opportunity Costs
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Q1) Suppose a society begins by producing 3 units of X and 4 units of Y and then alters production to 4 units of X and 4 units of Y. If the quantity and quality of resources and the technology being used remain unchanged, then:
A) 3 units of X and 4 units of Y are a combination best represented by a point inside the production possibilities curve [PPC].
B) we can conclude that the society has moved along the PPC.
C) we can conclude that resources were being fully utilized at 3 units of X and 4 units of Y.
D) we can conclude that resources were being efficiently utilized at 3 units of X and 4 units of Y.
E) 3 units of X and 4 units of Y are a combination best represented by a point outside the PPC.
Answer: A
Q2) If an economy is operating at a point outside the PPC, either the society has resources that are not being fully used or production is not efficient.
A)True
B)False
Answer: False
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Chapter 3: The Market and Price System
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Sample Questions
Q1) Refer to Table 3.5. If government imposes a price ceiling of $4:
A) the price ceiling will not have an effect.
B) the price will fall to $1 because producers will be forced to incur losses.
C) demand will increase.
D) a surplus will result equal to 20 units.
E) a shortage will result equal to 20 units.
Answer: A
Q2) An example of barter is voluntary work at an old-age home.
A)True
B)False
Answer: False
Q3) Assume that at the current market price of $4 per unit of a good, you are willing and able to buy 20 units. Last year at a price of $4 per unit, you would have purchased 30 units. What is most likely to have happened over the last year?
A) Demand has increased
B) Demand has decreased
C) Supply has increased
D) Supply has decreased
E) Quantity supplied has decreased
Answer: B
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) Annual expenditures by the federal government exhibited an upward trend, rising from $3 billion in 1930 to more than $1 trillion in 2010.
A)True
B)False
Q2) The owner of a sole proprietorship has limited liability, while stockholders of corporations have unlimited liability.
A)True
B)False
Q3) A financial intermediary accepts deposits from savers and makes loans to borrowers.
A)True
B)False
Q4) A surplus in a country's trade balance means that:
A) its net exports exceed transfer payments.
B) the country's currency is over-valued.
C) the value of its net exports is positive.
D) imports into the country exceed exports.
E) domestic savings exceeds domestic investment.
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Chapter 5: National Income Accounting
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Q1) The market basket of goods and services used to calculate the consumer price index [CPI] by the Department of Labor in the U.S. changes only every two years.
A)True
B)False
Q2) The output produced by domestically owned firms in foreign countries is included in the U.S. GDP but not in the U.S. GNP.
A)True
B)False
Q3) National income accounting can best be characterized as:
A) a set of rules used to summarize economic activity over a given period of time.
B) a method for comparing different political systems.
C) a microeconomic model of the economy used by the Federal Reserve bank.
D) a statistical measure of the income received by consumers as opposed to businesses.
E) a standardized economic report authored by politicians.
Q4) A price index is a measure of the average level of prices in an economy.
A)True
B)False
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Chapter 6: An Introduction to the Foreign Exchapterange
Market and the Balance of Payments
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Q1) Assume that the exchange rate moves from $1 = 1.2 to $1 = 0.97. This change in exchange rate indicates that:
A) the euro has depreciated in value.
B) the price of a holiday in Europe has become less expensive for U.S. residents.
C) the U.S. dollar price of European chocolate has fallen.
D) the U.S. dollar has appreciated in value.
E) the euro has appreciated in value.
Q2) The traders in the foreign exchange market need to interact personally while exchanging currencies.
A)True
B)False
Q3) A deficit in a country's current account means that:
A) the country is running a net deficit in its financial account.
B) the country is a net lender to the rest of the world.
C) the country is running a net surplus in its financial account.
D) the country will have a positive value of net exports.
E) the domestic production is in excess of domestic spending.
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Chapter 7: Unemployment and Inflation
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Q1) Refer to the data in Scenario 7.2. What is the predicted unemployment rate in the United States for the year 2020?
A) 6.8 percent
B) 8.3 percent
C) 11.5 percent
D) 12.3 percent
E) 16.5 percent
Q2) Refer to Scenario 7.1. According to the data provided, the number of workers officially unemployed is:
A) 122.
B) 36.
C) 40.
D) 21.
E) 55.
Q3) Other things equal, the equation for the real interest rate indicates that:
A) as inflation increases, the real interest rate will rise.
B) as inflation increases, the nominal interest rate will fall.
C) as inflation decreases, real income will fall.
D) as inflation decreases, the real interest rate will rise.
E) as inflation changes, the real interest rate will not change.
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Chapter 8: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) The purchase of fifty new food-processing machines by the Campbell Soup Corporation would be classified as investment spending.
A)True
B)False
Q2) The slope of the aggregate supply curve becomes steeper, the faster the costs of production adjust to prices and the smaller the amount of excess capacity in the economy.
A)True
B)False
Q3) In 2009, a nation reported total imports worth $250,000 and total exports worth $225,000. This implies the nation had net exports worth $25,000 during this year.
A)True
B)False
Q4) The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.
A)True
B)False
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Chapter 9: Aggregate Expenditures
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Q1) If it is assumed that there are absolutely no taxes in an economy, then aggregate consumption will be drawn as a function of:
A) disposable income.
B) real GDP.
C) government expenditure.
D) private income.
E) government transfers.
Q2) The consumer confidence index can be defined as:
A) an economic index that measures how consumers feel about their government.
B) an economic index that measures how confident companies are about keeping their current consumers.
C) an economic index that measures household expectations about the economy.
D) an economic index that measures how investors feel about their investments in the stock market.
E) an economic index used to measure consumers' confidence on a particular brand.
Q3) Dissaving occurs when the consumption function lies below the 45-degree line.
A)True
B)False
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11
Chapter 10: Income and Expenditures Equilibrium
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Q1) Refer to Figure 10.2. Suppose that I+G+EX equals $20 and the economy is in equilibrium. What is the amount of saving when T = $0 and M = $5 at the equilibrium level?
A) $0
B) $10
C) $15
D) $20
E) $25
Q2) A decrease in the general price level is associated with an upward shift in the aggregate expenditures function.
A)True
B)False
Q3) Which of the following is true at the equilibrium level of income?
A) Unplanned inventory changes are positive.
B) Firms are unable to produce the desired rate of output.
C) Autonomous consumption spending is equal to induced consumption spending.
D) Aggregate expenditures equal real GDP.
E) Unplanned investment spending is positive.
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) A(n) _____ is an indirect tax imposed on each sale at each stage of production.
A) personal tax
B) value-added tax
C) excise duty
D) sales tax
E) ad-valorem tax
Q2) Suppose an economy is in equilibrium. Also suppose that consumer expectations change as the threat of war increases the likelihood of an increase in taxes. This would result in:
A) an increase in equilibrium income.
B) no change in equilibrium income.
C) a downward shift of the aggregate supply curve.
D) a decrease in equilibrium income.
E) a change in the slope of the aggregate supply curve.
Q3) Increased domestic imports and higher international trade deficits are possible results of government surpluses.
A)True
B)False
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Chapter 12: Money and Banking
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Q1) Currency includes coins and paper money in circulation and stored in the federal reserve vaults.
A)True
B)False
Q2) Refer to Table 12.2. If excess reserves equal $2,000, what must the reserve requirement be equal to?
A) 3 percent
B) 10 percent
C) 15 percent
D) 20 percent
E) 25 percent
Q3) The maximum money that can be created by the entire banking system is equal to a multiple of its excess reserves.
A)True
B)False
Q4) Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.
A)True
B)False
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Chapter 13: Monetary Policy
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Sample Questions
Q1) The Board of Governors of the Federal Reserve is:
A) appointed by the president, and each governor serves a 7-year term.
B) appointed by the president, and each governor serves a 14-year term.
C) elected by Congress, and each governor serves a 10-year term.
D) elected by Congress, and each governor serves a 4-year term.
E) elected by Congress, and each governor serves a 7-year term
Q2) Refer to Table 13.2 and calculate the legal reserves of the bank.
A) $425
B) $5,450
C) $1,725
D) $2,150
E) $1,500
Q3) Refer to Table 13.2. Calculate the change in the bank's excess reserves if the reserve requirement is decreased from 10% to 5%.
A) +$272.5
B) +$236
C) -$2,360
D) -$1877.5
E) -$3,210
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Page 15
Chapter 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
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Q1) Which of the following would not be considered a real variable in determining a real business cycle?
A) A change in technology
B) A labor strike
C) An increase in the money supply
D) A change in tastes
E) A substantial weather event
Q2) A sudden technological breakthrough in an economy would:
A) have no impact on real GDP.
B) cause aggregate demand to fall.
C) lower the natural rate of unemployment.
D) increase the price level.
E) cause aggregate supply to rise.
Q3) A recessionary real shock will:
A) shift the aggregate demand curve to the left and reduce real GDP.
B) shift the aggregate demand curve to the right and increase real GDP.
C) shift the aggregate supply curve to the left and increase real GDP.
D) shift the aggregate supply curve to the left and reduce real GDP.
E) shift the aggregate supply curve to the right and increase real GDP.
Page 16
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Chapter 15: Macroeconomic Viewpoints: New Keynesian,
Monetarist, and New Classical
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Q1) The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.
A)True
B)False
Q2) Which of the following promoted legislation that would give private citizens greater information regarding public policymaking?
A) The Keynesians
B) The monetarists
C) The new classicals
D) The traditional classicals
E) The consumer advocates
Q3) According to the monetarists, inflation is primarily caused by an increase in the money supply.
A)True
B)False
Q4) New classical economists believe that wages are inflexible.
A)True
B)False
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Chapter 16: Economic Growth
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Q1) Which of the following statements about technology is true?
A) It is a sufficient but not necessary condition for economic growth.
B) Management techniques are irrelevant to technological growth.
C) Industrial countries follow the lead of developing countries in implementing new technology.
D) Technological change is inversely related to a nation's ability to save.
E) Low levels of education can impede technological progress.
Q2) Technological advancement implies:
A) the increase in the quantity of inputs needed to produce a given quantity of output.
B) the reduction in the quantity of inputs needed to produce a given quantity of output.
C) the reduction in the productivity of a sector of the economy that has become obsolete.
D) an increase in the labor to capital ratio in any production process.
E) the growth in the natural resource endowment.
Q3) Per capita real GDP is obtained by dividing real GDP by the number of people active in the labor force.
A)True
B)False
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Chapter 17: Development Economics
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Q1) The predominant source of multilateral aid is:
A) the European Community.
B) the United Nations.
C) the Agency for International Development.
D) the World Bank.
E) the British government.
Q2) _____ is the purchase of securities, like stocks and bonds of foreign firms.
A) Short selling
B) Foreign direct investment
C) Future contracts
D) Portfolio investment
E) Reverse trading
Q3) Capital shallowing occurs because old capital depreciates, or becomes completely obsolete with the passage of time.
A)True
B)False
Q4) The First World is made up of communist nations.
A)True
B)False
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Chapter 18: Globalization
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Q1) Average growth of per capita GDP of the post-1980 globalizers increased from 1.4 percent per year in the 1960s to _____ percent in the 1990s.
A) 6.4
B) 5.0
C) 3.5
D) 7.8
E) 2.9
Q2) There are certain variables that are so obviously related to past crises that they may serve as warning indicators of potential future crises. Identify one such variable from the following.
A) Barriers to trade
B) Short-term international investment
C) Flexible exchange rates
D) Rising international reserves
E) Fluctuating share prices
Q3) Any movement to reduce the globalization of the world's economies will make workers in the poorest countries worse off than they would otherwise be.
A)True
B)False
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Chapter 19: World Trade Equilibrium
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Q1) Countries tend to export different goods and services because of:
A) differences in their comparative advantages.
B) differences in tastes and technological needs.
C) differences in income.
D) similarities in resource endowment.
E) differences in the exchange rates.
Q2) The most heavily traded category of goods in the world is:
A) office and telecom equipment.
B) chemicals.
C) iron and steel.
D) textiles.
E) crude petroleum.
Q3) Refer to Figure 20.2. The no-trade equilibrium price of a bushel of corn in Mexico is:
A) $2.
B) $4.
C) $6.
D) $8.
E) $10.
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21
Chapter 20: International Trade Restrictions
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Q1) The world output is higher if the countries follow restrictive trade policies rather than free trade.
A)True
B)False
Q2) The European Economic Community was created in 1957 by:
A) France, the United Kingdom, Italy, Belgium, the Netherlands, and Luxembourg.
B) France, West Germany, Italy, Belgium, the Netherlands, and Luxemburg.
C) France, West Germany, Italy, Belgium, the Netherlands, and the United Kingdom.
D) France, West Germany, Italy, the United Kingdom, Belgium, the Netherlands, and Luxembourg.
E) France, West Germany, Italy, Belgium, the United Kingdom, and Luxembourg.
Q3) Generally speaking, protection from foreign competition benefits:
A) both domestic producers and foreign producers.
B) both domestic consumers and foreign consumers
C) domestic consumers and foreign consumers.
D) neither domestic producers nor foreign producers.
E) domestic producers at the expense of domestic consumers.
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Chapter 21: Exchapterange Rates and Financial Links
Between Countries
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Q1) Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce. We can then say that:
A) the Brazilian real has depreciated in value as a consequence of free market fluctuations.
B) the Brazilian real has appreciated in value.
C) gold is now more expensive to purchase in Brazil than it was before.
D) the Brazilian real has been devalued.
E) the Brazilian economy is expected to experience rapid inflation.
Q2) Refer to Figure 21.1. Suppose the initial equilibrium exchange rate is 10 pesos per real. A decrease in the Mexican demand for Brazilian coffee, other things equal, is most likely to result in a new equilibrium exchange rate of:
A) 6 pesos per real and an equilibrium quantity of 200 Brazilian reals.
B) 6 pesos per real and an equilibrium quantity of 250 Brazilian reals.
C) 8 pesos per real and an equilibrium quantity of 150 Brazilian reals.
D) 8 pesos per real and an equilibrium quantity of 100 Brazilian reals.
E) 10 pesos per real and an equilibrium quantity of 200 Brazilian reals.
Q3) Fixed exchange rates serve as a constraint on inflationary government policies.
A)True
B)False
Page 23
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