Money and Banking Exam Preparation Guide
Course Introduction
Money and Banking explores the fundamental principles of money, the structure and functions of financial institutions, and the workings of financial markets. The course examines the role of central banks, the process of money creation, and monetary policy's impact on inflation, interest rates, and economic stability. Students will gain insight into the regulatory environment, the importance of financial intermediation, and the analysis of current issues in banking and finance, equipping them with a comprehensive understanding of the modern monetary and financial system.
Recommended Textbook
Macroeconomics 12th Edition by Roger
A. Arnold
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26 Chapters
3323 Verified Questions
3323 Flashcards
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Page 2
Chapter 1: What Economics Is About
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) The synonym economists commonly use for additional is
A)capital.
B)rational.
C)marginal.
D)economic.
Answer: C
Q2) The slope of a horizontal line is always equal to zero.
A)True
B)False
Answer: True
Q3) The condition often used in economics to isolate the relationship between two variables is
A)causation.
B)abstraction.
C)ceteris paribus.
D)efficiency.
Answer: C
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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132 Flashcards
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Sample Questions
Q1) In a situation where two goods can be produced by two different people,it is possible for one person to have a comparative advantage in the production of both goods and the other person to have the comparative advantage in the production of neither good.
A)True
B)False
Answer: False
Q2) Consider two points on the PPF: point A,at which there are 50 oranges and 100 apricots,and point B,at which there are 51 oranges and 98 apricots.If the economy is currently at point B,the opportunity cost of moving to point A is
A)2 apricots.
B)1 orange.
C)98 apricots.
D)3 oranges.
Answer: B
Q3) Production possibilities curves can shift outward but they do not shift inward.
A)True
B)False
Answer: False
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4
Chapter 3: Supply and Demand: Theory
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197 Flashcards
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Sample Questions
Q1) An increase in the expected price of corn would likely do the following to the current supply and demand for corn:
A)increase both the demand and the supply.
B)decrease both the demand and the supply.
C)increase the demand,but decrease the supply.
D)increase the supply,but decrease the demand.
Answer: C
Q2) What is the definition of producers' surplus?
A)price received minus maximum selling price
B)maximum selling price minus price received
C)price received minus minimum selling price
D)highest price minus lowest price
E)none of the above
Answer: C
Q3) A shortage in the bread market can cause the price of bread to rise.
A)True
B)False
Answer: True
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5
Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) Refer to Exhibit 4-1.Suppose the good shown is being sold at the $6 price ceiling.At a quantity of 75 units,what is the maximum per-unit price buyers would be willing to pay for a good "tied" to the good shown in the exhibit?
A)$10
B)$8
C)$6
D)$4
E)none of the above
Q2) If the price of good X is $100 and the price of good Y is $40,it follows that the relative price of one unit of good Y is ___________ unit(s)of good X.
A)0.40
B)0.20
C)2.50
D)4.00
E)There is not enough information to answer the question.
Q3) Price ceilings sometimes result in some buyers and sellers purchasing the good at prohibited prices.
A)True
B)False
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) As discussed in the textbook,describe some policy changes the government could make in order to make it easier for people to buy houses.Using supply and demand analysis,explain how these policy changes could indirectly lead to fewer people being able to afford to purchase a home.
Q2) At college X and at college Y,students pay $3,000 less than the equilibrium tuition.If the supply of openings is the same at both colleges,it follows that a shortage of openings will be greater at
A)college X than college Y.
B)college X than the surplus at college Y.
C)college Y than the surplus at college X.
D)college X than college Y if the demand is greater at college X.
E)college X than college Y if the demand is less at college X.
Q3) Good weather in cities such as San Diego
A)is absolutely free for the residents of that city.
B)is allocated using a weather market.
C)imposes indirect payments for the residents of that city.
D)b and c
E)none of the above
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) The civilian non-institutional population consists of everyone in the population who is
A)at least 16 years of age,in the armed forces,or institutionalized.
B)at least 16 years of age.
C)not in the armed forces.
D)not institutionalized.
E)b,c,and d
Q2) A(n)__________ is a person who was previously employed,hasn't worked for some time,and is currently reentering the labor force.
A)discouraged worker
B)entrant
C)reentrant
D)job loser
E)job leaver
Q3) Structural unemployment results primarily from automation and long-lasting changes in demand.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
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Chapter 7: Macroeconomic Measurements, part II: GDP and Real GDP
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Sample Questions
Q1) Which of the following would not be included in the calculation of this year's GDP?
A)a headlight bulb purchased at Joe's Auto Supply by Olivia to replace a burnt out bulb in her car
B)a headlight bulb purchased by Ford Motor Co.from a supplier
C)a headlight bulb produced but not sold this year and thus ending up as inventory
D)none of the above,i.e. ,all would be included
Q2) Capital consumption allowance refers to
A)capital goods being used up in production through natural wear,obsolescence,and accidental destruction.
B)people sending money between countries.
C)the purchase of used factories.
D)the purchase of goods that allow households to consume more services.
Q3) Sales tax is an example of an indirect business tax.
A)True
B)False
Q4) With respect to the business cycle,describe the difference between the expansion phase and the recovery phase.
Q5) List and explain the two different approaches used to measure GDP.
Page 9
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) An increase in investment caused by a factor other than a change in the price level
A)shifts the AD curve to the right.
B)shifts the AD curve to the left.
C)causes an upward movement along the existing AD curve.
D)causes a downward movement along the existing AD curve.
E)none of the above
Q2) If consumption changes because of a change in a factor other than the price level,then the
A)economy moves from one point on an AD curve to another point on the same curve.
B)AD curve shifts.
C)economy moves from one point on a short-run aggregate supply (SRAS)curve to another point on the same curve.
D)SRAS curve shifts.
E)none of the above
Q3) Explain why the short-run aggregate supply curve (SRAS)is upward sloping,while the long-run aggregate supply (LRAS)curve is a vertical line.
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Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Sample Questions
Q1) The more institutional constraints that exist in a particular society,
A)the closer the institutional PPF will lie to the physical PPF.
B)the farther out from the origin the institutional PPF will lie.
C)the closer to the origin the institutional PPF will lie.
D)the closer to the origin the institutional PPF will lie and the farther out from the origin the physical PPF will lie.
Q2) Which of the following equations is correct?
A)Saving = Disposable income + Consumption
B)Saving = Disposable income x Consumption
C)Disposable income = Consumption - Saving
D)Saving = Disposable income - Consumption
Q3) Refer to Exhibit 9-6.If the economy is self-regulating and currently at point 1,it follows that
A)the AD curve will shift to the right and pass through point 4.
B)the SRAS curve will shift to the left and pass through point 2.
C)the economy is currently operating below its physical PPF and above its institutional PPF.
D)the SRAS curve will shift to the right and pass through point 3.
Q4) Describe how Say's law can hold in a money economy,according to the classical economists.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) The economy is in equilibrium,TP = TE,and Real GDP is $2,000 billion.The MPC is 0.75,the multiplier is operative,and idle resources exist at each expenditure round.Autonomous investment spending falls by $10 billion.As a result,the TE curve shifts __________,inventory levels unexpectedly __________,business firms __________ the quantity of goods and services they produce,and Real GDP __________ by __________.
A)downward;rise;decrease;falls;$7.5 billion
B)downward;fall;increase;rises;$40 billion
C)downward;rise;decrease;falls;$40 billion
D)upward;rise;decrease;falls;$40 billion
E)downward;fall;decrease;falls;$7.5 billion
Q2) Refer to Exhibit 10-5 When TE is $200 billion,what state is the economy in?
A)TE < TP,individuals are buying less output than firms produce.
B)TE > TP,individuals are buying more output than firms produce.
C)TE = TP,the economy is in equilibrium.
D)TE < TP,individuals are buying more output than firms produce.
E)TE > TP,individuals are buying less output than firms produce.
Q3) The work of John Maynard Keynes led to a major revolution in economic thought.
A)True
B)False
Page 12
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Chapter 11: Fiscal Policy and the Federal Budget
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162 Flashcards
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Sample Questions
Q1) Refer to Exhibit 11-1.The economy is currently at point 1.In this situation,supply-side economists would most likely propose _______________ to make the price level ______________ and Real GDP ___________.
A)cutting marginal tax rates;fall;rise
B)raising marginal tax rates;fall;rise
C)raising government spending;fall;rise
D)cutting government spending;rise;fall
E)cutting marginal tax rates;rise;fall
Q2) The transmission lag is the period that elapses between the time fiscal policy is enacted and the time it is put into effect.
A)True
B)False
Q3) Explain the difference between a progressive income tax,a proportional income tax and a regressive income tax.Under which type of system is the federal income tax?
Q4) When the government decides to increase income taxes,this is an example of contractionary fiscal policy.
A)True
B)False
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Page 13
Chapter 12: Money,banking,and the Financial System
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) In the Yap civilization of the South Pacific prior to 1920,large,heavy stones in the shape of a wheel were used as money.Which function of money was probably least served by this form of money?
A)medium of exchange
B)store of value
C)unit of account
D)store of wealth
Q2) A bank has $10,000 in excess reserves and the required reserve ratio is 20 percent.This means the bank could have __________ in checkable deposit liabilities and __________ in total reserves.
A)$80,000,$10,000
B)$100,000,$20,000
C)$50,000,$25,000
D)$100,000,$30,000
Q3) To a bank,a loan the bank has made to its borrowers is classified as
A)an asset.
B)a liability.
C)vault cash.
D)excess reserves.
E)bank capital.
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Chapter 13: The Federal Reserve System
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178 Flashcards
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Sample Questions
Q1) If the federal funds rate falls below the discount rate,banks will decrease their borrowings from __________ and __________ their borrowings from __________.It follows that when one bank borrows from __________,reserves in the banking system __________.
A)other banks;increase;the Fed;another bank;remain unchanged B)the Fed;decrease;other banks;another bank;remain unchanged C)other banks;increase;the U.S.Treasury;the Treasury;increase D)the Fed;increase;other banks;another bank;remain unchanged E)none of the above
Q2) Raising the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply.
A)raises;increase
B)raises;decrease
C)lowers;increase
D)lowers;decrease
Q3) The sale of government securities by the Fed
A)decreases the supply of money.
B)increases the supply of money.
C)decreases the demand for money.
D)increases the demand for money.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) Describe the difference between the simple quantity theory of money and the equation of exchange.
Q2) If the money supply is $900,velocity is 6,then in the equation of exchange,PQ is
A)$150.
B)$1,500.
C)$2,400.
D)$3,600.
Q3) The equation of exchange is an economic theory.
A)True
B)False
Q4) According to the simple quantity theory of money in the AD-AS framework,the AD curve is
A)vertical.
B)downward sloping.
C)horizontal.
D)upward sloping.
Q5) One-shot inflation can result from an increase in aggregate demand or an increase in aggregate supply.
A)True
B)False
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Chapter 15: Monetary Policy
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174 Flashcards
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Sample Questions
Q1) The quantity demanded of money is
A)inversely related to the interest rate.
B)directly related to the interest rate.
C)inversely related to the general price level.
D)inversely related to GDP.
E)a,c,and d
Q2) When is it best to sell bonds?
A)When interest rates are expected to rise,because this means bond prices will rise.
B)When interest rates are expected to fall,because this means bond prices will rise.
C)When interest rates are expected to rise,because this means bond prices will fall.
D)When interest rates are expected to fall,because this means bond prices will fall.
Q3) The Keynesian transmission mechanism might get blocked if
A)investment is insensitive to changes in interest rates.
B)the goods market is not in equilibrium.
C)the money supply increases too quickly.
D)interest rates are too high before they fall.
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) One of the ideas that found a permanent place in macroeconomics after Milton Friedman's presidential address to the American Economic Association in 1967 was that A)there is not only a temporary tradeoff between inflation and unemployment,but a permanent tradeoff as well.
B)the tradeoff between unemployment and inflation exists only in the long run,but not in the short run.
C)people's expectations about economic events affect economic outcomes.
D)a and b
Q2) New classical economists believe that there is
A)a short-run tradeoff between inflation and unemployment when policy is unanticipated.
B)a short-run tradeoff between inflation and unemployment when policy is correctly anticipated.
C)no short-run tradeoff between inflation and unemployment when policy is correctly anticipated.
D)a and b
E)a and c
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Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) If an economy can increase its steady annual growth rate from 2 percent to 3 percent,this reduces the time it takes for the economy to double in size by __________ years.
A)5
B)8
C)12
D)17
E)20
Q2) A useful rule of thumb called the "Rule of 70" states that if something grows at a constant rate of Z percent per year,it doubles in size approximately every __________ years.
A)70 - Z
B)70/Z
C)Z/70
D)70 × (Z/100)
Q3) The concept that economic growth can do more than just give us more goods and services goes back to Adam Smith.
A)True
B)False
Q4) List and describe four factors that can contribute to economic growth.
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) If the value of a bank's assets is rising,a high leverage ratio increases the percentage rise in its capital.
A)True
B)False
Q2) For financial institutions,securitization is the means by which regulatory capital arbitrage lowers capital requirements.
A)True
B)False
Q3) During the Great Recession,the growth rate of Real GDP _________________ and the inflation rate ___________________.
A)increased;declined
B)declined;increased
C)declined;also declined
D)increased;also increased
Q4) If nominal GDP is declining,it is necessarily true that Real GDP is also declining.
A)True
B)False
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Logrolling
A)is vote trading among elected officials.
B)eliminates the influence of special interest groups.
C)puts downward pressure on federal spending.
D)b and c
E)all of the above
Q2) The median voter model predicts that
A)both candidates in a two-person race will definitely move toward the middle of the political spectrum as the election approaches.
B)the candidate (in a two-person race)closer to the middle of the political spectrum (closer to the median voter)on election day will win the election.
C)conservatives have a higher probability of winning elections than liberals.
D)liberals have a higher probability of winning elections than conservatives.
E)voters will often be rationally ignorant of important political issues.
Q3) It has been suggested by some economists that rent seeking activity often occurs within families,particularly when an inheritance is involved.
A)True
B)False
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) Theory B predicts that everything that happens,happens for a reason - although we may not know what the reason is.This theory
A)can be refuted.
B)probably cannot be refuted.
C)is a good explanation for what happens.
D)is the kind of theory that scientists like to build because it can explain so much.
Q2) Which of the following is not a prediction of the theory on baseball caps and cheating?
A)More people will wear baseball caps on test days than on lecture days.
B)More people will wear baseball caps for multiple choice tests than for essay tests.
C)More people will wear baseball caps when students sit close to each other in class and are taking a test than when students sit far apart from each other and are taking a test.
D)Baseball caps are more likely to be worn on backwards (than frontwards)on test days than on lecture days.
E)none of the above
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Sample Questions
Q1) Which of the following statements is false?
A)Consumers receive more consumers' surplus when tariffs do not exist.
B)Producers receive more producers' surplus when tariffs do exist.
C)A tariff results in a net loss to society.
D)With a tariff,the gains to the winners are less than the losses to the losers.
E)none of the above
Q2) Which of the following is an example of a trade restriction?
A)quotas
B)tariffs
C)dumping
D)a and b
E)a,b,and c
Q3) "New industries need to be protected or they won't have the opportunity to grow up." This is a statement of the __________ argument for trade restrictions.
A)national-defense
B)infant-industry
C)anti-dumping
D)tariff
E)none of the above
Page 23
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Chapter 22: International Trade
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Sample Questions
Q1) The U.S.dollar currently serves as the "unit of account" of major global products.
A)True
B)False
Q2) Under a fixed exchange rate system,if the dollar price of a Mexican peso is below its equilibrium level,the peso is said to be
A)depreciable.
B)undervalued.
C)overvalued.
D)appreciable.
E)none of the above
Q3) The foreign exchange market is the market in which A)foreigners buy U.S.real estate.
B)foreign stocks and bonds are bought and sold.
C)ideas from different countries are exchanged.
D)currencies of different countries are bought and sold.
E)none of the above
Q4) One example of an optimal currency area is the states within the United States.
A)True
B)False
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Chapter 23: International Finance
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Q1) International trade (a key component of globalization)has been linked to lower prices in numerous studies.
A)True B)False
Q2) Economist David Friedman has compared free international trade to A)the Holocaust.
B)the Cold War.
C)a technology.
D)a revolution.
Q3) Contractionary fiscal policy _______________ Real GDP ______________ in an open economy than in a closed economy.
A)raises;more B)raises;less C)lowers;more D)lowers;less
Q4) A depreciation in the dollar relative to the yen would make Japanese-produced input X more expensive for U.S.producers.
A)True B)False
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Chapter 24: Globalization and International Impacts on the Economy
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Q1) To say that government sometimes functions as a "transfer mechanism," means that government sometimes
A)ends up transferring goods to individuals in return for taxes paid.
B)ends up transferring negative externalities into positive externalities.
C)ends up taking from group X to give to group Y.
D)transfers taxes into subsidies.
E)none of the above
Q2) If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides),it holds that on net
A)each of the two persons is better off.
B)each of the two persons is worse off.
C)one person is better off and the other person is worse off.
D)a,b,or c
E)none of the above
Q3) In the case of a nonexcludable public good,the market will fail to produce the good because of the free rider problem.
A)True
B)False
Page 26
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Sample Questions
Q1) Those who think that a popular investment is necessarily a good investment often find themselves earning low returns.
A)True
B)False
Q2) Which of the following statements is false?
A)Private equity firms often need to borrow the money needed to buy a public corporation.
B)Once a private equity firm owns a formerly publicly held corporation,they tend to cut costs and enhance efficiency.
C)Critics of private equity firms say that companies that have too much cash and too little debt become targets for private equity firms to buy.
D)A private equity firm is a group of investors that takes a privately held corporation and uses an investment banker to turn it into a publicly held corporation.
Q3) Describe the three main options available to a corporation when it needs to raise money so that it can invest in a new product or a new manufacturing technique.
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27
Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) In 2000,farmers in the United States represented approximately what percentage of the population?
A)8 percent
B)25 percent
C)1 percent
D)5 percent
Q2) Supply-restricting policies are intended to __________ prices and __________ farmers' revenues.
A)lower;increase B)lower;reduce C)raise;increase D)raise;reduce
Q3) Refer to Exhibit 39-2.If P<sub>1</sub> is a price support,the cost of the price support program to the government is
A)P<sub>1</sub> x Q<sub>2</sub>.
B)P<sub>1</sub> x (Q<sub>2</sub> - Q<sub>0</sub>).
C)P<sub>1</sub> x (Q<sub>0</sub> - Q<sub>1</sub>).
D)P<sub>1</sub> x (Q<sub>2</sub> - Q<sub>1</sub>).
E)none of the above
Q4) Explain how nonrecourse loans operate and how they help to support crop prices.
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