Money and Banking Exam Questions
Course Introduction
This course explores the fundamental principles of money, banking, and financial institutions, examining their roles in modern economies. Topics include the functions and evolution of money, the creation of money by the banking system, the structure and operations of central and commercial banks, and the conduct of monetary policy. Students will study the relationship between money supply, inflation, and interest rates, as well as the regulatory environment governing financial institutions. The course also investigates the impact of banking systems on economic activity, financial stability, and international financial markets, equipping students with a comprehensive understanding of how money and banking shape economic outcomes.
Recommended Textbook
Macroeconomics 5th Edition by Stephen D. Williamson
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Chapter 1: Introduction
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Sample Questions
Q1) In the long run,inflation is caused by
A) aggressive labor unions.
B) greedy monopolists.
C) growth in the money supply.
D) global warming.
Answer: C
Q2) Between 1947 and 2011,
A) Exports decreased and imports decreased.
B) Exports and imports increased.
C) The current account surplus rose.
D) The current account deficit fell.
Answer: B
Q3) Improvements in a country's standard of living are brought about in the long run by A) technological progress.
B) growth in the population.
C) constructing more machines and buildings.
D) immigration policy.
Answer: A
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Chapter 2: Measurement
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Q1) The income-expenditure identity is best paraphrased as A) all spending generates income.
B) all profits are used for investment spending.
C) on average, consumers cannot save.
D) on average, government can spend no more than what it collects in income taxes.
Answer: A
Q2) Jim's Nursery produces and sells $1100 worth of flowers. Jim uses no intermediate inputs. He pays his workers $700 in wages,pays $100 in taxes and pays $200 in interest on a loan. Jim's contribution to GDP is
A) $900.
B) $1000.
C) $1100.
D) $1800.
Answer: C
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Chapter 3: Business Cycle Measurement
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Sample Questions
Q1) Which of the following is not a correct characterization of the U.S. business cycle?
A) Employment lags GDP.
B) Consumption is coincident.
C) Money lags GDP.
D) Investment is coincident.
Answer: C
Q2) Which of the following is not a correct characterization of the U.S. business cycle?
A) Money is countercyclical.
B) Employment is procyclical.
C) Labor productivity is procyclical.
D) Prices are countercyclical.
Answer: A
Q3) Predicting business cycles is difficult because
A) they are very persistent.
B) the weather changes unpredictably.
C) statistics lie.
D) their frequency is irregular.
Answer: D
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Chapter 4: Consumer and Firm Behavior: The Work-Leisure
Decision and Profit Maximization
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Sample Questions
Q1) An increase in the real wage
A) represents a pure substitution effect.
B) represents a pure income effect.
C) represents a combination of income and substitution effects.
D) causes a parallel shift in the consumer's budget line.
Q2) A consumption bundle
A) is a particular combination of consumption and leisure.
B) only measures a quantity of goods and services, but not the amount of leisure.
C) is a method of bringing home consumption goods.
D) measures the quality of a particular good.
Q3) The representative consumer acts competitively
A) when he or she can haggle for a lower price.
B) when he or she is a price-taker.
C) when he or she is a price-maker.
D) if the consumer is large relative to the size of the market.
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Chapter 5: A Closed-Economy One-Period Macroeconomic Model
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Q1) At the competitive equilibrium with a positive proportional labor income tax
A) the real wage after tax exceeds the marginal product of labor.
B) the real wage after tax equals the marginal product of labor.
C) the real wage after tax is lower than the marginal product of labor.
D) We cannot say.
Q2) Which feature of the business cycle does the one-period model replicate with shocks to government expenditures?
A) procyclical employment
B) procyclical consumption
C) procyclical real wages
D) countercyclical prices
Q3) The rate at which one good can be converted technologically into another is called
A) the marginal rate of transformation.
B) the marginal rate of substitution.
C) the marginal product of labor.
D) the rate of conversion.
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Chapter 6: Search and Unemployment
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Q1) If N is the working-age population,Q is the labor force,and U is the number of unemployed,then the employment/population ratio is measured as
A) N/Q
B) U/Q
C) (Q-U)/N
D) Q/N
Q2) The average unemployment rate was lowest during what period?
A) 1980-1990
B) 1950-1970
C) 2000-2010
D) 1980-2000
Q3) In the DMP model,a decrease in productivity
A) decreases the unemployment rate.
B) reduces the vacancy rate.
C) increases the unemployment rate.
D) increases the size of the labor force.
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Chapter 7: Economic Growth: Malthus and Solow
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Q1) Why do we analyze the steady state in the Malthusian model?
A) Because that is all we know how to do.
B) Because there is a non-steady state that is not interesting.
C) Because this is the Pareto optimum.
D) Because the long run equilibrium of the model is the steady state.
Q2) The per-worker production function relates output per worker
A) to capital per worker.
B) to the participation rate.
C) to production per worker.
D) in different countries.
Q3) The Malthusian model emphasizes fixity in which of the following factors of production?
A) labor
B) land
C) energy
D) none of the above
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Chapter 8: Income Disparity Among Countries and Endogenous Growth
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Q1) Endogenous growth theory is about
A) the welfare of indigenous people.
B) explaining growth.
C) studying fertility choices.
D) giving more importance to capital accumulation.
Q2) Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens?
A) Consumption per capita decreases.
B) Saving per capita decreases.
C) The depreciation rate increases.
D) The growth rate of output decreases.
Q3) In the endogenous growth model presented in the text,suppose that u represents the fraction of time spent working (as opposed to accumulating human capital)and b represents the efficiency of human capital accumulation. The growth rate of consumption equals
A) u(1 - b) - 1.
B) 1 + b(1 - u).
C) (1 - b)(1 - u).
D) b(1 - u) - 1.
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Chapter 9: A Two-Period Model: The Consumption-Savings
Decision and Credit Markets
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Sample Questions
Q1) The two primary explanations for the excess volatility of consumption are
A) consumers' limited life spans and credit market imperfections.
B) credit market imperfections and changes in market prices.
C) changes in market prices and distorting taxes.
D) distorting taxes and consumers' limited life spans.
Q2) We limit ourselves to two periods in the intertemporal model of the business cycle because
A) we need to concentrate on the two phases of the business cycle.
B) we can assume that people can live two periods of, say, 30 years.
C) this is all we need to emphasize the intertemporal trade-off.
D) we need an even number of periods.
Q3) At the endowment point,we have the property that
A) c = c'.
B) c = y - t.
C) y - t = y' - t'.
D) y = y'.
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Chapter 10: Credit Market Imperfections: Credit Frictions,
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Q1) The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of A) irrational behavior.
B) a credit market imperfection.
C) a vast banking conspiracy.
D) the burden of public debt.
Q2) In the two-period model,the budget constraint is kinked for all of these reasons,except
A) the real interest rate is greater than zero.
B) there are costs to banks from lending and borrowing.
C) there is asymmetric information in the credit market.
D) there is limited commitment in the credit market.
Q3) In the two-period model with asymmetric information,a one-unit increase in the real rate of interest on bank deposits
A) causes the real loan interest rate to increase by more than one unit.
B) causes the real loan interest rate to increase by less than one unit.
C) cause the real loan interest rate to decrease by less than one unit.
D) causes the real loan interest rate to decrease by more than one unit.
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Chapter 11: A Real Intertemporal Model with Investment
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Q1) In the real intertemporal model with investment
A) the firm maximizes the present value of profits.
B) the firm maximizes current profits.
C) the firm maximizes the present value of revenues.
D) the firm maximizes current profits plus future profits.
Q2) In the real intertemporal model,an adverse sectoral shock acts to
A) reduce real output and reduce the real interest rate.
B) increase real output and increase the real interest rate.
C) increase real output and reduce the real interest rate.
D) reduce real output and increase the real interest rate.
Q3) The equilibrium effects of a prospective future increase in total factor productivity include
A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.
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Chapter 12: Money, Banking, Prices, and Monetary Policy
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Sample Questions
Q1) If an increase in the level of money supply leads to a proportionate increase in prices with no effect on real variables ,we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is a medium of exchange.
Q2) Money neutrality states that
A) with money, one can still use the representative agent.
B) changes in money do not affect real aggregates.
C) changes in inflation do not affect real aggregates.
D) monetary policy is independent from politics.
Q3) The most distinguishing economic feature of money is its
A) medium of exchange role.
B) store of value role.
C) unit of account role.
D) standard of deferred payment role.
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Chapter 13: Business Cycle Models with Flexible Prices and Wages
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Q1) Strategic complementarities may help explain business cycles because such complementarities may lead to
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) a downward-sloping labor supply curve.
Q2) The behavior of the Solow residual suggests that when current total factor productivity increases
A) it becomes more difficult to predict future total factor productivity.
B) future total factor productivity is also likely to increase.
C) such increases are temporary, so we can draw no conclusions about the likely behavior of future total factor productivity.
D) future total factor productivity is likely to decrease.
Q3) The real business cycle model best explains the procyclicality of the nominal money supply by
A) an unpredictable Federal Reserve.
B) exogenous money.
C) endogenous money.
D) uncorrelated money.
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Chapter 14: New Keynesian Economics: Sticky Prices
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Sample Questions
Q1) The central bank in the New Keynesian model pursues a policy of
A) fixed money supply.
B) inflation between 2 and 3%.
C) zero inflation.
D) targeting the market interest rate.
Q2) The output gap is
A) the difference between target output and realized output.
B) the difference between initial output and final output.
C) the difference between market-clearing output and actual output.
D) the difference between forecasted output and past output.
Q3) Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?
A) an increase in the interest rate target
B) no change in the interest rate target
C) a decrease in the interest rate target
D) an increase in government spending
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Chapter 15: International Trade in Goods and Assets
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Q1) The current account surplus is not
A) the trade balance.
B) the excess of national savings over investment.
C) private saving less government deficit.
D) output less taxes and trade deficit.
Q2) In a two-period model with production,an increase in current domestic total factor productivity
A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
Q3) In a two-period model with default,if the market interest rate is low,then
A) default is more likely
B) there is no effect on the nation's default decision.
C) default is less likely.
D) the income effect is larger than the substitution effect.
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Chapter 16: Money in the Open Economy
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Sample Questions
Q1) The adoption of capital controls makes
A) everyone in the domestic economy better off.
B) some domestic residents better off and some worse off, although on average welfare increases.
C) some domestic residents better off and some worse off, although on average welfare decreases.
D) everyone in the domestic economy worse off.
Q2) In the New Keynesian open economy model with a flexible exchange rate,an increase in anticipate future total factor productivity
A) has no effects.
B) increases aggregate output.
C) reduces aggregate consumption.
D) causes an exchange rate appreciation.
Q3) Compared to dollarization,a currency board
A) has a flexible exchange rate.
B) has a separate currency.
C) conducts independent monetary policy.
D) is the same institution.
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Chapter 17: Money, Inflation, and Banking
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Q1) Some of the most renowned examples of hyperinflation occurred in Austria,Hungary,Germany and Poland shortly after
A) the collapse of the Austro-Hungarian Empire.
B) World War I.
C) World War II.
D) the fall of the Berlin Wall.
Q2) Most transactions between large financial institutions in the United States are handled by A) check.
B) Fedwire.
C) currency.
D) ACH.
Q3) The opportunity cost of money is A) zero.
B) the inflation rate.
C) the real interest rate.
D) the nominal interest rate.
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Chapter 18: Inflation, the Phillips Curve, and Central Bank Commitment
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Sample Questions
Q1) The slope of the Phillips curve in the United States was smallest during which period?
A) 1985-2012
B) 1970-1984
C) 1947-1969
D) 1776-1800
Q2) A)W. Phillips' study of unemployment and inflation in the United Kingdom specifically looked at the empirical relationship between the unemployment rate and the
A) rate of change in prices.
B) rate of change in nominal wages.
C) rate of change in real wages.
D) level of nominal wages.
Q3) The original work on the application of the time inconsistency problem in macroeconomics is due to
A) Milton Friedman and Robert Lucas.
B) Michael Hutchinson and Carl Walsh.
C) Finn Kydland and Edward Prescott.
D) Robert Barro and Donald Gordon.
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