Money and Banking Exam Review
Course Introduction
This course examines the structure, function, and significance of money, financial institutions, and banking systems within the modern economy. It covers topics such as the role of money, the process of money creation, the operation and regulation of central and commercial banks, and the impact of monetary policy on inflation, interest rates, and economic stability. Through the analysis of real-world case studies and theoretical frameworks, students gain an understanding of how financial markets operate and how banking activities influence economic growth and development. The course also explores the challenges posed by financial innovation, globalization, and digital currencies in shaping the future of money and banking.
Recommended Textbook
Macroeconomics 4th Edition by Paul Krugman
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18 Chapters
5355 Verified Questions
5355 Flashcards
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Chapter 1: First Principles
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233 Verified Questions
233 Flashcards
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Sample Questions
Q1) Beth promises to do Alice's taxes, and in exchange, Alice will set up several spreadsheets for Beth's household budget. This trade will most likely:
A)be beneficial to both individuals.
B)hurt both individuals.
C)help Beth but hurt Alice.
D)help Alice but hurt Beth.
Answer: A
Q2) Market failure may occur because:
A)individual actions have side effects that are not properly taken into account by the market.
B)one party to a trade benefits more than another.
C)all goods are suited for efficient management by markets.
D)of regulated self-interest.
Answer: A
Q3) If an economy's resources are used efficiently, then it is guaranteed that the economy will also achieve equity.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Economic Models
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Sample Questions
Q1) In building models, economists avoid making any assumptions that might leave out any aspect of reality.
A)True
B)False
Answer: False
Q2) Economists who are asked to choose between two government policies may disagree because:
A)they make the same value judgments about the desirability of the policies.
B)they base their conclusions on models that make different assumptions.
C)as a matter of course, economists often take opposing points of view so that all sides of a question may be discussed.
D)economists are trained ignore facts and focus on theory.
Answer: B
Q3) The _____ illustrates the trade-offs facing an economy that produces only two goods.
A)production possibility frontier
B)circular-flow diagram
C)all else equal assumption
D)income distribution
Answer: A
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Chapter 3: Supply and Demand
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Sample Questions
Q1) (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply of Wheat. A price of _____ will result in a _____.
A)$6; shortage
B)$8; surplus
C)$8; shortage
D)$4; surplus
Answer: B
Q2) The demand for meals at a local Applebee's will shift to the left if:
A)the Olive Garden offers a 10 percent discount coupon in the local newspaper.
B)the price of a meal at Applebee's rises.
C)local incomes increase and Applebee's is a normal good.
D)the price of gasoline falls in the area.
Answer: A
Q3) Which of the following is TRUE of an inferior good?
A)When income increases, demand remains unchanged.
B)When income increases, demand decreases.
C)When income increases, demand increases.
D)Income and demand are unrelated.
Answer: B
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Page 5
Chapter 5: International Trade 5
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Sample Questions
Q1) A country that is relatively labor-abundant and relatively land-scarce opens to international trade. As a result, it finds that wages _____ and rents _____.
A)increase; decrease
B)decrease; decrease
C)decrease; increase
D)increase; increase
Q2) (Figure: The Market for Oranges in South Africa) Look at the figure The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is P<sub>1</sub>. When the economy is opened to trade, the price falls to P<sub>W</sub> and consumer surplus will _____ to area _____.
A)fall; M
B)fall; M + N
C)rise; M + N + O
D)rise; M + N + O + P
Q3) Which of the following is a common argument for trade protection?
A)national security
B)increased efficiency
C)increased profitability
D)increased productivity
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Page 6
Chapter 6: Macroeconomics: the Big Picture
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) The most widely used indicator of the conditions in the labor market is the:
A)unemployment rate.
B)population growth rate.
C)inflation rate.
D)trade deficit.
Q2) The modern macroeconomic tools used by the government are _____ policy and _____ policy.
A)tax; antitrust
B)fiscal; monetary
C)monetary; exchange rate
D)capital; labor
Q3) A business cycle is a:
A)very deep and prolonged economic downturn.
B)period in which output and employment are rising.
C)period in which output and employment are falling.
D)short-run alternation between economic upturns and downturns.
Q4) The United States imports coffee from Brazil and exports cars to Brazil. Is this a macroeconomic or microeconomic issue?
Q5) Explain what is meant by the paradox of thrift.
Q6) What are Keynesian policies?
Page 7
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Chapter 7: Gdp and Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) (Table: Muffin Price Index) Look at the table Muffin Price Index. A college town has many small coffee shops, and they all sell muffins. As an economics project you have been assigned to compile a muffin price index (MPI). The base year is 2009. Use these data to compute the MPI for each year.
Q2) The price index in the current year is the cost of the market basket in the current year divided by the cost of the market basket in the base year.
A)True
B)False
Q3) (Table: Real and Nominal Output) Look at the table Real and Nominal Output. In which year is all of the increase in nominal output due to an increase in real output?
A)2 B)3
C)5
D)6
Q4) If GDP increases from $10 trillion to $12 trillion in a year, it can only mean that aggregate output grew by 20%.
A)True
B)False
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Page 8
Chapter 8: Unemployment and Inflation
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354 Flashcards
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Sample Questions
Q1) The sum of frictional and structural unemployment is the:
A)actual unemployment level.
B)cyclical amount of unemployment.
C)natural rate of unemployment.
D)amount of unemployment in an economy during a recession.
Q2) The real interest rate is the nominal interest rate less the rate of inflation.
A)True
B)False
Q3) The natural rate of unemployment:
A)would increase if a larger percentage of the labor force were over 25 years old.
B)would increase if union membership fell.
C)would increase if unemployment benefits were increased.
D)will always remain fixed.
Q4) (Table: Employment Data) Look at the table Employment Data. If marginally attached workers are included in the labor force, the labor force is:
A)1 million.
B)11 million
C)32 million.
D)33 million.
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Chapter 9: Long-Run Economic Growth
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316 Flashcards
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Sample Questions
Q1) According to the text, productivity is driven by all of the following EXCEPT:
A)physical capital.
B)human capital.
C)technological progress.
D)natural resources.
Q2) Which of the following will NOT increase the productivity of labor?
A)technological improvements
B)an increase in the capital stock
C)improvements in education
D)an increase in the size of the labor force
Q3) A country's growth rate strongly depends on how it has invested in its physical capital. Generally, countries that have used _____ as a source of their capital investment have exhibited the highest growth rate.
A)foreign direct investment
B)domestic saving
C)foreign portfolio investment
D)contracted globalization
Q4) Increases in human capital will promote economic growth.
A)True
B)False
Page 10
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) If Congress passed a law last year that will increase corporate taxes this year, holding other things constant, stock prices will _____ this year.
A)increase
B)decrease
C)not change
D)It is impossible to say how stock prices will change.
Q2) Investment spending contributes to economic growth.
A)True
B)False
Q3) National savings equals:
A)private savings plus consumption spending.
B)trade balance plus the budget balance.
C)private savings plus the budget balance.
D)government spending plus taxes.
Q4) Which of the following do economists view as investment spending?
A)stocks
B)bonds
C)spending on physical capital
D)mutual fund investing
Q5) Compare stocks and bonds with respect to risk and return.
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Chapter 13: Fiscal Policy Appendix Taxes and the Multiplier
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382 Verified Questions
382 Flashcards
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Sample Questions
Q1) Medicare covers much of the cost of medical care for Americans with low incomes.
A)True
B)False
Q2) In Japan during the 1990s _____ policies were put into effect to _____.
A)contractionary tax; counter inflation
B)contractionary spending; counter inflation
C)expansionary tax; counter inflation
D)expansionary spending; prop up aggregate demand
Q3) The income-expenditure model predicts that if the marginal propensity to consume is 0.8 and the federal government decreases spending by $200 billion, real GDP will fall by:
A)$160 billion.
B)$200 billion.
C)$800 billion.
D)$1,000 billion.
Q4) All of the following are sources of state and local revenue EXCEPT:
A)social insurance taxes.
B)property taxes.
C)sales taxes.
D)income taxes.
Page 12
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) Banks are financial intermediaries that use deposits of its customers, which are liquid assets, to finance the illiquid investments of borrowers.
A)True
B)False
Q2) The Panic of 1907 lasted only a little longer than a week, but the result was a four-year recession during which output fell and unemployment rose.
A)True
B)False
Q3) A private investment partnership open only to wealthy individuals and institutions is a(n):
A)hedge fund.
B)investment bank.
C)savings and loan.
D)quasi-government agency.
Q4) Bank reserves are the currency banks hold in their vaults minus the deposits at the Federal Reserve.
A)True
B)False
Page 13
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Chapter 15: Monetary Policy
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Sample Questions
Q1) (Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS<sub>2</sub> and the central bank sells Treasury bills, then in the short run the interest rate will:
A)decrease below r<sub>2</sub>.
B)remain at r<sub>2</sub>.
C)increase to r<sub>1</sub>.
D)fluctuate randomly.
Q2) (Figure: The Money Supply and Aggregate Demand) Look at the figure The Money Supply and Aggregate Demand. Panel (a) illustrates what happens when the Federal Reserve decides to _____ the money supply and _____ interest rates.
A)decrease; lower
B)increase; raise
C)increase; lower
D)decrease; raise
Q3) To decrease interest rates, the Fed should increase the money supply.
A)True
B)False
Q4) Why does a recession, all else equal, decrease the demand for money?
Q5) What is the opportunity cost of holding money?
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Chapter 16: Inflation, Disinflation, and Deflation
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240 Flashcards
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Sample Questions
Q1) Real seignorage is calculated by the:
A)real interest rate times the money supply.
B)rate of growth of the money supply times the real money supply.
C)real interest rate minus the inflation rate.
D)rate of growth of the money supply divided by the price index.
Q2) Okun's law suggests that a _____ increase in a positive output gap _____ the unemployment rate by _____.
A)1%; increases; 0.5%
B)1%; decreases; 0.5%
C)0.5% ; increases; 1%
D)0.5%; decreases; 1%
Q3) Irving Fisher described debt deflation as:
A)increasing aggregate demand and improving the economic downturn, leading to less deflation.
B)reducing aggregate demand and worsening the economic downturn, leading to further deflation.
C)reducing the debt obligation of borrowers as they become better off under deflation. D)hurting lenders by reducing the value of their loans and lowering the interest rate on loan.
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Page 15
Chapter 17: Crises and Consequences
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Sample Questions
Q1) A shadow bank may be subject to a bank run if:
A)its depositors withdraw their funds because they fear that it is financially unsound.
B)depositors decide that the FDIC insurance of $250,000 per account is insufficient to cover their potential losses.
C)they purchase too many government securities.
D)the shadow bank's lenders decide it is unsafe and stop lending it money.
Q2) During the 2008 financial crisis, investors feared that Spain's government might default on its debt because:
A)it spent large amounts of money helping homeowners avoid foreclosure.
B)it lent too much money to Greece.
C)the government might have to spend large amounts of money to bail out Spanish banks.
D)it was leaving the European Union.
Q3) On average the unemployment rate increases by 7% following a severe banking crisis.
A)True
B)False
Q4) Why are banking-crisis recessions so bad?
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Page 16
Chapter 18: Events and Ideas
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Sample Questions
Q1) According to the classical model of the price level, the short-run aggregate supply curve is:
A)flat.
B)negatively sloped.
C)vertical.
D)unstable.
Q2) The main idea behind monetarism is that:
A)the aggregate output will be even greater than potential output if the money supply grows at a constant rate.
B)the aggregate price level will increase proportionally if the money supply grows at a constant rate.
C)the government budget will have a deficit if the government spending grows at a constant rate.
D)the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.
Q3) Keynesian theory argued that monetary policy could be very effective during a depression.
A)True
B)False
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Page 17
Chapter 19: Open-Economy Macroeconomics
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Sample Questions
Q1) The value of accounting services purchased by clients in China is included in the merchandise trade balance.
A)True
B)False
Q2) Suppose that China's target exchange rate for the yuan is below its equilibrium exchange rate. What is the possible disadvantage of using monetary policy to achieve the target exchange rate?
Q3) (Figure: Exchange Market Intervention) Look at panel (a) in the figure Exchange Market Intervention. Which of the following approaches could the Genovian government use to raise the value of the geno above its present equilibrium exchange rate and into the target range?
A)use its own currency to buy U.S. dollars
B)shift the demand for genos to the right by raising interest rates in Genovia
C)eliminate the exchange controls that limit the right of Genovian citizens to buy U.S. dollars
D)tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens
Q4) Explain two purposes of devaluation and revaluation in a fixed exchange rate regime.
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Chapter 20: Graphs in Economics
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Sample Questions
Q1) The slope of a straight line is the ratio of the:
A)vertical change to the horizontal change.
B)horizontal change to the vertical change.
C)run over the rise.
D)vertical change to the horizontal change, and it must be positive.
Q2) (Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally Adjusted Unemployment Rate. The distance between each labeled point on the horizontal axis is one year. Unemployment was ______ between 1/2001 and 1/2003 and ______ between 1/2007 and 1/2008.
A)increasing; decreasing
B)increasing; increasing
C)decreasing; increasing
D)decreasing; decreasing
Q3) A scatter diagram shows:
A)how far apart dependent variables are.
B)individual points of data showing both variable values.
C)the slope of a line.
D)the intercept of a curve.
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Chapter 21: toward a Fuller Understanding of Present Value
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Sample Questions
Q1) If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _____ the asset will _____ profits.
A)not buying; increase B)purchasing; increase C)purchasing; decrease D)not buying; decrease
Q2) The present value of a painting that you expect to sell for $500 in three years is $405.22 if the annual interest rate is 5%.
A)True
B)False
Q3) (Table: Present Value of Projects A, B, C, and D) Look at the table Present Value of Projects A, B, C, and D. If the annual interest rate is 10%, which project do you choose? A)A
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