Money and Banking Practice Exam
Course Introduction
Money and Banking explores the fundamental role of money, financial institutions, and banking systems in modern economies. The course examines the functions and types of money, the creation of money through the banking system, and the structure and regulation of financial institutions. It covers central banking, monetary policy tools, and the impact of monetary policy on inflation, unemployment, and economic growth. Students will analyze how banks manage risk, the significance of financial markets, and current issues facing banking systems globally, equipping them with a thorough understanding of how money and banking underpin economic activity.
Recommended Textbook Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Q1) Along a straight line,the value of y is always equal to the value of x.The slope of the line is
A) -1.
B) 0.
C) 1.
D) infinite.
Answer: C
Q2) What is the relationship between wants,factors of production,scarcity,and choices? Discuss the relationship for an individual and for a society.
Answer: A person faces scarcity whenever his or her wants exceed what he or she can obtain using his or her resources.Because the person cannot fulfill all of his or her wants,the person is forced to choose which wants will be satisfied and which wants will remain unsatisfied.The same results hold true for a society.All societies face scarcity because people's wants are essentially infinite,so that the factors of production available are not sufficient to fulfill everyone's wants.Because of this fact,societies must make choices about which (and whose) wants will be satisfied and which (and whose) wants will remain unsatisfied.
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Chapter 2: The Economic Problem
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Q1) President Obama has proposed a goal that everyone complete at least one year of formal education or training beyond high school.This policy would ________ the production of current consumption goods and services and ________ the future production of consumption goods and services. A) decrease; increase B) increase; decrease C) not change; increase D) increase; increase
Answer: A
Q2) In the above figure,once on PPF ,a country would grow slowest by producing at point A) A. B) B. C) C. D) D.
Answer: D
Q3) A production point beyond the production possibilities frontier represents what?
Answer: A production point beyond the production possibilities frontier is an unattainable combination of goods and services.
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4
Chapter 3: Demand and Supply
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Q1) The law of demand implies that,other things remaining the same,
A) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will increase.
B) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease.
C) as income increases, the quantity of cheeseburgers demanded will increase.
D) as the demand for cheeseburgers increases, the price of a cheeseburger will fall.
Answer: B
Q2) If the supply of bottled water decreases and at the same time the demand for bottled water increases,the equilibrium price ________ and the equilibrium quantity ________.
A) might rise, fall, or stay the same; decreases
B) might rise, fall, or stay the same; increases
C) falls; increases
D) rises; might increase, decrease, or stay the same
Answer: D
Q3) What leads to a decrease in the quantity demanded of a good or service?
Answer: The quantity demanded of a good or service decreases when the price of the product increases.
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Page 5
Chapter 4: Measuring GDP and Economic Growth
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Q1) Which of the following is NOT one of the components for computing GDP based upon the income approach?
A) investment
B) corporate profits
C) compensation of employees
D) net interest
Q2) Government expenditures included in the expenditure approach to GDP include
A) social security and education
B) net exports
C) buying a new bomber
D) Both answers A and C are correct
Q3) Explain the business cycle by describing the phases and turning points.
Q4) How does the income approach measure GDP?
Q5) In any year,real GDP
A) must always be less than potential GDP.
B) might be greater or less than potential GDP.
C) will always be greater than potential GDP because of the tendency of nations to incur inflation.
D) always equals potential GDP.
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Chapter 5: Monitoring Jobs and Inflation
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Q1) How does the Current Population Survey determine if a person should be counted in the labor force?
Q2) Frictional,structural and cyclical unemployment are three classifications of unemployment.
A)True
B)False
Q3) If a worker is temporarily laid off because the economy is in a recession,
A) frictional unemployment increases.
B) structural unemployment increases.
C) the size of the labor force rises.
D) cyclical unemployment increases.
Q4) The percentage of people employed aged 16 years and older divided by the working-age population is known as the
A) employment rate.
B) employment-to-population ratio.
C) labor force participation rate.
D) working-age population ratio.
Q5) List and define the three types of unemployment.
Q6) Explain the difference between frictional and structural unemployment.
Q7) Give an example of a structurally unemployed person.
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Chapter 6: Economic Growth
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Sample Questions
Q1) Which of following was a period of below-average economic growth in the United States?
A) the 1920s
B) the 1960s
C) the 1930s
D) all of the above
Q2) The country of Kemper is on its aggregate production function at point W in the above figure.The government of Kemper passes a law that makes 4 years of college mandatory for all citizens.After all citizens have their education,the economy will
A) move to point such as Y.
B) remain at point W.
C) move to point such as X.
D) move to point such as Z.
Q3) What is the main shortcoming of the neoclassical growth model and how does the new growth theory address this shortcoming?
Q4) How does the new growth theory explain economic growth?
Q5) What is the effect on real GDP per person if labor productivity increases?
Q6) Explain how the labor market and the production function determine potential GDP.
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Chapter 7: Finance, Saving, and Investment
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Sample Questions
Q1) If the nominal interest rate is 11 percent and the inflation rate is 9 percent,then the real interest rate is approximately
A) 2 percent.
B) 20 percent.
C) 4 percent.
D) 18 percent.
Q2) A fall in the real interest rate
A) results in a movement along the demand for loanable funds curve.
B) shifts the demand for loanable funds curve rightward.
C) shifts the demand for loanable funds curve leftward.
D) has no effect on the demand for loanable funds curve
Q3) If Ann's disposable income increases,her saving decreases.
A)True B)False
Q4) Begin with the formula showing how households can divide their income.Then use this formula and the expenditure approach to GDP to show how investment is financed from three sources.
Q5) As the purchasing power of wealth increases,saving decreases. A)True B)False
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Chapter 8: Money, The Price Level, and Inflation
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Sample Questions
Q1) In 2007,interest rates in Germany were 4.7 percent while the inflation rate was 1.7 percent. In 2008,interest rates increased to 5.3 percent and the inflation rate increased to 2.0. As a result,there is
A) a leftward shift in Germany's demand for money curve.
B) a downward movement along Germany's demand for money curve.
C) a rightward shift in Germany's money supply curve.
D) an upward movement along Germany's demand for money curve.
Q2) Traveler's checks are included in M1 but not in M2.
A)True
B)False
Q3) The most direct way in which money replaces barter is through its use as a A) medium of exchange.
B) recording device.
C) store of value.
D) unit of account.
Q4) The real quantity of money is
A) inversely related to GDP.
B) measured in current dollars.
C) inversely related to the price level.
D) measured in constant dollars.
Page 10
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) A country's balance of payment accounts include its government budget deficit or surplus.
A)True
B)False
Q2) In the above figure,suppose the demand for dollars temporarily increases so that the demand curve shifts to D .To maintain the target exchange rate,the Fed
A) can sell dollars.
B) can buy dollars.
C) must violate interest rate parity but not purchasing power parity.
D) cannot maintain the target exchange rate.
Q3) Suppose the target exchange rate set by the Fed is 100 guilders per dollar.If the demand for dollars temporarily decreases,to maintain the target exchange rate,the Fed can
A) sell dollars.
B) buy dollars.
C) increase U.S. exports.
D) increase U.S. imports.
Q4) In the foreign exchange market,what factor leads to a movement along the demand curve for dollars?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) In the short run,the equilibrium level of real GDP
A) is necessarily less than potential GDP.
B) is necessarily equal to potential GDP.
C) is necessarily greater than potential GDP.
D) could be less than, equal to, or greater than potential GDP.
Q2) A decrease in government transfer payments
A) increases aggregate demand.
B) increases the aggregate quantity demanded.
C) decreases the aggregate quantity demanded.
D) decreases aggregate demand.
Q3) Aggregate demand increases if the quantity of money ________.
A) decreases or tax rates increase
B) or transfer payments decrease
C) remains constant or tax rates increase
D) increases or tax rates decrease
Q4) The AD curve slopes
A) downward due to the wealth and price effects.
B) downward due to the wealth and substitution effects.
C) upward due to the price and substitution effects.
D) upward due to the wealth and substitution effects.
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) Based upon the above table,saving equals $100 billion when disposable income equals
A) $800 billion.
B) $1000 billion.
C) $1200 billion.
D) some amount but we need more information to calculate the amount.
Q2) When the economy is in equilibrium,
A) planned investment equals actual investment.
B) planned savings will equal zero.
C) there can be no unemployment.
D) changes in autonomous spending will have no impact on real GDP.
Q3) In the above table,there are no taxes and no imports or exports.The total level of expenditure in the economy when real GDP is $7,000 is
A) $7,000.
B) $6,500.
C) $13,500.
D) 0.75.
Q4) What is the relationship between the slope of the aggregate expenditure curve and the multiplier?
Q5) List and explain factors that influence consumption expenditure.
Page 13
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) In a speech to Asia Pacific Economic Cooperation summit in Peru in November 2008,President Hu of China commented on his country's $586 billion fiscal stimulus plan by saying,"Instead of relying mainly on investment and export we will adopt a coordinated approach that combines consumption,investment and export to boost the economy.And instead of relying heavily on higher consumption of material resources we will achieve development by making scientific and technological progress." If his country's plan works and the expected inflation rate does not change,there will be a
A) movement up along the short-run Phillips curve.
B) movement down along the short-run Phillips curve.
C) rightward shift of the long-run Phillips curve.
D) leftward shift of the long-run Phillips curve.
Q2) A demand-pull inflation requires persistent increases in A) tax rates.
B) real wages.
C) the quantity of money.
D) government expenditures.
Q3) The short-run Phillips curve is vertical at the natural unemployment rate.
A)True
B)False
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Page 14
Chapter 13: Fiscal Policy
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Q1) If the government wants to engage in fiscal policy to increase real GDP,it could
A) increase government expenditure in order to increase short-run aggregate supply.
B) decrease government expenditure in order to increase short-run aggregate supply.
C) increase government expenditure in order to increase aggregate demand.
D) decrease government expenditure in order to decrease aggregate demand.
Q2) If the government raises taxes on labor income and interest income,explain how potential GDP and economic growth are affected.
Q3) Fiscal policy attempts to achieve all of the following objectives EXCEPT ________.
A) a stable money supply
B) price level stability
C) full employment
D) sustained economic growth
Q4) What is the difference between discretionary fiscal policy and automatic fiscal policy?
Q5) If employment is less than full employment,what fiscal policy should the government pursue?
Q6) What is the government expenditure multiplier?
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Page 15
Chapter 14: Monetary Policy
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Q1) If the Fed buys U.S.government securities,
A) the federal funds rate will fall.
B) the federal funds rate will rise.
C) bank reserves will decrease.
D) the discount rate will rise.
Q2) In the short run,the Fed's actions to fight an inflationary gap shift the
A) aggregate demand curve rightward.
B) aggregate demand curve leftward.
C) short-run aggregate supply curve rightward.
D) short-run aggregate supply curve leftward.
Q3) Open market purchases by the Federal Reserve System (the Fed)
A) raise the federal funds rate.
B) increase bank reserves.
C) occur when the Fed wants to decrease the quantity of money.
D) All of the above answers are correct.
Q4) In the short run,the Federal Reserve faces a tradeoff between A) economic growth and employment.
B) inflation and price stability.
C) inflation and unemployment.
D) real GDP growth and potential GDP growth.
Page 16
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Chapter 15: International Trade Policy
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Q1) Rent seeking is one reason why countries choose to A) restrict trade.
B) export and import the same goods.
C) work for freer trade.
D) follow the theory of comparative advantage.
Q2) Consider a market that,with no international trade,is initially in equilibrium with quantity demanded equal to quantity supplied at a price of $20. If the world price of the good is $10 and the country opens up to international trade then in this market
A) imports will increase, price will fall, and quantity supplied will fall
B) exports will increase, price will be unchanged, and quantity supplied will increase
C) imports will increase, price will decrease, and the supply curve will shift to the left
D) quantity demanded will decrease, quantity supplied will decrease, and price will decrease
Q3) How does the United States attempt to compensate losers from lower trade restrictions?
Q4) What is dumping?
Q5) Why do nations engage in international trade?
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Chapter 16: Introduction
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Q1) If the wood used to produce houses rises in price,then the ________ houses ________.
A) demand for; increases
B) demand for; decreases
C) supply of; increases
D) supply of; decreases
Q2) The table above lists six points on the production possibilities frontier for cheese and DVDs.Given this information,which of the following combinations is unattainable?
A) 2 tons of cheese and 56 thousand DVDs
B) 8 tons of cheese and 21 thousand DVDs
C) 6 tons of cheese and 34 thousand DVDs
D) 7 tons of cheese and 20 thousand DVDs
Q3) Shoes are a normal good and people's incomes rise.As a result,the equilibrium price of a pair of shoes ________ and the equilibrium quantity ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
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Chapter 17: Monitoring Macroeconomic Performance
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Sample Questions
Q1) Comparing the unemployment rate and the business cycle we see that
A) the unemployment rate generally increases during expansions and generally decreases during recessions.
B) there is virtually no relationship between the business cycle and the unemployment rate.
C) the unemployment rate eventually falls during expansions and rises during recessions.
D) higher unemployment rates are the cause of most business cycles.
Q2) The labor force is defined as
A) all people aged 16 and over and not institutionalized.
B) the entire population.
C) those people employed and unemployed.
D) only those people with jobs.
Q3) In the expenditure approach to measuring GDP,the components of GDP are
A) consumption, investment, government expenditure, and net exports.
B) consumption, taxes, saving, and investment.
C) inflation, unemployment, saving, and investment.
D) frictional unemployment, structural unemployment, and cyclical unemployment.
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Chapter 18: Macroeconomic Trends
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Sample Questions
Q1) The main component of the current account is
A) net exports.
B) investment both abroad and domestically.
C) net interest income.
D) the official settlements account.
Q2) In the foreign exchange market,if the supply of dollars ________ and simultaneously the demand for dollars ________,then the exchange rate definitely ________.
A) increases; increases; depreciates
B) decreases; increases; depreciates
C) increases; decreases; depreciates
D) decreases; decreases; appreciates
Q3) If the Fed hikes the U.S.interest rate relative to interest rates in other countries,in the foreign exchange market the demand for dollars will ________,the supply of dollars will ________,and the exchange rate will ________.
A) increase; increase; rise
B) decrease; decrease; fall
C) increase; decrease; rise
D) decrease; increase; fall
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Chapter 19: Macroeconomic Fluctuations
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Q1) Suppose disposable income increases from $11 trillion to $12 trillion.At the same time,consumption expenditure increases from $4.2 trillion to ________.Thus the MPC must equal ________.
A) $5.0 trillion; 0.50
B) $5.0 trillion; 0.80
C) $4.4 trillion; 0.40
D) $5.5 trillion; 0.50
Q2) Japan's population increased by 3 percent in 2010. As a result,which of the following occurred?
I. an increase in potential GDP
II. a rightward shift in the long-run aggregate supply curve
III. a rightward shift in the short-run aggregate supply curve.
A) I, II and III.
B) III only.
C) I and II only.
D) II and III.
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Chapter 20: Macroeconomic Policy
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Sample Questions
Q1) An example of a fiscal policy designed to increase real GDP is A) a cut in taxes.
B) an increase in taxes.
C) a decrease in government expenditure.
D) None of the above answers is correct.
Q2) A fiscal action that is triggered by the state of the economy is called
A) monetarist policy.
B) the tax wedge.
C) automatic fiscal policy.
D) the multiplier.
Q3) If the economy is at potential GDP and the Fed makes an open market sale of government securities,in the long run the aggregate ________ curve shifts ________ and the price level ________.
A) demand; rightward; rises
B) supply; leftward; rises
C) demand; leftward; falls
D) supply; leftward; falls
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