Money and Banking Practice Questions
Course Introduction
Money and Banking explores the vital roles that money, financial institutions, and central banks play in the modern economy. The course examines the nature and functions of money, the process of money creation, and the operations of commercial banks and other financial intermediaries. It delves into the structure and regulation of financial systems, the conduct of monetary policy by central banks, and the impact of interest rates and inflation on economic activity. Students will analyze recent developments in banking, the global financial environment, and the challenges faced by policymakers in promoting financial stability and economic growth.
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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Sample Questions
Q1) Define the term scarcity and discuss two of its consequences.
Answer: Scarcity is the condition in which our wants are greater than the limited resources available to satisfy those wants.The consequences of scarcity include: (1)the need to make choices, (2)the need for a rationing device,and (3)competition.
Q2) The author of the textbook defines economics as the A)science of efficiency.
B)science of scarcity.
C)study of markets.
D)study of human activity.
Answer: B
Q3) Saying "the marginal costs are greater than the marginal benefits" is the same as saying
A)the average costs are greater than the average benefits.
B)the total costs are greater than the average benefits.
C)the benefits are greater than the costs.
D)the additional costs are greater than the additional benefits.
E)the costs minus the benefits equal the net costs.
Answer: D
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3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-1.The opportunity cost of moving from point B to A is
A)10,000 units of butter.
B)20,000 units of butter.
C)50,000 units of guns.
D)the maximum amount of butter that can be produced with available resources. Answer: B
Q2) Refer to Exhibit 2-6.Which graph depicts a discovery of a new cheap source of energy that assists in the production of both good X and good Y?
A)(1)
B)(2)
C)(3)
D)(4)
E)none of the above
Answer: A
Q3) The PPF between goods X and Y will be a downward-sloping
A)straight line if increasing opportunity costs exist.
B)straight line if decreasing opportunity costs exist.
C)curve that is bowed outward if increasing opportunity costs exist.
D)curve that is bowed outward if constant opportunity costs exist.
Answer: C
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) As the price of good A rises,the demand for good B rises.Therefore,goods A and B are
A)normal goods.
B)inferior goods.
C)substitutes.
D)complements.
E)none of the above
Answer: C
Q2) If the demand curve for a good shifts leftward,
A)quantity demanded is less at each price.
B)quantity demanded remains constant at each price.
C)quantity demanded is greater at each price.
D)demand is greater at each price.
Answer: A
Q3) To an economist,an increase in demand means the same thing as an increase in quantity demanded.
A)True
B)False
Answer: False
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Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) A price floor set above the equilibrium price will
A)clear the market for the good.
B)result in a shortage of the good.
C)result in a surplus of the good.
D)force some firms in this industry to go out of business.
Q2) Refer to Exhibit 4-3.If price P<sub>1</sub> is a price floor,then
A)the quantity exchanged is Q<sub>1.</sub>
B)there is a surplus in the market for good X.
C)it is the lowest price that can legally be charged in the market for good X.
D)both b and c
E)all of the above
Q3) Refer to Exhibit 4-3.If price P<sub>2</sub> is a price ceiling,then
A)there is a shortage in the market for good X.
B)the highest price that can legally be charged in this market is P<sub>3</sub>.
C)the price at which exchange legally takes place in the market for good X is P<sub>2</sub>.
D)the quantity exchanged is less than the quantity demanded.
E)all of the above
Q4) What condition is necessary for a price floor to have an impact on a market?
Describe two effects that a price floor can have on a market.
Page 6
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) Suppose that a television studio has two shows,X and Z,and that tickets for viewing the taping of each show is free.The equilibrium price for a ticket to view the taping of show X is $25 and the equilibrium price for a ticket to view the taping of show B is -$20.It is likely that tickets to show ________ will need to be rationed on a first-come-first-served basis,while the producers of show ________ will have a much more difficult time filling the seats in the studio since the equilibrium price for tickets to that show is a __________ dollar amount.
A)Z;X;positive
B)Z;X;negative
C)X;Z;positive
D)X;Z;negative
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.
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) "Full employment" is said to exist when the unemployment rate equals A)zero.
B)the cyclical unemployment rate.
C)the structural unemployment rate.
D)the natural unemployment rate.
Q2) Structural unemployment results primarily from automation and long-lasting changes in demand.
A)True
B)False
Q3) If the unemployment rate drops,then it necessarily follows that some of the people who were once unemployed are now employed.
A)True
B)False
Q4) A person in the civilian labor force falls into one of two categories:
A)a person who works in a service industry or a person who works in a manufacturing industry.
B)unemployed or employed.
C)disemployed or unemployed.
D)a self-employed worker or a non-self-employed worker.
Q5) 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) A business cycle refers to the
A)continued expansion in Real GDP.
B)recurrent swings (up and down)in Real GDP.
C)continued decline in Real GDP.
D)period when Real GDP grows at unusually high rates.
E)none of the above
Q2) Some economists argue that GDP overstates overall economic welfare because it does not include the impact of bads such as pollution.
A)True
B)False
Q3) Countries with a large GDP must also have a large per-capita GDP. A)True
B)False
Q4) In 1950,the country with the highest per-capita GDP was A)Switzerland.
B)New Zealand.
C)the United States.
D)Venezuela.
E)the Netherlands.
Q5) List and explain the two different approaches used to measure GDP.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) In the short run,an increase in investment,ceteris paribus,shifts the
A)AD curve to the right,causing equilibrium price level to rise and equilibrium Real GDP to increase.
B)AD curve to the left,causing equilibrium price level to fall and equilibrium Real GDP to decrease.
C)SRAS curve to the right,causing equilibrium price level to fall and equilibrium Real GDP to increase.
D)SRAS curve to the left,causing equilibrium price level to rise and equilibrium Real GDP to decrease.
Q2) If businesses buy fewer capital goods,and nothing else changes,then total expenditures on U.S.goods and services will decrease.And if total expenditures decrease,then __________ will decrease;consequently,the __________ curve will shift __________.
A)aggregate demand (AD);AD;rightward
B)short-run aggregate supply (SRAS);SRAS;leftward
C)aggregate demand (AD);AD;leftward
D)interest rates;AD;leftward
E)prices;AD;rightward
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Page 10
Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Sample Questions
Q1) When the economy is producing Real GDP at the level at which the LRAS curve intersects the AD curve the economy is
A)in a recessionary gap.
B)in long-run equilibrium.
C)in an inflationary gap.
D)operating at less than full-employment output.
Q2) According to Say's law,
A)if there is demand for a good,someone will supply it.
B)production creates demand sufficient to purchase all goods and services produced.
C)supply and demand work together to determine price.
D)trading takes longer in a barter economy than in a money economy.
E)none of the above
Q3) If the economy is self-regulating,then it follows that
A)recessionary and inflationary gaps are temporary economic states.
B)wages will fall when the economy is in a recessionary gap.
C)wages will rise when the economy is in an inflationary gap.
D)the economy is always in long-run equilibrium.
E)a,b and c
Q4) Explain the policy implications of the classical economists' beliefs.
Page 11
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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Sample Questions
Q1) In a simple Keynesian model,the aggregate supply curve is upward sloping.
A)True
B)False
Q2) The economy can be in equilibrium and in a recessionary gap simultaneously.
A)True
B)False
Q3) If income rises from $1,000 to $1,400 and consumption rises from $800 to $1,168,the marginal propensity to consume is __________ percent.
A)8
B)85
C)15
D)92
Q4) What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase.
Q5) The part of consumption that is dependent on disposable income is called autonomous consumption.
A)True
B)False
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) Which of the following illustrates the wait-and-see lag?
A)Policymakers believe an economic downturn has occurred,but they decide not to take action until they are sure.
B)Policymakers are in the process of proposing policy measures to deal with the current economic slowdown.
C)Policymakers first learn of the recession when it is five months old.
D)Policymakers implement policy X,but it will be a few months before it starts working.
E)Policymakers agree to policy X,but it will be at least two months before the policy is implemented.
Q2) An example of contractionary fiscal policy is
A)an increase in government expenditures,or an increase in taxes,or both.
B)a decrease in government expenditures,or a decrease in taxes,or both.
C)an increase in government expenditures,or a decrease in taxes,or both.
D)a decrease in government expenditures,or an increase in taxes,or both.
E)increasing government expenditures while holding taxes constant.
Q3) Describe the fiscal policy remedies that a Keynesian economist might prescribe to close a recessionary gap.How might the issue of crowding out impact the effectiveness of these policies?
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) The store of value function of money refers to the ability of money to
A)facilitate the exchange of goods and services.
B)maintain its value over time.
C)express relative scarcity.
D)earn interest over time.
E)increase its value over time.
Q2) 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
Q3) Bank A has $25,500 in required reserves.The required reserve ratio is 10 percent.Bank A has checkable deposits of
A)$2,550.
B)$255,000.
C)$2,550,000.
D)$25,500.
Q4) Describe the differences between M1 and M2.
Page 14
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) When a bank repays a _________________ loan,the Fed _____________________ the bank's reserve account.
A)overnight;subtracts the repayment from B)overnight;adds the repayment to C)discount;adds the repayment to D)discount;subtracts the repayment from
Q2) If the Fed _____________________,the money supply will ultimately __________.
A)raises the discount rate relative to the federal funds rate;decrease B)lowers the discount rate relative to the federal funds rate;increase C)lowers the discount rate relative to the federal funds rate;decrease D)raises the discount rate relative to the federal funds rate;increase E)a and b
Q3) Federal Reserve Notes held by the Fed are considered part of the A)money supply.
B)bank reserves.
C)both of the above D)none of the above
Q4) The smaller the required reserve ratio,the larger the simple deposit multiplier. A)True B)False
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Chapter 14: Money and the Economy
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Sample Questions
Q1) In the simple quantity theory of money,Real GDP and velocity are assumed to be constant.
A)True
B)False
Q2) Describe the expectations (or Fisher)effect.
Q3) If GDP is $9,000 billion and the money supply is $1,800 billion,velocity is approximately
A)0.20.
B)6.00.
C)4.15.
D)5.00.
E)There is not enough information provided to answer this question.
Q4) A monetarist would argue that
A)small changes in M could be offset by changes in V and not cause changes in P. B)changes in M in the short run can cause Real GDP to fall.
C)prices and wages are flexible.
D)b and c
E)a,b and c
Q5) List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.
Page 16
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Chapter 15: Monetary Policy
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Sample
Questions
Q1) According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.
A)raise;fall;raises
B)raise;rise;lowers
C)raise;fall;lowers
D)lower;fall;lowers
E)lower;rise;raises
Q2) If a country's rules-based monetary policy sets the annual money supply growth rate equal to the average annual growth rate of Real GDP,and velocity is a constant,then the price level
A)is also constant.
B)rises in years when Real GDP rises.
C)rises in years when Real GDP growth is less than average.
D)rises in years when Real GDP growth is greater than average.
Q3) Equilibrium in the money market exists when the quantity demanded of money equals the quantity supplied of money.
A)True
B)False
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward).According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased. A)rise;fall;higher B)rise;rise;higher C)fall;rise;lower D)fall;rise;higher E)rise;rise;lower
Q2) A person's real wage will fall if the nominal wage falls,the price level rises,or both. A)True B)False
Q3) In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?
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18
Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) Two Harvard economists,Robert Barro and Rachel McCleary,have researched the role that ________________ plays in economic growth.
A)religion
B)meta-ideas
C)technology
D)human resource development
Q2) An economy growing at a steady rate of 3.1 percent per year doubles in size approximately every __________ years.
A)40
B)23
C)32
D)16
Q3) New growth theory holds technology to be __________;neoclassical growth theory holds technology to be __________.
A)exogenous;endogenous
B)endogenous;endogenous
C)endogenous;exogenous
D)exogenous;exogenous
Q4) List and describe four factors that can contribute to economic growth.
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations
A)falls,which pushes banks that own them closer to insolvency.
B)rises,which pushes banks that own them closer to insolvency.
C)falls;which pushes banks that own them towards greater solvency. D)rises,which pushes banks that own them towards greater solvency.
Q2) A bank with a leverage ratio of 6.5 to 1 has
A)$6.50 in assets for every $1 in liabilities.
B)$6.50 in assets for every $1 in capital.
C)$1 in assets for every $6.50 in capital.
D)$1 in assets for every $6.50 in liabilities.
Q3) Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.
A)True
B)False
Q4) In the early 2000s,banks lowered lending standards to comply with the Community Reinvestment Act.
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) Public choice theory assumes that those involved in the public sector are generally motivated by
A)public spirit.
B)altruism.
C)the desire to achieve allocative efficiency.
D)the same factors involved in the private sector.
E)a and b
Q2) In a simple majority vote on a public project,
A)the project will never be undertaken if the costs exceed the benefits.
B)the project may be undertaken even though the total costs exceed the total benefits.
C)the intensity of individual preferences is taken into account.
D)the project will always be undertaken if the total benefits exceed the total costs.
Q3) Most voters choose not to be informed about political and governmental issues because they are not smart enough to really understand the issues.
A)True
B)False
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Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) George is a gift giver and Roger is a gift recipient.George has Roger in his utility function,but Roger does not have George in his utility function.Roger may try to get George to __________________ George's efficient number of gifts to (give).
A)give more gifts to him than B)reduce the number of gifts he receives below
C)increase the number of gifts he receives beyond D)a and b
E)a and c
Q2) Smith sends her children to a private school on the other side of town.Tuition per student per year is $15,000.Jones sends her children to a public school on her side of town.Tuition per student per year is $0.Most people seem to think that the private school and public school are equivalent when it comes to educating students.According to a theory discussed in the textbook,
A)Smith lives in a more expensive home than Jones.
B)Jones lives in a more expensive home than Smith.
C)Smith and Jones live in homes that are priced the same.
D)Smith lives in a larger home than Jones.
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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Q1) Global technologies,such as electronics,have made up a significant portion of the recent wave of manufacturing offshoring.
A)True
B)False
Q2) Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
A)True
B)False
Q3) If countries 1 and 2 produce only two goods,A and B,and they have the same opportunity cost for the production of good A (and thus good B),then
A)each country will specialize in the production of one good and engage in trade.
B)neither country will specialize in the production of a good,but both will engage in trade.
C)one country will specialize in the production of a good,and both will engage in trade.
D)neither country will specialize in the production of a good,and there will be no incentive for trade.
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Chapter 22: International Trade
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Q1) The purchasing power parity theory states that
A)exchange rates between any two currencies will adjust to reflect changes in the relative price level of the two countries.
B)exchange rates between any two currencies will adjust to reflect change in the relative income growth rates of the two countries.
C)the larger the economic growth rate in a country,the less likely its currency will depreciate in value.
D)exchange rates cannot be compared over time.
E)currencies appreciate as often as they depreciate.
Q2) Suppose that the exchange rate between the U.S.dollar and the Mexican peso starts out at $0.12 per peso,and then changes to $0.09 per peso.The result will be that Americans will buy __________ pesos because Mexican goods become relatively __________ expensive.
A)fewer;more
B)fewer;less
C)more;more
D)more;less
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Chapter 23: International Finance
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Sample Questions
Q1) Between 1980 and 2000,income per person in India
A)doubled.
B)tripled.
C)quadrupled.
D)decreased by 25 percent.
Q2) If the dollar appreciates and the U.S.AD curve shifts _______________ by an amount less than the U.S.SRAS curve shifts __________________,then Real GDP will _________________________.
A)rightward;leftward;increase B)rightward;leftward;decrease C)leftward;rightward;increase D)leftward;rightward;decrease
Q3) Globalization is necessarily bad for U.S.workers.
A)True
B)False
Q4) When real interest rates in the United States rise relative to real interest rates in Japan,what is the impact on the U.S.price level? Explain your answer using AD-SRAS analysis.
Q5) Describe three factors that have led to the recent push toward globalization.
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Chapter 24: Globalization and International Impacts on the Economy
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Sample Questions
Q1) In a divisive society the members of groups within the society see themselves as A)working in harmony with other groups in the society.
B)equal to other groups within the society.
C)pitted against other groups in the society.
D)a and b
Q2) Which economist said,"This focus on distribution makes the significance of distributional issues (transfer issues)in political life relatively greater and the significance of widespread common interest in political life relatively smaller."?
A)John Maynard Keynes
B)Milton Friedman
C)David Friedman
D)Mancur Olson
E)David Ricardo
Q3) Describe the intended effects of the first-time home buyer tax credits granted by Congress and many state governments in 2009 and 2010.In addition,describe in detail the unintended effect of this type of legislation.
Q4) In making the case against government,discuss the two main points about special interest groups.
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Q1) What is the Dow Jones Industrial Average (DJIA)? Give a description of why the DJIA was first created,how it is computed,and how it has evolved over time.
Q2) Bonds that are rated in the D category are of higher quality than bonds that are rated in the A category.
A)True
B)False
Q3) The original Dow Jones Industrial Average (DJIA)contained ____________ stocks,while the DJIA now consists of ____________ stocks.
A)10;500
B)11;30
C)15;50
D)20;60
Q4) If the stock market quote in the newspaper reads 752 in the column headed "Vol 00s",it means that 752 shares of this stock were traded on this particular day.
A)True
B)False
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) Supply-restricting policies are intended to __________ prices and __________ farmers' revenues.
A)lower;increase B)lower;reduce C)raise;increase D)raise;reduce
Q2) Refer to Exhibit 39-3.If P<sub>3</sub> is a target price,the price at which output will be purchased is
A)P<sub>1</sub>.
B)P<sub>2</sub>.
C)P<sub>3</sub>.
D)P<sub>3</sub> - P<sub>2</sub>.
E)P<sub>1</sub> - P<sub>2</sub>.
Q3) Refer to Exhibit 39-4.The price support of $6 per bushel results in private citizens spending __________ on wheat.
A)$600
B)$3,000
C)$3,600
D)$4,800
E)$6,600
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