3rd Macroeconomics Exam – Destin Economics

These Practice Exams cover the third Exam of your course and include the topics Money, Banks, the Federal Reserve, Monetary Policy, and Fiscal Policy. As before, you can start with the EASY version and work your way up to the most difficult version. Good luck.

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Created on April 09, 2021 By

Dennis Burns

3rd. Macroeconomics Exam (EASY)

This is the easiest version of the Third Macroeconomics Exam. If you do well on this one, take the Moderate Exam. Good luck!

1 / 25

Using money and credit controls to try to manage economic growth is called

Fiscal policy.

Monetary policy.

Growth policy.

Keynesian policy.

2 / 25

Fiscal policy is defined as

Changing interest rates to affect growth rate of the economy.

Presidential directives that slow economic growth.

Tax and spending policies aimed at achieving national economic goals.

All of the above.

3 / 25

Fiscal policy involves the

Buying and selling of bonds in order to manage the money supply and interest rates.

Modification of spending and tax policies in order to achieve national economic goals.

Modification of borrowing and tax policies in order to achieve national economic goals.

Modification of unemployment and price policies in order to achieve national economic goals

4 / 25

The Federal Reserve has traditionally kept the discount rate

Below the fed funds rate

Equal to the fed funds rate

Above the fed funds rate

Nonw of the above.

5 / 25

The Federal Funds rate is the interest rate on

Overnight bank-to-bank reserve loans.

Federal Reserve loans to troubled banks.

US Treasury bonds.

Corporate loans to the Federal Reserve.

If a bank is short of its reserve requirements, it can borrow in the federal funds market from another bank with excess reserves.

6 / 25

Of the following, which is NOT included in M1?

Coins and currency.

Checkable deposits.

Small (less than $100,000) certificates of deposit.

Traveler’s checks

7 / 25

If the government deliberately modifies its taxing and spending policies with the goal of influencing the economy and its growth, it is implementing

Monetary policy.

Fiscal policy.

Federal Reserve policy.

Ceteris paribus policy.

8 / 25

In the United States, fiscal policy is carried out by which branch(es) of government?

The Executive and Legislative.

The Federal Reserve.

The House Ways and Means Committee.

The U.S. Treasury.

9 / 25

M1, savings account balances, and money market mutual funds are part of

M1.

M2.

M3.

Fed Funds.

10 / 25

Fiscal policy is defined as

Changing interest rates to affect growth rate of the economy.

Presidential directives that slow economic growth.

Tax and spending policies aimed at achieving national economic goals.

All of the above.

11 / 25

Of the following, which is the largest part of M1?

Coins and currency.

Checkable deposits (checking accounts).

Small (less than $100,000) certificates of deposit.

Traveler’s checks.

12 / 25

Currency held by the public, balances in transactions accounts, and travelers checks are part of

M1.

M2.

M3.

Fed Funds.

M1 includes currency in the hands of the public, balances in transaction accounts, and travelers checks and is the most liquid form of money,

13 / 25

In the United States, the money supply is backed by

Silver

Gold.

The New York Stock Exchange.

Faith.

14 / 25

Savings accounts are a part of

M2 but not M1.

Both M1 and M2.

M1 only.

M1 but not M2.

15 / 25

In order to become a member of the Federal’s Reserve Board of Governors, one must be

CEO of a Fortune 100 corporation.

Appointed by the president and confirmed by the Senate.

Recommended by the governors of at least two states.

Elected by the people of a state served by a Fed branch.

16 / 25

M1 includes currency held by the public plus

Transactions accounts plus travelers checks.

Short-term consumer loans plus transactions accounts.

Savings account balances plus money market mutual funds.

Transactions accounts plus money market mutual funds.

17 / 25

The primary means the Federal Reserve uses to manage the money supply in the United States is to regulate

The level of government spending.

Tax rates.

The volume of loans made in the banking system.

Currency exchange rates.

18 / 25

If the Federal Reserve increases the required reserve ratio from 10% to 20%, the money multiplier will

Increase from 10 to 20

Increase from 5 to 10.

Decrease from 20 to 10

Decrease from 10 to 5.

19 / 25

The money supply measure, M2, includes M1

Plus balances in saving accounts, money market mutual funds, and certificates of deposit.

Plus saving accounts and money market mutual funds.

Plus saving account balances and travelers checks.

Plus M3.

20 / 25

If the government deliberately modifies its taxing and spending policies with the goal of influencing the economy and its growth, it is implementing

Monetary policy.

Fiscal policy.

Federal Reserve policy.

Ceteris paribus policy.

21 / 25

Assume that the economy is in equilibrium on the LRAS curve and the government increases spending on goods and services. What would likely happen in the long run?

Both real GDP and the price level will increase.

Real GDP will remain constant and the price level will increase.

Real GDP will increase and the price level will remain constant.

Both real GDP and the price level will remain constant.

22 / 25

When the Federal Reserve buys and sells government bonds with the goal of altering bank reserves, it is engaging in

Fiscal policy.

Direct investment.

Open market operations.

Outdated monetary practices.

23 / 25

Meetings of the Federal Open Market Committee occur

Two times per year.

Daily.

Every four or five weeks.

Annually, as needed.

24 / 25

Fiscal policy involves the

Buying and selling of bonds in order to manage the money supply and interest rates.

Modification of spending and tax policies in order to achieve national economic goals.

Modification of borrowing and tax policies in order to achieve national economic goals.

Modification of unemployment and price policies in order to achieve national economic goals

25 / 25

In the United States, fiscal policy is carried out by which branch(es) of government?

The Executive and Legislative.

The Federal Reserve.

The House Ways and Means Committee.

The U.S. Treasury.

Your score is

The average score is 56%

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/25

Created on April 09, 2021 By

Dennis Burns

3rd. Macroeconomics Exam (MODERATE)

This is the MODERATE version of the 3rd. Macroeconomics Exam. If you do well on this one, take the HARD version. Good luck!

1 / 25

If the Federal Reserve wants to increase the federal funds rate, it can do this through the open market operation of

Selling government bonds.

Buying government bonds.

Requesting that Congress mandate the change in legislation.

Requesting that the president mandate the change in executive orders

Since bond prices and yields move in opposite directions, the Federal Reserve can push up bond yields (and market interest rates) by selling government bonds.

2 / 25

If the government wants to use fiscal policy to reduce an inflationary gap, it could

Decrease taxes.

Increase the money supply.

Decrease military spending.

Increase spending on social programs.

3 / 25

If the Federal Reserve reduces the required reserve ratio from 10% to 5%, the money multiplier will

Increase from 10 to 20

Increase from 5 to 10.

Decrease from 20 to 10

Decrease from 10 to 5.

4 / 25

Of the following, which is NOT one of the functions of money?

Medium of exchange.

Store of value.

Sign of credit-worthiness

Standard of deferred payment.

5 / 25

Of the following, which is an action a bank might take if finds that it does not have enough reserves to meet its reserve requirement.

Borrow additional reserves from another bank in the Federal Funds market.

Sell stock in an IPO.

Borrow from the discount window at the Federal Reserve.

Buy securities.

Banks can meet their reserve requirement in a couple of ways. A bank can borrow from the Federal Reserve, or from another bank in the Fed Funds market, or it can sell some of its relatively liquid assets or securities.

6 / 25

If the Federal Reserve changes the ________, its actions will change the lending capacity of the banking system.

Home mortgage interest rate

Gold reserves in Fort Knox

The reserve requirement

The fiscal policy rate

Changing the reserve requirement changes the level of excess reserves banks have as well as the money multiplier. This, in turn, alters the lending capacity of the banking system.

7 / 25

If the Federal Reserve wishes to increase the money supply, it could

Raise the required reserve ratio.

Decrease the discount rate.

Buy securities on the open market.

All of the above.

The traditional monetary policy tools employed by the Federal Reserve include changing the reserve requirement, changing the discount rate, and buying and selling bonds (open market operations.). Typically, open market operations is the most frequently-used of these three.

8 / 25

The Quantity Theory of Money tells us that if an economy is at full-employment, an increase in money supply will result in inflation—that is, unless

The velocity of money increases.

The velocity of money decreases.

SRAS shifts leftward.

The Federal Reserve lowers the discount rate.

9 / 25

If the government wants to use fiscal policy to reduce an inflationary gap, it could

Decrease taxes.

Increase taxes.

Increase military spending.

Increase spending on social programs.

10 / 25

Banks earn money to pay operating expenses and profits by

Investing in corporate stocks and securities.

Borrowing and lending in the Federal Funds market.

Using depositors’ funds to make loans.

Collecting fees from the Federal Reserve.

11 / 25

If an inflationary gap exists, a reduction in government spending will have the effect of which of the following

Aggregate demand will shift leftward and close the gap.

Short-run aggregate supply will shift rightward and close the gap.

Long-run aggregate supply will shift rightward and close the gap.

Aggregate demand will shift rightward and close the gap.

12 / 25

Of the following, which is NOT one of the tools available to the Federal Reserve for controlling the money supply?

The reserve requirement.

The discount rate.

Open market operations.

Tax and spending policies.

Tax and spending policies are parts of fiscal policy controlled (in the US) by Congress and the president.

13 / 25

Of the following, which is the tool used most frequently by the Federal Reserve to enact monetary policy?

The reserve requirement.

The discount rate.

Open market operations.

Tax and spending levels.

14 / 25

If output at the current equilibrium is greater than LRAS, raising taxes can remedy the problem by

Increasing short-run aggregate supply.

Shifting aggregate demand to the left.

Increasing long-run aggregate supply.

Shifting aggregate demand to the right.

15 / 25

The thrust of the quantity theory of money is its assertion that

The level of the money supply is linked to interest rates.

The level of the money supply is linked to money velocity.

The level of the money supply is linked to the price level.

The level of the money supply is linked to real output.

16 / 25

If you hide money under your mattress to be used to make purchases later, money is acting as a

Store of value.

Medium of exchange.

Unit of accounting.

Hedge against inflation.

17 / 25

The quantity theory of money assumes that

The velocity of money is constant.

The money supply is constant.

The level of output is constant.

The real rate of interest is constant.

18 / 25

Of the following, which will NOT change if the Federal Reserves increases the reserve requirement?

The money multiplier.

The lending capacity of the banking system.

Corporate capital gains tax rates.

The level of excess reserves.

19 / 25

Of the following statements, which is a basic assumption of the Ricardian equivalence theorem?

Consumers pay little or no attention to government budget deficits.

Consumer demand for a good is inversely related to its price.

Tax cute generally result in a shift in aggregate supply, rather than aggregate demand.

Consumers may adjust how much they spend and save today based on expected future tax payments.

20 / 25

If the Federal Reserve increases the required reserve ratio from 5% to 10%, the money multiplier will

Increase from 10 to 20

Increase from 5 to 10.

Decrease from 20 to 10

Decrease from 10 to 5.

21 / 25

If the economy is at a level of real GDP below the LRAS curve, which of the following fiscal policy actions would likely lead to a higher equilibrium level of real GDP in the short run?

Decrease government spending

Increase taxes

Increase government spending and/or reduce taxes

Decrease government spending and/or increase taxes

22 / 25

In simple terms, a bond is a

Share of ownership in a corporation.

Contract for a loan.

Guarantee of deposits held by a commercial bank.

Certification of a banks’ membership in the Federal Reserve system.

When corporations and governments borrow, they “sell bonds” which specify the loan’s duration, interest charges, terms of redress if the repayment is not made, or any other terms which may make the bonds marketable.

23 / 25

If the Federal Reserve wants to increase the money supply, it can

Raise the reserve requirement, increase the discount rate, or sell bonds.

Raise the reserve requirement, increase the discount rate, or buy bonds.

Lower the reserve requirement, decrease the discount rate, or buy bonds.

Lower the reserve requirement, increase the discount rate, or buy bonds.

24 / 25

The simple money multiplier equals

1 / the required reserve ratio.

1 / (total reserves - required reserves).

1 / total reserves

1 / (1 / the required reserve ratio).

25 / 25

As a medium of exchange, money

Reduces transaction costs.

Benefits both buyers and sellers

Eliminates the need for barter.

All of the above.

Your score is

The average score is 53%

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/25

Created on April 09, 2021 By

Dennis Burns

3rd. Macroeconomics Exam (DIFFICULT)

This is the third--and most demanding--version of the Third Macroeconomics Exam. If you do well on this one, you should be ready for the real thing. Good luck!

1 / 25

When the Federal Reserve is engaging in open market operations it is

Buying or selling government bonds.

Buying or selling shares of stock in member banks.

Buying or selling shares of corporate stock.

Buying or selling corporate bonds.

When it engages in open market operations, the Fed buys or sells government bonds in order to change the level of reserves in the banking system.

2 / 25

The thrust of the quantity theory of money is its assertion that

The level of the money supply is linked to interest rates.

The level of the money supply is linked to money velocity.

The level of the money supply is linked to the price level.

The level of the money supply is linked to real output.

3 / 25

The quantity theory of money assumes that

The velocity of money is constant.

The money supply is constant.

The level of output is constant.

The real rate of interest is constant.

4 / 25

Imagine that the required reserve ratio is 10% and that banks are holding no excess reserves; if the Federal Reserve sells $50 million of bonds from the public, then M1 will eventually

Decrease by $50,000,000.

Decrease by $500,000,000.

Increase by $50,000,000.

Increase by $500,000,000.

5 / 25

Of the following, which is an activity that the Federal Reserve System engages in?

Prints checks for commercial banks.

Regulate the money supply in foreign countries.

Issues currency.

Sets the interest rates that banks charge their customers.

6 / 25

Imagine that the required reserve ratio is 10% and that banks are holding no excess reserves; if the Federal Reserve buys $50 million of bonds from the public, then the total lending capacity of the banking system will

Decrease by $50,000,000.

Decrease by $500,000,000.

Increase by $50,000,000.

Increase by $500,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $50,000,000 injection by the Fed would create 10 times that amount, or $500,000,000. in additional lending capacity.

7 / 25

When the Federal Reserve changes the discount rate, it changes

The money multiplier.

Bank’s incentive to borrow reserves.

The interest rate paid on bonds issued by the U.S. Treasury.

The short-run aggregate supply curve.

8 / 25

Imagine that the required reserve ratio is 20% and that banks are holding no excess reserves; if the Federal Reserve buys $50 million of bonds from the public, then M1 will eventually

Decrease by $25,000,000.

Decrease by $250,000,000.

Increase by $25,000,000.

Increase by $250,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $50,000,000 injection by the Fed would create 5 times that amount, or $250,000,000 in additional lending capacity and checkable deposits—which are included in M1.

9 / 25

Which of the following is NOT a function of the Federal Reserve?

Provide a clearinghouse for checks.

Regulate the money supply in the U.S.

Regulates the banking system in the U.S.

Sell bonds for the U.S. government.

10 / 25

Imagine that the required reserve ratio is 10% and that banks are holding no excess reserves; if the Federal Reserve sells $50 million of bonds to the public, then the total lending capacity of the banking system will

Decrease by $50,000,000.

Decrease by $500,000,000.

Increase by $50,000,000.

Increase by $500,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $50,000,000 sale by the Fed would reduce 10 times that amount, or $500,000,000, in lending capacity.

11 / 25

Of the following, which is an activity that the Federal Reserve System does NOT engage in?

Provide a clearinghouse for checks.

Regulate the money supply in the U.S.

Issues currency.

Sets the interest rates that banks charge their customers.

12 / 25

The thrust of the quantity theory of money is its assertion that

The level of the money supply is linked to interest rates.

The level of the money supply is linked to money velocity.

The level of the money supply is linked to the price level.

The level of the money supply is linked to real output.

13 / 25

The quantity theory of money assumes that

The velocity of money is constant.

The money supply is constant.

The level of output is constant.

The real rate of interest is constant.

14 / 25

Which of the following best describes the equation of exchange? (where Ms = money supply; V = velocity; P = price level; and Y = output

Ms × V = P × Y

Ms × P= V × Y

Ms / V × Y = P

Ms × Y = P × V

15 / 25

The _________ is the average number of times a dollar is spent on final goods and services in a yea

The prime rate.

The income velocity of money.

The natural rate.

Real GDP.

16 / 25

Imagine that the required reserve ratio is 20% and that banks are holding no excess reserves; if the Federal Reserve sells $50 million of bonds to the public, then the total lending capacity of the banking system will

Decrease by $25,000,000.

Decrease by $250,000,000.

Increase by $25,000,000.

Increase by $250,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $50,000,000 sale of bonds by the Fed would reduce 5 times that amount, or $250,000,000, less lending capacity.

17 / 25

The effect that we would expect an expansionary fiscal policy to have the AD curve is:

It would shift to the right.

It would shift to the left.

It would become steeper.

It would become flatter.

18 / 25

The effect that we would expect an expansionary monetary policy to have the AD curve is:

It would shift to the right.

It would shift to the left.

It would become steeper.

It would become flatter.

19 / 25

Imagine that the required reserve ratio is 20% and that banks are holding no excess reserves; if the Federal Reserve buys $20 million of bonds from the public, then the total lending capacity of the banking system will

Decrease by $1,000,000,000.

Decrease by $100,000,000.

Increase by $1,000,000,000.

Increase by $100,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $20,000,000 injection by the Fed would create 5 times that amount, or $100,000,000 in additional lending capacity.

20 / 25

The effect that we would expect an expansionary monetary policy to have the AD curve is:

It would shift to the right.

It would shift to the left.

It would become steeper.

It would become flatter.

21 / 25

Of the following, which would occur if we lost faith in the value of our money?

It would become more acceptable as a standard of deferred payment.

Its value would fall.

It would become more acceptable as a store of value.

It would become more acceptable as a medium of exchange.

22 / 25

The Quantity Theory of Money tells us that if an economy is at full-employment, an increase in money supply will result in inflation—that is, unless

The velocity of money increases.

The velocity of money decreases.

SRAS shifts leftward.

The Federal Reserve lowers the discount rate.

23 / 25

Imagine that the required reserve ratio is 20% and that banks are holding no excess reserves; if the Federal Reserve sells $50 million of bonds to the public, then M1 will eventually

Decrease by $25,000,000.

Decrease by $250,000,000.

Increase by $25,000,000.

Increase by $250,000,000.

24 / 25

Imagine that the required reserve ratio is 20% and that banks are holding no excess reserves; if the Federal Reserve buys $50 million of bonds from the public, then the total lending capacity of the banking system will

Decrease by $25,000,000.

Decrease by $250,000,000.

Increase by $25,000,000.

Increase by $250,000,000.

Because the formula for the money multiplier is “M=(1 / required reserve ratio)”, a $50,000,000 injection by the Fed would create 5 times that amount, or $250,000,000, in additional lending capacity.

25 / 25

The effect that we would expect an expansionary fiscal policy to have the AD curve is:

It would shift to the right.

It would shift to the left.

It would become steeper.

It would become flatter.

Your score is

The average score is 42%

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