Question 1

Which of the following is NOT a function of banks as described in Chapter 10?

Accepted Answer

Directly setting the federal funds rate

Question 2

A bank's balance sheet shows total assets of $$500 million and total liabilities of 450 $$million. What is the bank's equity?

Accepted Answer

$50 million

Question 3

Which of the following best describes the main purpose of the FDIC?

Accepted Answer

To insure deposits and prevent bank runs

Question 4

A Systemically Important Financial Institution (SIFI) is subject to special regulation because:

Accepted Answer

Its failure could threaten the stability of the entire financial system

Question 5

Which of the following is NOT a characteristic of money?

Accepted Answer

It must be backed by gold

Question 6

According to the Quantity Theory of Money, if the money supply increases by 10% and velocity and real output remain constant, what happens to the price level?

Accepted Answer

It increases by 10%

Question 7

The Quantity Theory of Money is summarized by the equation $$ M 	imes V = P 	imes Y . If$$ $$ M $$ increases and $$ V $$ and $$ Y $$ are constant, what must happen to $$ P $$?

Accepted Answer

$$ P $$ increases

Question 8

Which of the following is a cost of unexpected inflation?

Accepted Answer

Redistribution of wealth between borrowers and lenders

Question 9

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

Accepted Answer

Setting fiscal policy

Question 10

The federal funds market is best described as:

Accepted Answer

A market where banks lend reserves to each other overnight

Question 11

If the demand for reserves increases, what happens to the equilibrium federal funds rate, all else equal?

Accepted Answer

It increases

Question 12

Which of the following would cause the supply of reserves in the federal funds market to increase?

Accepted Answer

The Fed conducts open market purchases

Question 13

Which policy tool would the Fed most likely use to lower the federal funds rate?

Accepted Answer

Open market purchases of government securities

Question 14

Liquidity in the context of banking refers to:

Accepted Answer

The ease with which assets can be converted to cash

Question 15

Which of the following best defines a business cycle?

Accepted Answer

Fluctuations in real GDP around its long-term trend

Question 16

A rightward shift in the labor demand curve could be caused by:

Accepted Answer

An increase in the productivity of workers

Question 17

Which of the following statements about the Stock Market crash of 1929 is correct?

Accepted Answer

It reflected revised expectations about the profitability of firms

Question 18

Which of the following contributed to the Great Depression?

Accepted Answer

All of these things

Question 19

Out of fear that negative supply shocks would lead to inflation, the Fed during the Great Depression raised the discount rate on its loans to banks. This would most likely have contributed to _____ stock prices and to ______ bond yields.

Accepted Answer

Lower; higher

Question 20

Following the energy shocks of 1973 and 1979, the Fed chose to prioritize ______ in its dual mandate and so it set a dramatically ____ target federal funds rate.

Accepted Answer

Inflation; higher

Econ 102 Exam Study Guide – Macroeconomics Concepts and Practice Questions

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