Question 1

Suppose a bank has deposits of \$$500,000 and reserves of \75$$,000. If the required reserve ratio is 10%, what are the excess reserves for this bank?

Accepted Answer

$$\25$$,000$

Question 2

If the Federal Reserve conducts an open market purchase of \$120,000 in government bonds and the required reserve ratio is 10%, what is the maximum possible increase in the money supply?

Accepted Answer

$$\1$$,200,000$

Question 3

Which of the following would shift the aggregate demand curve to the right?

Accepted Answer

An increase in government spending

Question 4

If the economy is operating above potential output, which fiscal policy would be most appropriate to reduce inflationary pressures?

Accepted Answer

Decrease government spending

Question 5

Suppose the marginal propensity to consume (MPC) is $$0.8. $$What is the value of the simple spending multiplier?

Accepted Answer

$$5$$

Question 6

If the price level increases, what happens to the real value of money holdings and the quantity of money demanded?

Accepted Answer

The real value of money holdings decreases and the quantity of money demanded increases

Question 7

Which of the following is NOT a function of money?

Accepted Answer

A method for government to collect taxes

Question 8

If the required reserve ratio is 20% and a bank receives a new deposit of \$10,000, what is the maximum amount this bank can lend out?

Accepted Answer

$$\8$$,000$

Question 9

Which of the following would cause the short-run aggregate supply (SRAS) curve to shift to the right?

Accepted Answer

A decrease in the price of oil

Question 10

Suppose a country’s real GDP grows at a rate of 5% per year. Using the rule of 70, how many years will it take for real GDP to double?

Accepted Answer

$$14$$ years

Question 11

Which of the following is an example of an automatic stabilizer?

Accepted Answer

Unemployment insurance payments

Question 12

If the Federal Reserve wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government bonds in the open market

Question 13

Which of the following best describes the effect of an increase in the marginal propensity to consume (MPC) on the spending multiplier?

Accepted Answer

The spending multiplier increases

Question 14

If the government increases spending by \$$100 million and the MPC is 0.75$, what is the total increase in aggregate demand?

Accepted Answer

$$\400$ million

Question 15

Which of the following would NOT be considered part of M1 money supply?

Accepted Answer

U.S. Treasury bonds

Question 16

If the economy is at potential output but foreign economies slow dramatically, what fiscal policy would you recommend?

Accepted Answer

Increase government spending to offset the decline in exports

Question 17

Which of the following is a liability for a commercial bank?

Accepted Answer

Customer deposits

Question 18

Which of the following would cause the long-run aggregate supply (LRAS) curve to shift to the right?

Accepted Answer

A technological innovation that increases productivity

Question 19

If the government implements a tax cut and the MPC is $$0.6$$, what is the tax multiplier?

Accepted Answer

$$-1.5$$

Question 20

Which of the following best explains why an increase in government purchases has a larger impact on aggregate demand than an equal increase in transfer payments?

Accepted Answer

Some of the transfer payment is saved, while all of the government purchase is spent directly

Macroeconomics Exam Review: Banking, Monetary Policy, Fiscal Policy, and Aggregate Demand/Supply

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