Question 1

Suppose the Federal Reserve wants to increase the money supply. Which of the following actions would it most likely take?

Accepted Answer

Buy U.S. Treasury securities in the open market

Question 2

Which of the following best describes the wealth effect as it relates to the aggregate demand curve?

Accepted Answer

A higher price level decreases the real value of household wealth, leading to lower consumption

Question 3

If the required reserve ratio ($$RR) is 20$$%, what is the simple deposit multiplier?

Accepted Answer

$$5$$

Question 4

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

Accepted Answer

A positive technological shock that increases productivity

Question 5

According to the quantity theory of money, if the money supply ($$M) $$grows at 8% per year, real output ($$Y) $$grows at 3% per year, and velocity ($$V) is $$constant, what is the inflation rate?

Accepted Answer

$$5\%$$

Question 6

Which of the following is NOT a function of money?

Accepted Answer

Source of production

Question 7

A sudden and unexpected increase in oil prices causes the SRAS curve to shift left. What is the most likely short-run macroeconomic outcome?

Accepted Answer

Higher unemployment and higher inflation (stagflation)

Question 8

If the U.S. dollar appreciates relative to foreign currencies, what is the likely effect on U.S. net exports and aggregate demand?

Accepted Answer

Net exports decrease, shifting aggregate demand left

Question 9

Which of the following best explains why fiat money has value?

Accepted Answer

It is accepted by households and firms as long as they have confidence in its value

Question 10

Suppose the economy is initially in long-run equilibrium. If aggregate demand increases rapidly due to a surge in consumer confidence, what is the likely sequence of events in the short run and long run?

Accepted Answer

Short run: output rises above potential, unemployment falls, inflation rises; Long run: SRAS shifts left, output returns to potential, price level is higher

Question 11

Which of the following is included in the M1 measure of the money supply?

Accepted Answer

Checking account deposits

Question 12

A bank receives a new deposit of $$\1$$,000$$ and the required reserve ratio is 10$$\%$. What is the maximum amount of new loans this bank can make from this deposit?

Accepted Answer

$$\900$

Question 13

Which of the following would NOT shift the aggregate demand curve?

Accepted Answer

A change in the price level

Question 14

If banks decide to hold more excess reserves and make fewer loans, what is the likely effect on the money supply?

Accepted Answer

The money supply will decrease

Question 15

Which of the following is an example of a supply shock?

Accepted Answer

A hurricane that destroys oil refineries, raising input prices

Question 16

If the velocity of money ($$V) is$$ $$4$$, the money supply ($$M) is$$ $$\2$ trillion, and real GDP (Y$) is $$\$$8$$ trillion, what is the price level ($$P$$)?

Accepted Answer

$$1$$

Question 17

Which of the following best describes the role of the Federal Open Market Committee (FOMC)?

Accepted Answer

It is responsible for open market operations and managing the money supply

Question 18

If the money supply grows at the same rate as real GDP and velocity is constant, what will happen to the price level according to the quantity theory of money?

Accepted Answer

The price level will remain stable

Question 19

Which of the following is a disadvantage of fiat money compared to commodity money?

Accepted Answer

Its value depends on the confidence of the public

Question 20

A country is experiencing hyperinflation. According to the quantity theory of money, which of the following is most likely occurring?

Accepted Answer

The money supply is growing much faster than real output

Aggregate Demand and Supply, Money, and the Federal Reserve: Study Notes for Macroeconomics

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