Take home exam Introduction to Macroeconomics.

Macroeconomics 201

Answer all 25 multiple choice questions.

1. Which is not a function of money?

a) unit of account; b) medium of exchange; c) means of measure; d) store of value

2. Since the 1980s, it has generally been the view that the money supply:

a) is completely controlled by the central bank;

b) cannot be controlled by the central bank;

c) is completely controlled by the Treasury;

d) cannot be controlled by the Treasury

3) Which of the following is not one of the three kinds of demand for money in Keynes?

a) speculative; b) precautionary; c) administrative; d) transactions

4) Which of the following is not one of the ways the Fed can use to try to affect the money supply?

a) change the discount rate; b) change the fed funds rate;

c) change the reserve requirement ratio; d) open market operations

5) Expansionary policy is used to:

a) try to fight inflation;

b) try to decrease output, income, and employment;

c) try to increase output, income, and employment;

d) try to increase deflation

6) There is a tension between these two characteristics of banks in a fractional reserve banking system:

a) private profit seeking enterprises and susceptible to runs;

b) private profit seeking enterprises and engage in money creation;

c) engage in money creation and susceptible to runs;

d) engage in runs and susceptible to money creation

7) The liquidity trap is:

a) the horizontal portion of the money demand function;

b) when interest rates are so low people do not think they can go any lower;

c) when interest rates are insensitive to changes in the Money supply;

d) all of the above

8) The limits to KEMP are:

a) I may be insensitive to changes in i, i may insensitive to changes in Ms, Y may be insensitive to changes in I;

b) I may be insensitive to changes in Y, I may be insensitive to changes in i, i may be insensitive to changes in Ms;

c) I may be insensitive to changes in i, i may be insensitive to changes in Ms, Y may be insensitive to changes in i;

d) I may be insensitive to changes in i; Ms may be insensitive to changes in i, Y may be insensitive to changes in I

9) The limits to KAIMP are:

a) only works for demand-pull inflation, Fed may overshoot its mark and cause a recession;

b) only works for cost-push inflation, Fed may overshoot its mark and cause a recession; c) only works for demand-push inflation, Fed may overshoot its mark and cause a recession;

d) only works for cost-pull inflation, Fed may undershoot its mark and cause a recession

10) In the endogenous view of the money supply:

a) the Ms curve is vertical; b) the Ms curve is horizontal;

c) the Md curve is vertical; d) the Md curve is horizontal

11) Deficit Hawks view deficits as causing:

a) high investment rates; b) deflation; c) high interest rates; d) all of the above

12) Deficit Doves believe that:

a) deficits cause high interest rates; b) high interest rates cause bigger deficits;

c) deficits are always good; d) all of the above

13) In the functional finance view, bond sales:

a) finance deficit spending; b) add to bank reserves depleted by deficit spending;

c) drain excess reserves to maintain short term interest rates; d) none of the above

14) In the functional finance view, taxes:

a) finance government spending; b) create a demand for government bonds;

c) create a demand for government currency; d) all of the above

15) In the functional finance view:

a) the government needs the public’s money to spend;

b) the public needs the government to accept its money;

c) the government needs the public to need its currency;

d) both b and c

16) The view that the national debt is a burden on future generations is held by:

a) deficit hawks; b) deficits doves; c) functional finance; d) a and b

17) The view that the government is the monopoly issuer of the currency is held by:

a) deficit hawks; b) deficit doves; c) functional finance; d) b and c

18) Which describes KEMP:

a) Ms↑ ( i↑ ( I↑ ( Y↑; b) Ms↑ ( i↓ ( I ↓-- Y↑;

c) Ms↑ ( i↓ ( I↑( Y↑; d) Ms↑ ( i↓ (I↑ ( P↓

19) In the endogenous money view:

a) deposits create loans; b) reserves create loans;

c) loans create deposits; d) deposits create reserves

20) The most common method the Fed uses to try to affect the money supply is:

a) reserve requirement ratio; b) discount rate; c) open market operations; d) fed funds rate

21) What are the tools of monetary policy?

a) government spending and taxes;

b) money supply and interest rates;

c) money demand and interest rates;

d) government supply and tax rates

22) In the endogenous view of the money supply, everything begins with:

a) the supply of credit; b) the demand for credit;

c) the supply of loanable funds; d) none of the above

23) The Fed can try to increase the money supply by:

a) selling discount rates;

b) buying discount rates;

c) selling bonds;

d) buying bonds

24) The Fed can try to decrease the money supply by:

a) raising the discount rate;

b) lowering the discount rate;

c) lowering the reserve requirement ratio;

d) raising the money supply

25) When money is used to settle debt it is functioning as:

a) a means of purchase; b) a means of value;

c) a means of payment; d) a medium of account