Multiple choice questions:
Question 1
An increase in which of the following factors (from the perspective of the domestic country) would cause an appreciation of the domestic currency in the long run?
Question 1 options:
a) expected future exchange rate
b) relative import demand
c) relative productivity
d) of the above
Question 2
An increase in a country's trade barriers will cause the _____ for its currency to shift to the
Question 2 options:
a) supply, left.
b) demand, left.
c) demand, right.
d) supply, right.
Question 3
Most currency trading takes place
a) between central banks.
b) via over-the-counter-trading.
c) on a centralized exchange.
d) none of the above.
Question 4
A rise in the real interest rate in a country causes its currency to
Question 4 options:
a) appreciate
b) remain unchanged
c) cannot be determined
d) depreciate
Question 5
In practice, the primary tool used by the Federal Reserve to control the money supply is
Question 5 options:
a) discount lending.
b) open market operations.
c) the reserve requirement.
d) buying commercial paper.
Question 6
A change in which of the following tools shifts the demand for reserves?
Question 6 options:
a) discount lending
b) the reserve requirement
c) open market operations
d) all of the above.
Question 7
The goal of quantitative easing is to _____.
Question 7 options:
a) decrease the prices of (increase the yields of) Treasury bonds in order to control inflation
b) increase the prices of (increase the yields of) Treasury bonds in order to control inflation
c) decrease the prices of (increase the yields of) Treasury bonds and decrease the money supply directly
d) increase the prices of (decrease the yields of) Treasury bonds and increase the money supply directly
Question 8
In practice, discount lending is used
Question 8 options:
a) to control the foreign exchange rate
b) to control the money supply.
c) to ease a financial panic.
d) set a minimum for the federal funds rate.
Question 9
Central banks make money from interest on
Question 9 options:
a) the multiplier
b) notes
c) loans
d) reserves
Question 10
Which of the following is a liability of the Fed?
Question 10 options:
a) bank reserves
b) they are all liabilities of the Fed
c) bonds
d) discount loans
Question 11
If the Fed sells $50 in securities and the reserve requirement is 25%, according to the simple formula for the money multiplier, the money supply
Question 11 options:
a) rises by $200.
b) falls by $50.
c) falls by $200.
d) rises by $50.
Question 12
If the Fed buys $100 in securities and the reserve requirement is 10%, according to the simple formula for the money multiplier, the money supply
Question 12 options:
a) rises by $100.
b) rises by $1000.
c) falls by $1000.
d) falls by $100.
Question 13
Which of the following is a difference between Keynes liquidity preference theory and the modern quantity theory of money?
Question 13 options:
a) The modern quantity theory of money specifies 1 asset instead of 3 assets like the liquidity preference theory.
b) The modern quantity theory predicts that interest rate changes have little effect on money demand unlike the liquidity preference theory.
c) The liquidity preference theory assumes velocity to be constant, unlike the modern quantity theory of money.
d) The liquidity preference theory assumes the return on money to be 1, unlike the modern quantity theory of money.
Question 14
A liquidity trap occurs when
Question 14 options:
a) money demand falls.
b) inflation is zero.
c) nominal interest rates are zero.
d) all of the above.
Question 15
Which of the following is equivalent to velocity?
Question 15 options:
a) MV/PY
b) YP/M
c) MP/Y
d) none of the above
Question 16
People holding money in anticipation that bond yields will rise is an example of
Question 16 options:
a) money demand for transactions.
b) precautionary demand.
c) speculative demand.
d) outsourcing
Question 17
In Keynes's model, a(n) _____ in interest rates can decrease the _____ demand for money.
Question 17 options:
a) decrease, speculative
b) decrease, transactions
c) increase, transactions
d) increase, speculative
Question 18
Which of the following is an asset of the Fed?
Question 18 options:
a) Federal Reserve notes
b) bank reserves
c) gold
d) they are all liabilities of the Fed
Question 19
Exchange rates are determined in
Question 19 options:
a) the foreign exchange market
b) the capital market
c) the stock market
d) the money market
Question 20
When the Fed raises the reserve requirement, the _____ of reserves shifts
Question 20 options:
a) demand, right
b) supply, right
c) supply, left
d) demand, left