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ECO 213 - Exam 3 Questions And Correct Answers
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ECO 213 - Exam 3 Questions And Correct Answers 2024-20251) Inflation whittles away at money's value as a ________ and a ________.
A) medium of exchange; store of value
B) unit of barter; unit of account
C) store of value; unit of barter
D) store of value; unit of liquidity - Answer A) medium of exchange; store of value
2) The Fed's two primary monetary policy goals are
A) the money supply and short term interest rates.
B) the inflation rate and real GDP
C) short term interest rates and real GDP.
D) the money supply and the inflation rate. - Answer A) the money supply and short term
interest rates.
3) The money demand curve has a negative slope because
A) lower interest rates cause households and firms to switch from money to financial
assets.
B) A decrease in interest rates gives incentives for households and firms to shift away
from financial assets into money.
C) A decrease in interest rates gives incentives for households and firms to switch from
money into bonds.
D) A decrease in interest rates gives incentives for households and firms to switch from
money into stocks. - Answer B) A decrease in interest rates gives incentives for
households and firms to shift away from financial assets into money.
4) Which of the following is NOT a goal of monetary policy?
A) price stability
B) low unemployment
,C) maximizing the value of the dollar relative to other currencies
D) economic growth - Answer C) maximizing the value of the dollar relative to other
currencies
5) Money demand will increase if the price level ________ or if real GDP ________.
A) decreases; decreases
B) decreases; increases
C) increases; decreases
D) rises; rises - Answer D) rises; rises
6) A rise in real GDP
A) raises the purchase and sale of goods as well as raises the demand for money as a
medium of exchange.
B) reduces the purchase and sale of goods as well as lowers the demand for money as a
medium of exchange.
C) reduces the purchase and sale of goods as well as raises the demand for money as a
medium of exchange.
D) increases the buying and selling of goods and decreases the demand for money as a
medium of exchange. - Answer A) increases the buying and selling of goods and
increases the demand for money as a medium of exchange.
7) When the market price of a financial asset ________ its interest rate will ________.
A) falls; rise
B) rises; rise
C) falls; fall
D) rises; does not change - Answer A) falls; rise
8) Suppose the Fed increases the money supply. Which of the following is true?
A) At the initial interest rate the quantity of money demanded equals the quantity of
money supplied.
, B) The interest rate must rise to clear the money market.
C) The quantity of money demanded exceeds the quantity of money supplied at the
original interest rate.
D) The quantity of money demanded is less than the quantity of money supplied at the
original interest rate. Answer D) The quantity of money demanded is less than the
quantity of money supplied at the original interest rate.
9) Other things equal, an increase in the money supply will
A) have no affect on the interest rate.
B) decrease the interest rate.
C) decrease the equilibrium quantity of money in the economy.
D) increase the interest rate. -Answer B) decrease the interest rate.
10) If the Fed FOMC buys Treasury bills through an open market purchase, this will
A) shift the money supply curve to the left.
B) shift the money supply curve to the right.
C) shift the money demand curve rightward
D) shift the money demand curve leftward. -Answer B) shift the money supply curve
rightward.
11) If money demand is very sensitive to changes in the interest rate-money demand is
highly "elastic"-the money demand curve becomes quite horizontal. Under such
circumstances, if the Fed increaes the money supply, then the interest rate will
A) fall significantly and investment and consumption will change very little.
B) increase significantly and investment and consumption will increase significantly.
C) fall significantly and investment and consumption will fall significantly.
D) change very little and investment and consumption will change very little. - Answer C)
fall significantly and investment and consumption will fall significantly.
12) An increase in real GDP can
A) decrease the demand for money and lower the interest rate.
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