Monetary Policy of Economics MCQs
Monetary Policy of Economics MCQs
Try to answer these 60 Monetary Policy of Economics MCQs and check your understanding of the Monetary Policy of Economics subject.
Scroll down and let's begin!
1: In which market the money demand and money supply determine the equilibrium interest rate?
A. Clothes market
B. Money market
C. Interest market
D. All of these
2: Quantity theory of money and prices states the hypothesis that changes in the money supply lead to ____proportional changes in the price level
A. Less
B. Greater
C. Zero
D. Equal
3: A measure of how frequently money is turned over is called
A. Velocity of money
B. Frequency of money
C. Acceleration of money
D. All of these
4: A decrease in the demand for money will shift the money demand curve ______.
A. To the right
B. To the left
C. Upward
D. Downward
5: Money market equilibrium occurs at which of the following?
A. The real interest rate where the quantity of money demanded equals the quantity of money supplied
B. The nominal rate where the quantity of money demanded equals the quantity of money supplied
C. The real interest rate where the quantity of money demanded is less than the quantity of money supplied
D. The nominal interest rate where the quantity of money demanded is more than the quantity of money supplied
6: In the long run, if the money supply rises by 20 percent, the price level rises by ______.
A. 5%
B. 10%
C. 20%
D. 30%
7: With all other things being equal, the money supply curve is drawn as ______.
A. Vertical
B. Horizontal
C. Upward sloping
D. Downward sloping
8: Which of the following strategies do bond sellers use if many people are trying to get rid of bonds?
A. They vary interest rates.
B. They keep interest rates stable.
C. They decrease interest rates.
D. They increase interest rates.
9: When does the Fed use a contractionary monetary policy?
A. Before an economic recession
B. During an economic recession
C. Before an inflation period
D. During an inflation period
10: The Fed decides to pursue an expansionary monetary policy on the open market. What effect will this have?
A. U.S. exports and imports will both increase.
B. U.S. exports and imports will both decrease.
C. U.S. exports will increase and U.S. imports will decrease.
D. U.S. exports will decrease and U.S. imports will increase.
11: During inflation, the Fed will engage in a contractionary money policy by ______ the money supply and ______ the interest rate.
A. Decreasing; increasing
B. Increasing; decreasing
C. Decreasing; decreasing
D. Increasing; increasing
12: The quantity theory of money and prices claims that changes in the ______ lead to equal proportional changes in the ______.
A. Real GDP; money supply
B. Money supply; price level
C. Real GDP; price level
D. Real GDP; nominal GDP
13: In the equation of exchange, which of the following letters represents real output?
A. M
B. P
C. Q
D. V
14: It is difficult for the Fed to know when an increase in the aggregate demand curve will happen because ______.
A. RGDP tends to fluctuate
B. Equilibrium points are unstable
C. Of unexpected shifts in price levels
D. Of the time lag before monetary policy has an impact
15: In order to know how much to stimulate the economy, policy makers must know how much ______ should increase.
A. RGDP
B. NGDP
C. NNP
D. NI
16: Why does the Fed engage in quantitative easing?
A. To increase short-term interest rates
B. To decrease short-term interest rates
C. To increase long-term interest rates
D. To decrease long-term interest rates
17: The short-run aggregate supply curve is _____ when the economy is near maximum capacity.
A. Upward sloping
B. Downward sloping
C. Steep
D. Flat
18: What do many people believe was an important cause of the financial crisis of 2008-2009?
A. Banks giving out too many loans that couldn’t be paid back
B. Banks maintaining excess reserves instead of loaning them out
C. Banks receiving insufficient money for the Fed
D. Banks using reserves for investments
19: A higher required reserve ratio _________ the value of the simple deposit multiplier.
A. The money supply will increase
B. Payments agreed to today but made in the future are in terms of money
C. Decreases
D. The buyers of these securities pay for them with checks and bank reserves fall
20: Based on the exchange rate table below, one u.s. dollar is able to buy _____ mexican pesos.
A. Japan YEN 101.96
B. China YUAN 6.2471
C. Mexico PESO 12.8575
D. Canada DOLLAR 1.0853
21: In a recession the money supply can be increased by the fed _____________ securities.
A. Keynesians
B. Decreases
C. Increased
D. All the above
22: Normally the discount rate is _____ the federal funds rate.
A. Above
B. Below
C. Equal to
D. None of these
23: A higher real interest rate ______ investment spending and ______ consumption spending.
A. Increases; decreases
B. Decreases;increases
C. Increases;increases
D. Decreases;decreases
24: A higher real interest rate ______ saving and ______ consumption spending.
A. Increases; decreases
B. Decreases;increases
C. Increases;increases
D. Decreases;decreases
25: An increase in the time to the promised future payment ________ the present value of the payment.
A. Decreases
B. Increases
C. Has no effect on
D. Is irrelevant to
26: If the economy is in a recessionary gap, actual output will be _____ potential output.
A. Below
B. Above
C. None of above
27: Rising prices erode the value of money as a ________ and as 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
28: Monetarists think that the fed should use _________ as a target when conducting monetary policy.
A. The federal funds rate
B. The money supply
C. The inflation rate
D. The Treasury bill rate
E. The unemployment rate
29: Both ________ and ________ are federal reserve assets
A. Currency in circulation; reserves
B. Currency in circulation; government securities
C. Government securities; discount loans
D. Government securities; reserves
30: A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply.
A. Raises; reduces
B. Reduces; raises
C. Raises; raises
D. Reduces; reduces
31: An increase in the money supply, all else held constant, usually _____.
A. Increases the interest rate and increases aggregate demand.
B. Increases the interest rate and decreases aggregate demand.
C. Decreases the interest rate and increases aggregate demand.
D. Decreases the interest rate and decreases aggregate demand
32: An open market purchase ______ the monetary base. an open market sale ______ the monetary base.
A. Increases; decreases
B. Descreases; increases
C. Increases; increases
D. Descreases; decreases
33: The demand curve for federal funds is _____.
A. Downward-sloping
B. Upward-sloping
C. Straight-sloping
34: The federal funds rate is the _____ rate on _____ loans.
A. Interest, interbank
B. Interbank, interest
C. Interst, interst
D. Interbank, interbank
35: The purpose of expansionary monetary policy is to increase _____.
A. Real GDP
B. The GDP-gap
C. The inflation rate
D. Interest rates
36: The rate of interest banks charge on short-term loans to their best customers is the _____.
A. Prime rate
B. Federal funds rate
C. Discount rate
D. None of the above
37: To _____ the money supply, the federal reserve could _____.
A. Decrease; lower the federal funds rate
B. Increase; conduct open-market sales
C. Increase; lower the discount rate
D. Decrease; lower the reserve requirements - wrong
38: Reserves consist of the currency in the _____ plus the balance on its _____ account at _____.
A. Interest rate; interbank
B. Bank's vaults;reserve;a federal reserve bank
C. Both
D. None of these
39: The two main responsibilities of the federal reserve system are to ______ and to ______.
A. Providing information and risk-sharing services
B. Currency, checking deposits, and travelers' checks
C. Reduce the cost of gathering information about borrowers
D. Conduct monetary policy; oversee financial markets
40: A currency drain ______ bank deposits and _______ bank reserves.
A. Increases; decreases
B. Decreases; increases
C. Decreases; decreases
D. Increases; increases
41: As interest rates rise, _____.
A. Fall
B. The sum of all private investors.
C. Increase.
D. Long-lived fixed-rate debt instruments will decline more than short-lived fixed rate debt instruments
42: Bank deposits ______ and the quantity of money ______.
A. When the​ People's Bank of China makes an open market​ purchase, bank deposits increase because loans increase.
B. Money includes bank​ deposits, so the quantity of money increases.
C. Excess reserves have decreased so the bank calls in loans and makes fewer loans.
D. When the bank calls in loans and makes fewer​ loans, bank deposits decrease and the quantity of money decreases.
E. All of the Above
43: The federal reserve generally uses ___________________ to implement monetary policy.
A. Open market operations
B. Contractionary monetary policy
C. Out of the loanable funds ma
D. Policy related to money supplyrket
44: In general, banks make profits by selling ________ liabilities and buying ________ assets.
A. Long-term; shorter-term
B. Short-term; longer-term
C. Illiquid; liquid
D. Risky; risk-free
45: The discount rate is kept ________ the federal funds rate because the fed prefers that
A. Below; banks borrow reserves from each other
B. Below; banks borrow reserves from the Fed
C. Above; banks borrow reserves from each other
D. Above; banks borrow reserves from the Fed
46: Covered interest arbitrage moves the market ________ equilibrium because ________.
A. Away from; purchasing a currency on the spot market and selling in the forward market increases the di§erential between the two
B. Toward; investors are now more willing to invest in risky securities
C. Away from; demand for the stronger currency forces up interest rates on the weaker security
D. Toward; purchasing a currency on the spot market and selling in the forward market narrows the di§erential between the two
47: Money is __________ when a bank makes a loan to a customer.
A. Created
B. Not affected
C. Destroyed
D. None of the above
48: If the fed wants to raise the federal funds rate, it will ______ bonds, which ________ bond prices.
A. Sell; lowers
B. Sell bonds
C. Raise interest rates.
D. Phillips Curve
49: A depository institution takes deposits from ______ and earns most of its income by _______.
A. Households; providing Internet banking services
B. Households and​ firms; providing Internet banking services and charging service fees
C. Households and​ firms; making loans and buying securities that earn a higher interest rate than that paid to depositors
D. ​firms; charging service fees
50: According to the laffer curve, _____.
A. Increasing marginal tax rates may reduce tax revenues
B. Decreasing marginal tax rates may reduce tax revenues
C. Increasing marginal tax rates may increase tax revenues
D. Decreasing marginal tax rates may increse tax revenues
List of Monetary Policy of Eco...
Available in:
Monetary Policy of Economics MCQs
