Econ 102 - Principles of Macroeconomics » Spring 2021 » Practice Test 4

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Question #1
When newspapers report that the Federal Reserve increased the money supply, why doesn’t this necessarily mean that more currency was printed?
A.   The Federal Reserve reduces currency to increase the money supply
B.   The Federal Reserve would use already existing currency
C.   The Federal Reserve doesn't control the amount of currency
D.   Currency is a very small part of the money supply
Question #2
What happens to the level of the federal debt during a recession? Why?
A.   It increases because tax collections fall
B.   It falls because interest rates fall
C.   It increases because interest rates rise
D.   It falls because government spending must decrease
Question #3
How does the membership of the Federal Open Market Committee differ from the membership of the Federal Reserve Board of Governors?
A.   It includes district bank presidents
B.   It has 5 rather than 12 members
C.   It does not include the Board of Governors
D.   It is appointed by the president and approved by the Senate
Question #4
How can a central bank monetize the government’s debt?
A.   Buying government bonds
B.   Increasing government spending, raising interest rates, and buying government bonds
C.   Increasing government spending
D.   Raising interest rates
Question #5
If the reserve requirement were to be changed from 10% to 20%, how would this affect the US economy?
A.   Cause a recession
B.   Lower interest rates
C.   Lower interest rates, make banks safer, and cause a recession
D.   Make banks safer
Question #6
How did the level of the US Federal deficit change between 1999 and 2020
A.   Deficits in every year
B.   Surplus 2000, 2020, deficit 2008
C.   Surplus 2000; Large deficits 2009, 2020
D.   Surplus 2008, large deficit 2020
Question #7
During the early 1980s what happened to the federal funds rate, the inflation rate and the unemployment rate?
A.   Up, up up
B.   Down, down, down
C.   Down, down, up
D.   Down, up, down
Question #8
How does the zero percent interest rate lower bound affect monetary policy
A.   Makes it difficult during inflation
B.   Makes it difficult during inflation, makes it difficult during a deficit, and makes it difficult during recession
C.   Makes it difficult during a deficit
D.   Makes it difficult during recession
Question #9
When the Federal Reserve conducts open market operations, the federal deficit does not change. Why?
A.   The interest rate stays the same
B.   Congress will increase spending
C.   It buys/sells existing bonds
D.   Congress will reduce spending
Question #10
A friend reads that the Federal Reserve increased the money supply but then he complains that he doesn't have any more money. What do you tell him?
A.   He doesn't own bonds
B.   The Fed bought bonds, he doesn't own bonds, and it only changes people's liquidity
C.   The Fed bought bonds
D.   It only changes people's liquidity

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