Question 1

Which of the following best describes the main disadvantage of a barter system compared to a monetary system?

Accepted Answer

It requires a double coincidence of wants, increasing transaction costs.

Question 2

Suppose the required reserve ratio is 0.2. If a customer deposits $2,000 in cash into a checking account, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves and there is no currency drain? Use the deposit multiplier formula.

Accepted Answer

$8,000

Question 3

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 4

If the money supply ($$M) is$$ $$2,000$$, the velocity of money ($$V) is$$ $$4$$, and real output ($$Y) is$$ $$1,000$$, what is the price level ($$P) $$according to the quantity theory of money ($$MV = PY$$)?

Accepted Answer

$$P = 4$$

Question 5

Which of the following best explains why fiat money has value?

Accepted Answer

It is accepted as legal tender due to government decree and public confidence.

Question 6

A bank receives a $5,000 deposit. The required reserve ratio is 10%. What is the maximum amount this bank can lend out from this deposit?

Accepted Answer

$4,500

Question 7

If the marginal propensity to consume (MPC) is $$0.8$$, what is the government purchases multiplier?

Accepted Answer

$$5$$

Question 8

Which of the following scenarios best illustrates the 'crowding out' effect?

Accepted Answer

Government increases spending, causing interest rates to rise and private investment to fall.

Question 9

Suppose the economy is experiencing high inflation. Which monetary policy action is most appropriate according to the AD-AS model?

Accepted Answer

The central bank raises interest rates to shift AD left.

Question 10

If the required reserve ratio is $$0.1$$ and the initial increase in bank reserves is $$2,000$$, what is the total possible increase in checking account deposits using the simple deposit multiplier?

Accepted Answer

$$20,000$$

Question 11

Which of the following is an example of an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments increase during a recession.

Question 12

If the marginal propensity to consume (MPC) is $$0.75$$, what is the tax multiplier?

Accepted Answer

$$-3$$

Question 13

Which of the following best describes the long-run Phillips curve?

Accepted Answer

It is vertical at the natural rate of unemployment, indicating no long-run tradeoff between inflation and unemployment.

Question 14

Suppose the government increases both spending and taxes by $100 billion. What is the expected effect on real GDP, assuming the balanced-budget multiplier applies?

Accepted Answer

Real GDP increases by $100 billion.

Question 15

Which of the following would shift the short-run Phillips curve upward?

Accepted Answer

An increase in expected inflation by workers and firms.

Question 16

If the velocity of money is constant and real GDP grows at 2% per year, what will happen to the inflation rate if the money supply grows at 5% per year?

Accepted Answer

Inflation rate will be 3%.

Question 17

Which of the following is a supply-side effect of tax simplification?

Accepted Answer

It increases the economy's long-run productive capacity (LRAS).

Question 18

A country has a money supply of $$1,000$$, a velocity of money of $$5$$, and real output of $$2,000. $$What is the price level according to the equation $$MV = PY$$?

Accepted Answer

$$P = 2.5$$

Question 19

Which of the following best describes the effect of an expansionary monetary policy in the AD-AS model?

Accepted Answer

Aggregate demand shifts right, increasing real GDP and lowering unemployment.

Question 20

If the Federal Reserve wants to reduce inflation, which of the following actions is it most likely to take?

Accepted Answer

Increase the federal funds rate to decrease the money supply.

Money, Banking, and Monetary & Fiscal Policy: Core Concepts in Macroeconomics

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