Macro Economics (ECO 202)
Practice Exam
1- The relationship between the MPS and the MPC is such that:
A. MPC - MPS = 1
B. MPS/MPC = 1
C. 1 - MPC = MPS
D. MPS  MPC = 1
2- Dissaving occurs when:
A. Income is greater than saving
B. Income is less than consumption
C. Saving is greater than consumption
D. Saving is greater than the interest rate
3- The aggregate demand curve is the relationship between the:
A. Price level and the sales of producers
B. Price level and the purchasing of real domestic output
C. Price level and the distribution of real domestic output
D. Real domestic output bought and the real domestic output sold
4- A decrease in government spending will cause a(n):
A. Increase in the quantity of real domestic output demanded
B. Decrease in the quantity of real domestic output demanded
C. Decrease in aggregate demand
D. Increase in aggregate demand
5- Which would shift the aggregate demand curve? A change in:
A. Input prices
B. Net export spending
C. The prices of imported resources
D. The legal-institutional environment
6- Refer to the above diagram. If aggregate supply shifts from AS1 to AS3, then real
domestic output will:
A. Increase and the price level will increase
B. Increase and the price level will decrease
C. Decrease and the price level will increase
D. Decrease and the price level will decrease
7- Refer to the above diagram. If aggregate supply shifts from AS1 to AS2, then the price
level will:
A. Increase and real domestic output will increase
B. Decrease and real domestic output will increase
C. Increase and real domestic output will decrease
D. Decrease and real domestic output will decrease
8- When the Federal government uses taxation and spending actions to stimulate the
economy it is conducting:
A. Fiscal policy
B. Incomes policy
C. Monetary policy
D. Employment policy
9- The time which elapses between the beginning of a recession or an inflationary episode
and the identification of the macroeconomic problem is referred to as a(n):
A. Budget lag
B. Recognition lag
C. Operational lag
D. Administrative lag
10- Crowding-out is the notion that:
A. Since tax revenues vary directly with GDP, a rise in the level of GDP will increase the
budget surplus and limit expansion
B. Deficit financing will increase the demand for money, increase the interest rate, and
reduce the level of investment spending in the economy
C. The standardized budget is the best indicator of whether a budget deficit crowds out
investment
D. The actual budget is the best indicator of whether a budget deficit crowds out saving
11- When a consumer wants to compare the price of one product with another, money is
primarily functioning as a:
A. Store of value
B. Unit of account
C. Checkable deposit
D. Medium of exchange
12- What primary function is money serving when you keep it in a bank account until you
need it to purchase a product?
A. A store of value
B. A unit of account
C. A medium of exchange
D. A double coincidence of wants
13- The principal advantage money has over barter is its function as:
A. A store of value
B. A medium of exchange
C. Unit of account
D. Debt
14- The M1 money supply is composed of:
A. Money market mutual funds held by individuals
B. Money market mutual funds held by businesses
C. Savings deposits and time deposits
D. Checkable deposits and currency
15- Which definition(s) of the money supply include(s) only items which are directly and
immediately usable as a medium of exchange?
A. M1
B. M2
C. Neither M1 nor M2
D. M1 and M2
16- United States currency has value primarily because it:
A. Is legal tender, is generally acceptable in exchange for goods or services, and is
backed by the gold and silver of the Federal government
B. Is generally acceptable in exchange for goods or services, is backed by the gold and
silver of the Federal government, and facilitates trade
C. Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods
and services
D. Facilitates trade, is legal tender, and permits the use of credit cards and near-monies
17- A bank owns a 10-story office building. In the bank's balance sheet, this would be an
example of:
A. An asset
B. A liability
C. Capital stock
D. A checkable deposit
18- When cash is deposited in a checkable-deposit account in a commercial bank, there is:
A. A decrease in the money supply
B. An increase in the money supply
C. A decrease in checkable deposits
D. An increase in checkable deposits
19- Legal reserve requirements:
A. Give commercial banks more legal control over the money supply
B. Limit "windfall" profits in the commercial banking system
C. Permit the Federal Reserve System to control the lending capacity of banks
D. Provide the FDIC with the power to protect deposits at commercial banks and thrifts
20- The reserve ratio is equal to:
A. A commercial bank's checkable-deposit liabilities divided by its required reserves
B. A commercial bank's required reserves divided by its checkable-deposit liabilities
C. A commercial bank's checkable-deposit liabilities multiplied by its excess reserves
D. A commercial bank's excess reserves divided by its required reserves
21- A commercial bank has required reserves of $6,000 and the reserve ratio is 20 percent.
What are the commercial bank's checkable-deposit liabilities?
A. $1,200
B. $9,000
C. $30,000
D. $120,000
22- A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of
$9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank
are:
A. $50,000
B. $100,000
C. $900,000
D. $1 million
23- An individual deposits $12,000 in a commercial bank. The bank is required to hold 10
percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit
increases the loan capacity of the bank by:
A. $11,000
B. $10,800
C. $9,600
D. $6,000
24- Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day
Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the
supply of money has:
A. Increased by $2,100
B. Increased by $3,300
C. Increased by $5,400
D. Decreased by $3,300
25- Other things being equal, an expansion of commercial bank lending:
A. Changes the composition, but not the size, of the money supply
B. Is desirable during a period of demand-pull inflation
C. Reduces the money supply
D. Increases the money supply
26- A depositor places $10,000 in cash in a commercial bank, and the reserve ratio is 10
percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual
reserves, the required reserves, and excess reserves of the bank have been increased,
respectively, by:
A. $10,000, $9000, and $1000
B. $10,000, $500, and $4500
C. $10,000, $1000, and $9000
D. $1000, $10,000, and $9000
27- The multiple by which the commercial banking system can expand the supply of money
is equal to:
A. Its excess reserves
B. The reciprocal of the discount rate
C. The reciprocal of the reserve ratio
D. The ratio of fixed to liquid assets
28- A commercial bank sells a $10,000 government bond to a securities dealer. The dealer
pays for the bond in cash, which the bank adds to its vault cash. The money supply has:
A. Decreased by $10,000 multiplied by the reciprocal of the required reserve ratio
B. Decreased by $10,000
C. Increased by $10,000
D. Not been affected
29- The transactions demand for money is least likely to be a function of the:
A. Price level
B. Interest rate
C. Level of national income
D. Frequency of wage and salary payments
30- Which statement is true?
A. Bond prices and the interest rate are inversely related
B. A lower interest rate raises the opportunity cost of holding money
C. The supply of money is directly related to the interest rate
D. The total demand for money is directly related to the interest rate
31- The reserves of commercial banks are a(n):
A. Asset to commercial banks and an asset to the Federal Reserve Banks
B. Asset to commercial banks and a security to the Federal Reserve Banks
C. Asset to commercial banks and a liability to the Federal Reserve Banks
D. Liability to commercial banks and an asset to the Federal Reserve Banks
32- If the Fed buys government securities from commercial banks in the open market:
A. The Fed gives the securities to the commercial banks, and they pay for them by
writing checks that increase their reserves at the Fed
B. The Fed gives the securities to the commercial banks, and they pay for them by
writing checks that decrease their reserves at the Fed
C. Commercial banks give the securities to the Fed, and it pays for them by increasing the
reserves of commercial banks at the Fed
D. Commercial banks give the securities to the Fed, and it pays for them by decreasing
the reserves of commercial banks at the Fed
33- The Federal Reserve could increase the money supply by:
A. Selling government bonds on the open market
B. Buying government bonds on the open market
C. Raising interest rates
D. Raising the discount rate
34- Raising the reserve ratio:
A. Decreases the discount rate
B. Increases the discount rate
C. Decreases the amount of excess reserves banks must keep
D. Changes excess reserves to required reserves