Principles of Macroeconomics

1. The monetary base is NOT:
a. The physical cash that exists in the economy
b. Currency in circulation and the money in bank vaults.
c. Currency in circulation, the money in bank vaults, and checkable deposits.
d. All of these are correct.
e. None of these are correct.
2. What role is money taking on when we sell grain to preserve its purchasing power for a later date (instead of buying something with it

now or letting it spoil)?
a. Medium of exchange.
b. Store of value.
c. Unit of account.
d. All of the above.
e. None of the above.
3. What role is money taking on if we are purchasing grain with it?
a. Medium of exchange.
b. Store of value.
c. Unit of account.
d. All of the above.
e. None of the above.
4. What role is money taking on if we are comparing the value of apples and oranges?
a. Medium of exchange.
b. Store of value.
c. Unit of account.
d. All of the above.
e. None of the above.
5. Which of the following is NOT a drawback of commodity money?
a. It’s cumbersome to use regularly. Carrying around a bag of gold or beaver pelts is difficult.
b. There is usually very little that gives it intrinsic value, so its benefit is overstated.
c. It unnecessarily restricts the supply of money.
d. All of the above.
e. None of the above.

6. Which of the following is NOT a drawback of commodity-backed money?
a. It’s cumbersome to use regularly. Carrying around a bag of gold or beaver pelts is difficult.
b. There is usually very little that gives it intrinsic value, so its benefit is overstated.
c. It unnecessarily restricts the supply of money.
d. All of the above.
e. None of the above.
7. What type of money do we use in the United States today?
a. Commodity money.
b. Commodity-backed money.
c. Fiat money.
d. All of the above.
e. None of the above.
8. What event brought about the creation of the Federal Reserve Bank (the Fed)?
a. Their independence from England.
b. The great depression.
c. The savings and loan crisis.
d. The great recession.
9. Which of the following is NOT a goal of the Fed?
a. Make banking safe.
b. Promote economic growth.
c. Promote stability in the economy.
d. Regulate government debt.
10. These are the primary tools the Fed has to conduct monetary policy.
a. Buying bonds.
b. Selling bonds.
c. Changing the reserve requirement.
d. All of the above.
e. None of the above.
11. Which of the following is part of M1 money supply?
a. Bonds
b. Stocks
c. Checkable deposits.
d. Savings accounts.
e. Physical assets like a house.
12. The Fed raises the reserve requirement. What will the impact be?
a. This will increase the money supply.
b. This will increase spending.
c. This will decrease the money supply.
d. This will have no impact on the money supply.

13. The Fed wants to contract the money supply. They will:
a. Buying bonds.
b. Selling bonds.
c. Decrease the reserve requirement.
d. All of the above.
e. None of the above.
14. Hoping to use fiscal policy to correct the economy, the government raises taxes. The Fed could accomplish the same thing by:
a. Buying bonds.
b. Selling bonds.
c. Decrease the reserve requirement.
d. Increasing the discount rate.
e. None of the above.
15. The Fed buys $40 in bonds. The reserve requirement is 25%. How much does this change the money supply?
a. $160.00.
b. $40.00.
c. $10.00.
d. $50.00.
e. $120.00.
16. Increasing the M1 money supply will:
a. increase the interest rate, and therefore increase aggregate demand.
b. decrease the interest rate, and therefore increase aggregate demand.
c. increase the interest rate, and therefore decrease aggregate demand.
d. decrease the interest rate, and therefore decrease aggregate demand.
e. none of the above.
17. There is a negative short-run aggregate supply shock. What should the Fed do? Mark all that apply.
a. Decrease taxes.
b. Increase government spending.
c. Buy bonds.
d. Sell bonds.
18. There is a positive aggregate demand shock. What should the Fed do? Mark all that apply.
a. Decrease taxes.
b. Increase government spending.
c. Buy bonds.
d. Sell bonds.

19. Expansionary monetary policy is:
a. Buying bonds which expands monetary base, which in turn expands money supply, which lowers interest rates, which increases investment,

which increases aggregate demand, and brings us back to long-run equilibrium.
b. Selling bonds which expands monetary base, which in turn expands money supply, which lowers interest rates, which increases investment,

which increases aggregate demand, and brings us back to long-run equilibrium.
c. Buying bonds which expands monetary base, which in turn expands money supply, which increases interest rates, which increases

investment, which increases aggregate demand, and brings us back to long-run equilibrium.
d. Selling bonds which expands monetary base, which in turn expands money supply, which increases interest rates, which increases

investment, which increases aggregate demand, and brings us back to long-run equilibrium.
20. Contractionary monetary policy is:
a. Buying bonds which decreases monetary base, which in turn expands money supply, which lowers interest rates, which increases investment,

which decreases aggregate demand, and brings us back to long-run equilibrium.
b. Selling bonds which decreases monetary base, which in turn expands money supply, which lowers interest rates, which increases

investment, which decreases aggregate demand, and brings us back to long-run equilibrium.
c. Buying bonds which decreases monetary base, which in turn expands money supply, which increases interest rates, which increases

investment, which decreases aggregate demand, and brings us back to long-run equilibrium.
d. Selling bonds which decreases monetary base, which in turn expands money supply, which increases interest rates, which increases

investment, which decreases aggregate demand, and brings us back to long-run equilibrium.

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