Buying and selling of bonds by the central bank

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Reference no: EM131023458

Question 1. 1. Which of the following refers to the buying and selling of bonds by the central
bank?

       discounting
       reserve requirement changing
       prime rate effects
       open market operations

Question 2. 2. The total quantity of currency plus demand deposits is called:

       M1.
       M2.
       the monetary base.
       broad money.

Question 3. 3. Which of the following is one of the functions of money?

       medium of exchange
       store of value
       unit of account
       all of the above

Question 4. 4. The interest rate the central bank charges private-sector banks for a loan is
known as the:

       federal funds rate.
       prime rate.
       discount rate.
       multiplier rate.

Question 5. 5. The most frequently used tool of the Federal Reserve is:

       the reserve requirement.
       the discount rate.
       open market operations.
       the federal funds rate.

Question 6. 6. If the exchange rate is equal to the ratio of the domestic and foreign price indexes
then:

       the currency is said to be undervalued.
       one currency is said to be overvalued.
       relative purchasing power parity holds.
       absolute purchasing power parity holds.

Question 7. 7. Arbitrage is the process of:

       moving goods from higher-priced markets to lower-priced markets.
       moving goods from lower-priced markets to higher-priced markets.
       speculating that prices will increase in the future.
       speculating that prices will fall in the future.

Question 8. 8. The theory that the exchange rate reflects the relative purchasing power in each
country is known as:

       exchange rate parity.
       purchasing power parity.
       consumer price parity.
       inflation-adjusted foreign exchange.

Question 9. 9. An exchange rate between two countries should equal the ratio of the price level
in one country to the price level in the other country is a statement of:

       the consumer price index.
       absolute purchasing power parity.
       relative purchasing power parity.
       the law of one price.

Question 10. 10. The real exchange rate is equal to the: )

       nominal exchange rate divided by the ratio of the price levels.
       ratio of the price levels divided by the nominal exchange rate.
       import price index divided by the nominal exchange rate.
       import price index divided by the CPI.

Question 11. 11. The wealth effect is defined as:

       an accumulation of money is the hands of a few individuals.
       the effect of the wealth of a country.
       the effect of changes in the price level on the value of people's wealth.
       the effect of changes in the exchange rate on the value of people's wealth.

Question 12. 12. Which of the following is the term for the percentage change in imports divided by
the percentage change in domestic income?

       income elasticity of exports
       price elasticity of exports
       income elasticity of imports
       the price elasticity of demand

Question 13. 13. The wealth effect is the impact on GDP caused by a(an):

       direct relationship between the price level and the real value of wealth.
       indirect relationship between the price level and the real value of wealth.
       direct relationship between the interest rate and the real value of wealth.
       indirect relationship between the interest rate and the real value of wealth.

Question 14. 14. An exchange-rate shock refers to: )

       a large appreciation of the currency that occurs over a long period of time.
       a large appreciation of the currency that occurs over a short period of time.
       a large depreciation of the currency that occurs over a long period of time.
       a large depreciation of the currency that occurs over a short period of time.

Question 15. 15. The relationship between the total quantity of goods and services all sectors of the
economy demand and the price level is known as: )

       aggregate supply.
       GDP.
       the consumer price index.
       aggregate demand.

Question 16. 16. Fiscal policy refers to government changing:

       its spending.
       interest rates.
       the money supply.
       its quotas.

Question 17. 17. When the government employs a combination of higher spending and lower taxes,
this type of policy is called an: (Points : 1)

       expansionary exchange rate policy.
       expansionary trade policy.
       expansionary monetary policy.
       expansionary fiscal policy.

Question 18. 18. Expansionary fiscal policy usually involves some combination of ____ taxes and/or
_____ government spending on goods and services.

       lower, lower
       lower, higher
       higher, higher
       higher, lower

Question 19. 19. When the government employs a combination of higher taxes and lower
spending, this type of policy is called a:

       contractionary fiscal policy.
       contractionary trade policy.
       contractionary monetary policy.
       contractionary exchange rate policy.

Question 20.20. The balance between inflows and outflows in the current account is known as:

       internal balance.
       external balance.
       macroeconomic balance.
       the Phillips curve.

Reference no: EM131023458

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