Question

23. The level of the money supply is determined by the level of economic activity and adjusted at the margin via the implementation of monetary policy by the Federal Reserve. Thus, the U.S. is said to have: (a) an “elastic currency;” (b) a gold standard; (c) a rule-based monetary policy; (d) an independent central bank.

24. The Employment Act of 1946 established the original monetary policy mandate of the Fed. It called for: (a) balancing the federal budget deficit; (b) elimination of frictional unemployment by 1950; (c) setting conditions in the economy and financial system conducive to the achievement of full employment of workers and price stability; (d) maximizing employment and financial market stability.

25. With respect to the Equation of Exchange, velocity can best be thought of as: (a) the number of times an individual dollar bill is spent in an average month; (b) the number of dollars of nominal GDP per dollar of money supply; (c) how quickly new orders for business inventories can be filled; (d) the ratio of money supply to inflation.

26. All other things remaining the same, the Equation of Exchange reminds us that an increase in money supply typically can be expected to show up as: (a) an increase in inflation only; (b) an increase in real GDP only; (c) partially an increase in real GDP and partially an increase in the price level; (d) a decline in current dollar GDP.

27. According to the Fisher Equation, the real rate of interest: (a) always is negative; (b) is the rate of interest paid on Treasury bills, notes and bonds; (c) is the rate of interest paid by the best, most credit-worthy corporate customers of banks; (d) is the rate of interest that would prevail in a world with a 0% expected inflation rate;

28. In forming inflation expectations for the U.S., many analysts look at: (a) inflation in less developed countries, especially those without an independent central bank; (b) real GDP growth over the 4-8 quarters just passed; (c) the long-term pattern of changes in unit labor costs; (d) performance of the stock market.

29. The sustained decline in U.S. inflation rates over the past quarter century likely reflects all of the following, except: (a) a combination of digitalization and technological advances that reduce production costs; (b) a weak U.S. dollar in foreign exchange markets; (c) more exact production processes; (d) globalization.

30. Which of the following statements is most true? (a) money supply increases cause bank reserves to decrease; (b) the Federal Reserve creates bank reserves through open market operations; (c) the Federal Reserve expands the money supply of the U.S. mainly by printing new currency (like $100 bills); (d) bank reserves are liabilities of the banks that cannot and do not earn any interest from any source.

31. A participant in the labor market who cannot find a job due to a mismatch between that worker’s skills and available jobs is said to be: (a) frictionally unemployed; (b) marginally attached to the labor force; (c) seasonally unemployed; (d) structurally unemployed.

32. The U-3 unemployment rate measures the share of the labor force that is: (a) out of work and seeking employment actively; (b) employed part-time though seeking full-time employment; (c) out of work and either younger than age 16 or older than age 55; (d) no longer seeking employment and is counted as a “discouraged worker.”

Answer 1

Ans 25. D) An independent central bank

Description: An independent central bank contol the monetory supply;central bank is completely independent Body it implement the policies to control the inflation in the economy.If thier is a inflation in the economy price of goods and services are high than goverment increases the interest rate to decrease the money supply in the economy as money supply will decrease demand for goods and services will also decrease as result inflation in the economy will decrease.