Money Banking Final

 Econ 4200

Practice Final

Note: This sample test has 20 questions, but the actual final will have 35 questions and you will have an hour and 45 minutes to complete it. Remember that the final is not cumulative, so only study the material covered since the second mid-term.

Choose the one correct answer. If more than one answer appears to be correct or if none of the answers appear to be correct, then choose the one that seems the most accurate.

1. Which of the following is incorrect?

(a) The long run aggregate supply (LRAS) curve is not a function of price.

(b) Actual GDP equals potential GDP in the long run equilibrium in the AD-AS model.

(c) A shift from deposits into currency would entail a defensive open market operation.

(d) The government deciding to construct more highways and irrigation projects increases the equilibrium GDP in the long run.

2. If over the course of the year 1995 the dollar appreciated from 5 French francs per dollar to 10 French francs per dollar, then the French franc depreciated from ______ cents per franc to ______ cents per franc.

(a) 20; 10

(b) 1/20; 1/10

(c) 10; 20

(d) 1/10; 1/20

3. Bank of Canada (which is the Canadian central bank) purchases Canadian $1 million worth of British Columbia Provincial Bonds (which have AAA rating) from Merrill Lynch Canada Inc., paying for them with cash. This implies that

(a) for Bank of Canada reserves go up by Canadian $1 million.

(b) for Merrill Lynch Canada Inc. assets and liabilities both fall by Canadian $1 million.

(c) for Merrill Lynch Canada Inc. total assets stay unchanged.

(d) for Bank of Canada nothing changes on the liabilities side of its balance sheet.

4. An increase in discount loans by the Fed leads to

(a) a decrease in the monetary base

(b) a decrease in money supply

(c) a fall in interest rates

(d) all of the above

5. Because sterilized intervention means an offsetting open market operation,

(a) there is no impact on the monetary base

(b) there is no impact on money supply

(c) there is no effect on the exchange rate

(d) only (a) and (b) are true

(e) (a), (b) and (c) are all true

6. If under the gold standard one dollar could be turned in to the U. S. Treasury in exchange for 1/20 oz. of gold and one German mark could be turned in to the German Treasury in exchange for 1/100 oz. of gold, then an (incorrect) exchange rate of ______ marks to the dollar set by the German chancellor would stimulate purchases of gold in Germany by the Americans.