Econ 310_PracticeExam1 W2008

# Econ 310_PracticeExam1 W2008 - 1 of 9 Economics 310 Money...

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1 of 9 Economics 310 Money and Banking Practice Midterm Exam Winter 2008 The actual midterm will involve only 25 multiple choice questions, to be completed in 80 minutes. No calculators, no cell phones, no personal digital media players or any other electronic equipment should be visible or in use during the exam. Each question will score 4 points if correct, 1 point if unanswered and 0 points if incorrect. This means that your final exam score will lie between 0 and 100, but that you can score 25 points simply by turning in a blank exam. It also means that a complete guess will score 4 points with probability ¼ and 0 points with probability ¾. On average, such a guess will score 1 point, which is exactly what you would get if you didn’t bother answering in the first place.

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2 of 9 1 . Which of the following is not commonly identified as a role of money? (a) Money is a store of value (b) Money is a unit of account (c) Money avoids the need for a double coincidence of wants. (d) Money counters the effects of Gresham’s Law. 2. Suppose the Fed looks to make an open market sale to the banking sector of \$1 million worth of securities. If you were to trace the effects of this through the T-accounts for the Fed, the banking sector as a whole and the general public, which of the following would you observe? (a) Bank reserves held at the Fed would increase by \$1m. (b) Bank reserves held at the Fed would decrease by more than \$1m. (c) Money supply would fall by more than \$1m. (d) Bank deposits would increase by more than \$1m. 3. Amy is considering buying a nominally denominated coupon bond at the prevailing price, P. Which of the following will increase expected real returns on the bond over the next year, if other things are held constant? (a) Higher inflation expectations for the year. (b) Higher expectations for future interest rates. (c) Lower expectations for future interest rates. (d) A lower current inflation rate. 4. Suppose inflationary expectations fall. By considering the bond market, which of the following predictions would you make? (a) Bond prices fall and there is an ambiguous effect on quantity of bonds traded. (b) Interest rates fall and the quantity of bonds traded falls. (c) Bond prices rise and the quantity of bonds traded rises. (d) Interest rates fall and there is an ambiguous effect on quantity of bonds traded.
3 of 9 5. Consider the following statements concerning the money base. (i) Base money is equal to the currency in circulation plus bank reserves (ii) Base money represents the liabilities of the central bank (iii) Base money is that portion of the money supply that is directly controllable by the central bank (iv) The Fed focuses on controlling the interest rate because changing Base Money through open market operations has very little impact on M1. Which of the above statements are true?

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Econ 310_PracticeExam1 W2008 - 1 of 9 Economics 310 Money...

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