F2010_MT2_MC_VersionA - ECO 320L Fall 2010 Professor...

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ECO 320L Fall 2010 Professor Beatrix Paal Midterm 2 -- Multiple Choice name: 10/29/2010 40 questions, 1.5 points each = 60 points total 1. Walras's Law A) is derived from the fact that agents in the model have budget constraints that hold with equality. B) implies that if the labor, goods and monetary asset markets are in equilibrium, then the non-monetary asset market must also be in equilibrium. C) says that in a general equilibrium model with n markets, if n –1 markets clear, then th n th market must also clear. D) all of the above are true. 2. If people expect the central bank to expand the money supply at the rate of 8% and expect money demand to growth at the rate 9%, then they should expect A) a deflation. B) inflation to be 2% C) inflation to be 8%. D) a hyperinflation. 3. Which of the following measures is the best measure of money as a medium of exchange? A) M3 B) M1 C) M2 D) None of the above 4. A developing country does not have enough taxes to cover its expenditures and is unable to borrow. This government would be most likely to cover its deficit by A) selling government bonds to the public. B) buying newly issued government bonds directly from the central bank. C) purchasing government bonds from the public. D) selling newly issued government bonds directly to the central bank. Version A Page 1
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A) a decrease of 10% B) a decrease of less than 10% C) an increase D) no change 6. The opportunity cost of holding currency decreases when A) the interest rate on money decreases. B) wealth decreases. C) the interest rate on bonds decreases. D) income decreases. 7. The theory of rational expectations asserts that private agents form inflation expectations A) by rationally understanding that governments always want to increase the rate of money growth in order to generate revenue. B) based on a rational model of the economy and an observation of past money growth rates. C) based on an understanding of future monetary policy and the effects of these policies on the equilibrium of the economy. D) by extrapolating inflation trends from the past using econometric models. 8. Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by A) $2 million. B) $4 million. C) $1 million. D) $3 million. 9. The Federal funds market is a market for trading funds between A) a bank and the Federal Reserve Bank. B) a bank and another bank. C) a bank and a multinational corporation. D) a bank and the government. 10. Historically, the Fed has mostly held ________ securities, but since the beginning of the financial crises, it has been increasing its holdings of ________ securities. A)
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This note was uploaded on 06/09/2011 for the course ECON 320 taught by Professor Azzamonti during the Spring '08 term at University of Texas at Austin.

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F2010_MT2_MC_VersionA - ECO 320L Fall 2010 Professor...

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