Money and Banking Final Exam 2025 – Comprehensive Study Guide & Review
There are two types of open market operations: ___________ open market operations are
intended to change the level of reserves and the monetary base, and ___________ open
market operations are intended to offset movements in other factors that affect the monetary
base.
a) defensive; dynamic
b) defensive; static
c) dynamic; defensive
d) dynamic; static - correct answer ✔✔ c) dynamic; defensive
The gross domestic product is the:
a) the value of all wealth in an economy.
b) the value of all goods and services sold to other nations in a year.
c) the market value of all final goods and services produced in an economy in a year.
d) the market value of all intermediate goods and services produced in an economy in a year. -
correct answer ✔✔ c) the market value of all final goods and services produced in an economy
in a year.
When the total value of final goods and services is calculated using current prices, the resulting
measure is:
a) real GDP.
b) the GDP deflator.
c) nominal GDP.
d) the index of leading indicators. - correct answer ✔✔ c) nominal GDP.
If your nominal income in 2016 was $50,000, and prices doubled between 2016 and 2017, to
have the same real income, your nominal income in 2017 must be:
,a) $50,000.
b) $75,000.
c) $90,000.
d) $100,000. - correct answer ✔✔ d) $100,000.
Sustained downward movements in the business cycle are referred to as __________ and
sustained upward movements are referred to as ___________.
a) expansions; inflation
b) recessions; expansions
c) expansions; recessions
d) expansions; economic recoveries - correct answer ✔✔ b) recessions; expansions
The management of money and interest rates is called __________ policy and decisions about
government spending and taxation is called __________ policy.
a) monetary; fiscal
b) fiscal; monetary
c) fiscal; financial
d) financial; fiscal - correct answer ✔✔ a) monetary; fiscal
There is a _________ association between inflation and the growth rate of money __________.
a) positive; demand
b) positive; supply
c) negative; demand
d) negative; supply - correct answer ✔✔ b) positive; supply
If the central bank pursues a monetary policy that is more expansionary than what firms and
people expect, then the central bank must be trying to:
, a) boost output in the short run.
b) constrain output in the short run.
c) constrain prices.
d) boost prices in the short run. - correct answer ✔✔ a) boost output in the short run.
According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation
___________ the Fed's inflation target or when real GDP _________ the Fed's output target.
a) rises above; drops below
b) drops below; drops below
c) rises above; rises above
d) drops below; rises above - correct answer ✔✔ c) rises above; rises above
Using Taylor's rule, when the equilibrium real federal funds rate is 2 percent, the positive output
gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent,
the nominal federal funds rate target should be:
a) 5 percent.
b) 5.5 percent.
c) 6 percent.
d) 6.5 percent. - correct answer ✔✔ d) 5.5 percent.
In an agreement to exchange dollars for Japanese Yen in three months at a price of 110 JPY per
dollar, the price is:
a) spot exchange rate.
b) money exchange rate.
c) forward exchange rate.
d) fixed exchange rate. - correct answer ✔✔ c) forward exchange rate.
There are two types of open market operations: ___________ open market operations are
intended to change the level of reserves and the monetary base, and ___________ open
market operations are intended to offset movements in other factors that affect the monetary
base.
a) defensive; dynamic
b) defensive; static
c) dynamic; defensive
d) dynamic; static - correct answer ✔✔ c) dynamic; defensive
The gross domestic product is the:
a) the value of all wealth in an economy.
b) the value of all goods and services sold to other nations in a year.
c) the market value of all final goods and services produced in an economy in a year.
d) the market value of all intermediate goods and services produced in an economy in a year. -
correct answer ✔✔ c) the market value of all final goods and services produced in an economy
in a year.
When the total value of final goods and services is calculated using current prices, the resulting
measure is:
a) real GDP.
b) the GDP deflator.
c) nominal GDP.
d) the index of leading indicators. - correct answer ✔✔ c) nominal GDP.
If your nominal income in 2016 was $50,000, and prices doubled between 2016 and 2017, to
have the same real income, your nominal income in 2017 must be:
,a) $50,000.
b) $75,000.
c) $90,000.
d) $100,000. - correct answer ✔✔ d) $100,000.
Sustained downward movements in the business cycle are referred to as __________ and
sustained upward movements are referred to as ___________.
a) expansions; inflation
b) recessions; expansions
c) expansions; recessions
d) expansions; economic recoveries - correct answer ✔✔ b) recessions; expansions
The management of money and interest rates is called __________ policy and decisions about
government spending and taxation is called __________ policy.
a) monetary; fiscal
b) fiscal; monetary
c) fiscal; financial
d) financial; fiscal - correct answer ✔✔ a) monetary; fiscal
There is a _________ association between inflation and the growth rate of money __________.
a) positive; demand
b) positive; supply
c) negative; demand
d) negative; supply - correct answer ✔✔ b) positive; supply
If the central bank pursues a monetary policy that is more expansionary than what firms and
people expect, then the central bank must be trying to:
, a) boost output in the short run.
b) constrain output in the short run.
c) constrain prices.
d) boost prices in the short run. - correct answer ✔✔ a) boost output in the short run.
According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation
___________ the Fed's inflation target or when real GDP _________ the Fed's output target.
a) rises above; drops below
b) drops below; drops below
c) rises above; rises above
d) drops below; rises above - correct answer ✔✔ c) rises above; rises above
Using Taylor's rule, when the equilibrium real federal funds rate is 2 percent, the positive output
gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent,
the nominal federal funds rate target should be:
a) 5 percent.
b) 5.5 percent.
c) 6 percent.
d) 6.5 percent. - correct answer ✔✔ d) 5.5 percent.
In an agreement to exchange dollars for Japanese Yen in three months at a price of 110 JPY per
dollar, the price is:
a) spot exchange rate.
b) money exchange rate.
c) forward exchange rate.
d) fixed exchange rate. - correct answer ✔✔ c) forward exchange rate.
