Ivy Software MBA PrepWorks – Fundamentals of
Economics Questions and Answers (2025
Edition) Complete MBA Prep Guide
Introduction:
This comprehensive Fundamentals of Economics question and
answer set from Ivy Software’s MBA PrepWorks 2025 edition covers
both microeconomics and macroeconomics essentials. It includes
detailed explanations of core economic principles such as supply and
demand, elasticity, opportunity cost, GDP, inflation, monetary and
fiscal policy, aggregate supply and demand, and market structures
(perfect competition, monopoly, and oligopoly). The document also
provides applied problem-solving for key models, including money
supply mechanisms, the Federal Reserve system, comparative
advantage, and business cycle dynamics—making it an ideal
preparation resource for MBA students and economic foundation
courses.
Exam Questions and Answers
when the Federal Reserve desides to sell government securities (ie:
treasury bills) it is choosing to ________ the money supply
increase decrease --- correct answer ---decrease
An increase in the required reserve deposit ration will lead to a
_________ in the money supply
increase/decrease --- correct answer ---decrease
,a decrease in the required reserve deposit ratio will lead to a _____
in the money supply
increase/decrease --- correct answer ---increase
A bank borrows from the Federal Reserve when --- correct answer -
--it has too few reserves to meet reserve requirements
an increase in the discount rate____________ the quantity of
reserves in the banking system which in turn ______________ the
money supply --- correct answer ---reduces/reduces
A decrease in the discount rate, encourages borrowing reserves
from the Federal Reserve, which in turn _______ the money supply -
-- correct answer ---increases
As the overall level of prices increases, the value of a unit of money
--- correct answer ---decreases
money creation process --- correct answer ---a process that
describes the amount of money the banking system creates with
each dollar held in reserve (ie: dollars that have not been loaned
out by a bank). The banking system's ability to create money
depends on the amount of currency held in bank reserves and the
,required reserve deposit ratio, which is the ratio of bank reserves
divided by the checkable deposits
Currency is defined as paper bills, traveler's checks, and coins in
the hand of the public. (T/F) --- correct answer ---False. currency is
just the paper bills and coins in the hands of the public.
Small time deposits are deposits against which checks may be
written. (T/F) --- correct answer ---False.
The basic functions of money are: a medium of exchange, a store of
value, and a unit of account. (T/F) --- correct answer ---True
Fiat Money is paper money with intrinsic value (T/F) --- correct
answer ---False. fiat money has no intrinsic value
Federal Reserve notes are printed by a division of the Treasury
Department. (T/F) --- correct answer ---True. All federal reserve
notes are printed at the Bureau of Engraving and Printing at the
Department of Treasury, but they are issued by the regional Federal
Reserve banks.
The Federal Reserve Bank has three monetary policy tools: open
market operations, reserve requirement changes, and changes to
the Federal Reserve's discount rate (T/F) --- correct answer ---True
, The Federal Open Market Committee decides on changes to the
fiscal policy. (T/F) --- correct answer ---False. The Banking Acts of
1933 and 1935 centralized power of the Federal Reserve Bank in
Washington DC and established the FOMC. The FOMC meets about
every 6 weeks in DC in order to discuss the condition of the
economy and consider changes to monetary policy- most important
of which is open market operations.
Federal Reserve discount rate --- correct answer ---is the interest
rate on loans the Federal Reserve charges to other banks.
If the price level increases, the value of money decreases (T/F) ---
correct answer ---True. the price level and the value of money are
directly related. As the overall level of prices increases, the value of
a unit of money decreases. For example: if a bottle of soda
increases in price from 5 cents to $1.25 over 80 years, it is likely
that the satisfaction level has stayed the same and the money used
to purchase the soda has decreased in value because of an increase
in the price level.
Supposed the price level equals 5 (P=5). The value of one unit of
money is --- correct answer ---1/5 or .2. 1/P
The value of one unit of money is calculated by --- correct answer --
-dividing 1 by the price level (1/P)
Economics Questions and Answers (2025
Edition) Complete MBA Prep Guide
Introduction:
This comprehensive Fundamentals of Economics question and
answer set from Ivy Software’s MBA PrepWorks 2025 edition covers
both microeconomics and macroeconomics essentials. It includes
detailed explanations of core economic principles such as supply and
demand, elasticity, opportunity cost, GDP, inflation, monetary and
fiscal policy, aggregate supply and demand, and market structures
(perfect competition, monopoly, and oligopoly). The document also
provides applied problem-solving for key models, including money
supply mechanisms, the Federal Reserve system, comparative
advantage, and business cycle dynamics—making it an ideal
preparation resource for MBA students and economic foundation
courses.
Exam Questions and Answers
when the Federal Reserve desides to sell government securities (ie:
treasury bills) it is choosing to ________ the money supply
increase decrease --- correct answer ---decrease
An increase in the required reserve deposit ration will lead to a
_________ in the money supply
increase/decrease --- correct answer ---decrease
,a decrease in the required reserve deposit ratio will lead to a _____
in the money supply
increase/decrease --- correct answer ---increase
A bank borrows from the Federal Reserve when --- correct answer -
--it has too few reserves to meet reserve requirements
an increase in the discount rate____________ the quantity of
reserves in the banking system which in turn ______________ the
money supply --- correct answer ---reduces/reduces
A decrease in the discount rate, encourages borrowing reserves
from the Federal Reserve, which in turn _______ the money supply -
-- correct answer ---increases
As the overall level of prices increases, the value of a unit of money
--- correct answer ---decreases
money creation process --- correct answer ---a process that
describes the amount of money the banking system creates with
each dollar held in reserve (ie: dollars that have not been loaned
out by a bank). The banking system's ability to create money
depends on the amount of currency held in bank reserves and the
,required reserve deposit ratio, which is the ratio of bank reserves
divided by the checkable deposits
Currency is defined as paper bills, traveler's checks, and coins in
the hand of the public. (T/F) --- correct answer ---False. currency is
just the paper bills and coins in the hands of the public.
Small time deposits are deposits against which checks may be
written. (T/F) --- correct answer ---False.
The basic functions of money are: a medium of exchange, a store of
value, and a unit of account. (T/F) --- correct answer ---True
Fiat Money is paper money with intrinsic value (T/F) --- correct
answer ---False. fiat money has no intrinsic value
Federal Reserve notes are printed by a division of the Treasury
Department. (T/F) --- correct answer ---True. All federal reserve
notes are printed at the Bureau of Engraving and Printing at the
Department of Treasury, but they are issued by the regional Federal
Reserve banks.
The Federal Reserve Bank has three monetary policy tools: open
market operations, reserve requirement changes, and changes to
the Federal Reserve's discount rate (T/F) --- correct answer ---True
, The Federal Open Market Committee decides on changes to the
fiscal policy. (T/F) --- correct answer ---False. The Banking Acts of
1933 and 1935 centralized power of the Federal Reserve Bank in
Washington DC and established the FOMC. The FOMC meets about
every 6 weeks in DC in order to discuss the condition of the
economy and consider changes to monetary policy- most important
of which is open market operations.
Federal Reserve discount rate --- correct answer ---is the interest
rate on loans the Federal Reserve charges to other banks.
If the price level increases, the value of money decreases (T/F) ---
correct answer ---True. the price level and the value of money are
directly related. As the overall level of prices increases, the value of
a unit of money decreases. For example: if a bottle of soda
increases in price from 5 cents to $1.25 over 80 years, it is likely
that the satisfaction level has stayed the same and the money used
to purchase the soda has decreased in value because of an increase
in the price level.
Supposed the price level equals 5 (P=5). The value of one unit of
money is --- correct answer ---1/5 or .2. 1/P
The value of one unit of money is calculated by --- correct answer --
-dividing 1 by the price level (1/P)
