ECON 111 PRACTICE EXAM QUESTIONS
AND ANSWERS
Which of the following is not a variable that influences net capital outflow (NCO)?
(a) Transportation costs
(b) Government policies
(c) Real interest rates
(d) The risk of holding foreign assets - Answer-A
Which of the following is not correct?
(a) The classical dichotomy separates real and nominal variables, such as real GDP,
nominal GDP, real wages, nominal wages, real interest rates, and nominal interest rates
(b) Monetary neutrality is the proposition that changes in the money supply do not
change real variables like real wages and real GDP in the long run
(c) Nominal variables are measured in real physical units while real variables are
measured in monetary units such as prices
(d) The price level is a nominal variables - Answer-C
Which of the following is not part of M1?
(a) Currency
(b) Demand Deposits
(c) Money market mutual funds
(d) Travelers checks - Answer-C
If banks have a total of $200 in deposits and keep $40 as reserves what is the money
supply?
(a) $160
(b) $360
(c) $240
(d) $40 - Answer-B
From the previous question, what is the banks reserve ratio?
(a) 40%
(b) 4%
(c) 20%
(d) 10% - Answer-C
What would the money multiplier be using the reserve ratio from the above question?
(a) 10
(b) 40
(c) 5
, (d) 160 - Answer-C
How much money would the initial $200 create?
(a) $100
(b) $1000
(c) $50
(d) $250 - Answer-B
If the Fed wanted to reduce money supply it would
(a) Reduce reserve requirement
(b) Lower discount rate
(c) Raise reserve requirement
(d) Sale U.S. bonds - Answer-C & D
Which is not a tool the Fed uses for monetary control?
(a) Open Market operations
(b) Discount rate
(c) Reserve requirements
(d) Regulations - Answer-D
----- is a commodity money and ----- is a fiat money.
(a) Cigarettes, gold coins
(b) Gold coins, cigarettes
(c) Gold coins, British Pound
(d) Seashells, gold coins - Answer-C
Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S.
citizens decide to buy more stock in foreign companies. Other things the same, these
actions
(a) Raise both U.S. net exports and U.S. net capital outflows
(b) Raise U.S. net exports and lower U.S. net capital outflows
(c) Lower both U.S. net exports and U.S net capital outflows
(d) Lower U.S. net exports and raise U.S. net capital outflows - Answer-A
A U.S. firm buys bonds issued by Toyota in Japan. This purchase is an example of U.S.
(a) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign
bonds and increases U.S. net capital outflow
(b) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign
bonds and decreases U.S. net capital outflow
(c) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds
and decreases U.S. net capital outflow
(d) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds
and increases U.S. net capital outflow - Answer-A
When inflation rises, business and firms
AND ANSWERS
Which of the following is not a variable that influences net capital outflow (NCO)?
(a) Transportation costs
(b) Government policies
(c) Real interest rates
(d) The risk of holding foreign assets - Answer-A
Which of the following is not correct?
(a) The classical dichotomy separates real and nominal variables, such as real GDP,
nominal GDP, real wages, nominal wages, real interest rates, and nominal interest rates
(b) Monetary neutrality is the proposition that changes in the money supply do not
change real variables like real wages and real GDP in the long run
(c) Nominal variables are measured in real physical units while real variables are
measured in monetary units such as prices
(d) The price level is a nominal variables - Answer-C
Which of the following is not part of M1?
(a) Currency
(b) Demand Deposits
(c) Money market mutual funds
(d) Travelers checks - Answer-C
If banks have a total of $200 in deposits and keep $40 as reserves what is the money
supply?
(a) $160
(b) $360
(c) $240
(d) $40 - Answer-B
From the previous question, what is the banks reserve ratio?
(a) 40%
(b) 4%
(c) 20%
(d) 10% - Answer-C
What would the money multiplier be using the reserve ratio from the above question?
(a) 10
(b) 40
(c) 5
, (d) 160 - Answer-C
How much money would the initial $200 create?
(a) $100
(b) $1000
(c) $50
(d) $250 - Answer-B
If the Fed wanted to reduce money supply it would
(a) Reduce reserve requirement
(b) Lower discount rate
(c) Raise reserve requirement
(d) Sale U.S. bonds - Answer-C & D
Which is not a tool the Fed uses for monetary control?
(a) Open Market operations
(b) Discount rate
(c) Reserve requirements
(d) Regulations - Answer-D
----- is a commodity money and ----- is a fiat money.
(a) Cigarettes, gold coins
(b) Gold coins, cigarettes
(c) Gold coins, British Pound
(d) Seashells, gold coins - Answer-C
Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S.
citizens decide to buy more stock in foreign companies. Other things the same, these
actions
(a) Raise both U.S. net exports and U.S. net capital outflows
(b) Raise U.S. net exports and lower U.S. net capital outflows
(c) Lower both U.S. net exports and U.S net capital outflows
(d) Lower U.S. net exports and raise U.S. net capital outflows - Answer-A
A U.S. firm buys bonds issued by Toyota in Japan. This purchase is an example of U.S.
(a) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign
bonds and increases U.S. net capital outflow
(b) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign
bonds and decreases U.S. net capital outflow
(c) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds
and decreases U.S. net capital outflow
(d) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds
and increases U.S. net capital outflow - Answer-A
When inflation rises, business and firms
