ECO 4223 Higher Standard Set Final Exam 2026|Graded A+|100% Pass

ECO 4223 Higher Standard Set Final Exam 2026|Graded A+|100% Pass If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals: A. 150 billion B. 650 Billion - Correct Answer-A In a system with fractional-reserve banking: A. All banks must hold reserves equal to a fraction of their loans B. All banks must hold reserves equal to a fraction of their deposits - Correct Answer-B In a 100% reserve banking system, if a customer deposits $100 currency into a bank, then the money supply: A. increases $100 B. remains the same - Correct Answer-B If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant, and the monetary base (B) is constant, then: A. The money supply increases B. The money supply decreases - Correct Answer-B To reduce the money supply, the Fed: A. buys government bonds B. sells government bonds - Correct Answer-B When the Fed makes and open-market sale, it: A. increases the monetary base B. decreases the monetary base - Correct Answer-B To prevent banks from using excess reserves to make loans that would increase the money supply, the Fed could conduct open-market _______ and ______ the interest rate paid on bank reserves: A. Sales; raise B. purchases; lower - Correct Answer-A If the fed wishes to increase the money supply it should: A. decrease the discount rate B. increase the discount rate - Correct Answer-A Direct loans made to member banks by the Fed are called: A. discount loans B. federal funds loans - Correct Answer-B ECO 4223 ECO 4223 The interest rate charged on loans by the Federal Reserve to banks is called: A. Federal funds rate B. Discount rate - Correct Answer-B If the monetary base fell and the currency-deposit ratio rose, but the reserve ratio remained the same, then: A. The money supply would fall but not by as much as it would have fallen if the reserve-deposit ratio has risen B. The money supply would fall but not by as much as it would have fallen if the reserve-deposit ratio has fallen - Correct Answer-A The most frequently used tool for monetary policy: A. open-market operations B. changes in discount rate - Correct Answer-A When the Fed increases the interest rate, it pays banks on their reserves and: A. the reserve-deposit ratio increases B. the money supply increases - Correct Answer-A If many banks fail, this is likely to: A. cause surviving banks to lower their ratios of reserves to deposits B. cause surviving banks to raise their ratios to deposits - Correct Answer-B In a fractional- banking system, banks create money when they: A. make loans B. accept deposits - Correct Answer-A If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is: A. reserves divided by rr B. reserves divided by (1-rr) - Correct Answer-A To increase the monetary base, the Fed can: A. conduct open-market sales B. conduct open-market purchases - Correct Answer-B If many banks fail, this is likely to: A. decrease the ratio of currency to deposits B. increase the ratio of currency to deposits - Correct Answer-B If the Fed increases the rate paid on reserves, banks will tend to hold ___ excess reserves, which will _____ the money multiplier A. more; increase B. more; decrease - Correct Answer-B ECO 4223 ECO 4223 The money supply will increase if the: A. monetary base increases B. currency-deposit ratio increases - Correct Answer-A We can interpret the monetary base as the: A. total value of assets in an economy B. liabilities of the fed to the private sector - Correct Answer-B The monetary liabilities of the Fed include: A. Currency in circulation and loans to financial institutions B. Currency in circulation and reserves - Correct Answer-B When a bank sells a government bond to the Federal Reserve, reserves in the banking system ______ and the monetary base _____ A. decrease, decrease B, increase, increase - Correct Answer-B When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system: A. increase by $100 B. decrease by $100 - Correct Answer-A If the Fed decides to reduce bank reserves, it can: A. purchase government bonds B. sell government bonds - Correct Answer-B If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is: A. 0.20 B. 0.25 - Correct Answer-B An increase in an asset's expected return relative to that of an alternative asset, ______ the quantity demanded of the asset: A. increases B. decreases - Correct Answer-A When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then the pound has _____ and _____ expensive A. depreciated; American wheat sold in Britain becomes more B. appreciated; British cars sold in the United States becomes more - Correct Answer-A Using the Gordon Growth formula, if the most recent dividend payment is $2.00, Ke is 12%, and g is 10%, then the current stock price is: A. $100 ECO 4223 ECO 4223 B. $110 - Correct Answer-B When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess _______ and the bond price will _______: A. demand; rise B. demand, fall - Correct Answer-A In the Gordon growth model, a decrease in the required rate of return on equity: A. increases the current stock price B. decreases the current stock price - Correct Answer-A The price of a coupon bond and the yield to maturity are ______ related; that is, as yield to maturity _____, the price of the bond _______ A. negatively; rises, falls B. positively: rises, rises - Correct Answer-A In the one-period valuation model, the current stock price increases if: A. expected sales price decreases B. expected sales price increases - Correct Answer-B A discount bond selling for $18,000 with a face value of $20,000 in one year has a yield maturity of: A. 10% B. 11% - Correct Answer-B In the one-period valuation model, the value of a share of stock today depends upon: A. the present value of both the dividends and the expected sales price B. only the present value of the future dividends - Correct Answer-A The global financial crisis lead to a decline in stock prices because: A. of a lowered expected dividend growth rate B. of a lowered required return on investment in equity - Correct Answer-A When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a _______ demand for dollar assets and a correspondingly _____ demand for foreign assets: A. higher, lower B. lower, higher - Correct Answer-A New information that might lead to a decrease in a stock's price might be: A. an expected increase in the required rate of return B. an expected decrease in the level of future dividends - Correct Answer-B When a country's currency appreciates, the country's goods abroad become ______ expensive and foreign goods in the country become ______ expensive. A. more, less ECO 4223 ECO 4223 B. less, more - Correct Answer-A Using the Gordon Growth model, a stock's price will increase if: A. the dividend growth rate increases B. the expected sales price rises - Correct Answer-A The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ______ on these relative to one another: A. risk B. expected return - Correct Answer-B Higher government deficits _______ the supply of bonds and shift the supply curve to the _______ A. decrease; left B. increase; right - Correct Answer-B The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's: A. discount rate B. coupon rate - Correct Answer-B Which of the following are true of fixed payment loans?: A. installment loans and mortgages are frequently of the fixed payment types B. the borrower repays both the principal and interest at the maturity date - Correct Answer-A The concept of ______ is based on common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today: A. present value B. future value - Correct Answer-A If stock prices are expected to climb next year, the _____ curve for bonds shifts _______ and the interest rate _______ A. demand; right, falls B. demand; left, rises - Correct Answer-B When the _____ interest rate is higher, there are fewer incentives to ______ and greater incentive to ______ A. real; lend, borrow B. nominal; borrow, lend - Correct Answer-A What is the present value of $600 to be paid in two years if the interest rate is 5%? A. 453.51 B. $544.22 - Correct Answer-B ECO 4223 ECO 4223 A _____ pays the owner a fixed coupon payment every year until the maturity d