EC 202 Exam 2 Questions and Answers Latest Update 2025-2026
1) Changes in the federal funds rate ________.
A) change the long-term expected interest rates in the opposite direction
B) have no effect on the long-term expected interest rate
C) change the long-term expected interest rates in the same direction
D) can change the long-term expected interest rate in any direction, depending on the
magnitude of the change in the
federal funds rate - Answers C
2) M2 adds together ________.
A) currency in circulation, checking accounts, savings accounts, travelers' checks, and currency
held by foreigners
B) currency in circulation, savings accounts, and currency held by foreigners
C) currency in circulation, checking accounts, savings accounts, travelers' checks, and money
market accounts
D) currency in circulation and currency held by foreigners - Answers C
3) What is true of the Dodd Frank law that was passed in 2010 regarding Systemically Important
Financial Institutions
(SIFIs)?
A) A bill currently being considered in Congress would raise the asset limit for SIFIs.
B) It limits the amount of leverage SIFIs are allowed to have.
C) It designated financial firms with assets of more than $50 billion in assets as SIFIs.
D) All of the above. - Answers D
4) Which statement is true about the federal funds rate? It is the interest rate
A) paid on long-term government bonds.
B) that banks pay when they borrow from the Fed at the discount window.
C) the Fed pays on on reserve accounts held by banks.
D) banks charge each other for overnight loans of reserves. - Answers D
,5) Suppose that we produce a graph with the annual inflation rate on the y-axis and the growth
rate of the money supply
minus the growth rate of real GDP on the x-axis. We plot the averages of each of these
quantities over the past 50 years on
the graph. If the quantity theory of money is approximately correct, then ________.
A) each country's point will lie approximately on a vertical line
B) each country's point will lie approximately on a horizontal line
C) each country's point will lie approximately on the 45° line
D) each country's point will lie approximately on some upward-sloping line - Answers C
6) If the inflation rate is 2 percent and a $200 bank deposit increases in one year to $212, then
the real interest rate for that
deposit is
A) 6 percent B) 4 percent C) 8 percent D) 10 percent - Answers B
The following table lists various statistics for Bridger Bank.
Category Amount (millions of dollars)
Reserves 60
Demand deposits 120
Long-term debt 45
Cash equivalents 68
Short-term borrowing 53
Long-term investments 150
7) Refer to the table above. What is the stockholder's equity of Bridger Bank?
A) $10 million B) $50 million C) $150 million D) $60 million - Answers D
The following table lists various statistics for Bridger Bank.
Category Amount (millions of dollars)
Reserves 60
, Demand deposits 120
Long-term debt 45
Cash equivalents 68
Short-term borrowing 53
Long-term investments 150
8) Refer to the table above. If Bridger Bank's total liabilities stay the same but stockholder's
equity increases by 25 percent,
then by what percentage do Bridger Bank's total assets change?
A) Decrease by 4.2 percent B) Decrease by 15 percent
C) Increase by 5.4 percent D) Increase by 25 percent - Answers C
9) If an increase in the demand for reserves causes a deviation in the federal funds rate from a
target rate, the Fed can
maintain the target by ________.
A) causing the supply curve of reserves to shift to the right
B) causing a downward movement along the supply curve of reserves
C) causing an upward movement along the supply curve of reserves
D) causing the supply curve of reserves to shift to the left - Answers A
10) Consider two banks: Bank A and Bank B. Suppose the value of liabilities of both the banks is
equal. However, Bank A
is solvent, while Bank B is insolvent. This would imply that ________.
A) Bank B's assets exceed Bank A's assets
B) Bank B's assets exceed Bank B's liabilities
C) Bank A's assets exceed Bank B's assets
D) Bank A's liabilities exceed Bank A's assets - Answers C
11) Which of the following statements is true?
A) If a bank borrows $1,000 from the Fed, the bank's reserves fall by $1,000.
1) Changes in the federal funds rate ________.
A) change the long-term expected interest rates in the opposite direction
B) have no effect on the long-term expected interest rate
C) change the long-term expected interest rates in the same direction
D) can change the long-term expected interest rate in any direction, depending on the
magnitude of the change in the
federal funds rate - Answers C
2) M2 adds together ________.
A) currency in circulation, checking accounts, savings accounts, travelers' checks, and currency
held by foreigners
B) currency in circulation, savings accounts, and currency held by foreigners
C) currency in circulation, checking accounts, savings accounts, travelers' checks, and money
market accounts
D) currency in circulation and currency held by foreigners - Answers C
3) What is true of the Dodd Frank law that was passed in 2010 regarding Systemically Important
Financial Institutions
(SIFIs)?
A) A bill currently being considered in Congress would raise the asset limit for SIFIs.
B) It limits the amount of leverage SIFIs are allowed to have.
C) It designated financial firms with assets of more than $50 billion in assets as SIFIs.
D) All of the above. - Answers D
4) Which statement is true about the federal funds rate? It is the interest rate
A) paid on long-term government bonds.
B) that banks pay when they borrow from the Fed at the discount window.
C) the Fed pays on on reserve accounts held by banks.
D) banks charge each other for overnight loans of reserves. - Answers D
,5) Suppose that we produce a graph with the annual inflation rate on the y-axis and the growth
rate of the money supply
minus the growth rate of real GDP on the x-axis. We plot the averages of each of these
quantities over the past 50 years on
the graph. If the quantity theory of money is approximately correct, then ________.
A) each country's point will lie approximately on a vertical line
B) each country's point will lie approximately on a horizontal line
C) each country's point will lie approximately on the 45° line
D) each country's point will lie approximately on some upward-sloping line - Answers C
6) If the inflation rate is 2 percent and a $200 bank deposit increases in one year to $212, then
the real interest rate for that
deposit is
A) 6 percent B) 4 percent C) 8 percent D) 10 percent - Answers B
The following table lists various statistics for Bridger Bank.
Category Amount (millions of dollars)
Reserves 60
Demand deposits 120
Long-term debt 45
Cash equivalents 68
Short-term borrowing 53
Long-term investments 150
7) Refer to the table above. What is the stockholder's equity of Bridger Bank?
A) $10 million B) $50 million C) $150 million D) $60 million - Answers D
The following table lists various statistics for Bridger Bank.
Category Amount (millions of dollars)
Reserves 60
, Demand deposits 120
Long-term debt 45
Cash equivalents 68
Short-term borrowing 53
Long-term investments 150
8) Refer to the table above. If Bridger Bank's total liabilities stay the same but stockholder's
equity increases by 25 percent,
then by what percentage do Bridger Bank's total assets change?
A) Decrease by 4.2 percent B) Decrease by 15 percent
C) Increase by 5.4 percent D) Increase by 25 percent - Answers C
9) If an increase in the demand for reserves causes a deviation in the federal funds rate from a
target rate, the Fed can
maintain the target by ________.
A) causing the supply curve of reserves to shift to the right
B) causing a downward movement along the supply curve of reserves
C) causing an upward movement along the supply curve of reserves
D) causing the supply curve of reserves to shift to the left - Answers A
10) Consider two banks: Bank A and Bank B. Suppose the value of liabilities of both the banks is
equal. However, Bank A
is solvent, while Bank B is insolvent. This would imply that ________.
A) Bank B's assets exceed Bank A's assets
B) Bank B's assets exceed Bank B's liabilities
C) Bank A's assets exceed Bank B's assets
D) Bank A's liabilities exceed Bank A's assets - Answers C
11) Which of the following statements is true?
A) If a bank borrows $1,000 from the Fed, the bank's reserves fall by $1,000.
