ECON 2105 Exam III Practice Test:
*Note: This test includes a range of multiple choice, true/false, graph analysis, and free response questions, so you may be
prepared for the exam. An Answer Key is provided at the bottom, along with explanations and additional practice questions for
each of the questions should you miss a question on the initial practice test. It’s always a good idea to practice concepts you may
not understand. Most of the additional practice questions can be solved with the information on this practice test. I recommend
printing the exam for the best results, but doing the work on paper in general helps. Good luck! You’ll do great! :D
1.) The three primary tools used by _______________ to influence the money supply include
_____________, Discount Loans, and Reserve Requirements.
A. The Federal Reserve; Open Market Operations
B. The Central Bank; Interest Rates
C. The Federal Reserve; Monetary Policy,
D. The Central Bank; Open Market Operations
2.) “Clara buys a new microphone with money in her savings account.”
What function of money is being represented in this scenario?
A. Unit of Account
B. Medium of Exchange
C. Measure of Wealth
D. Certificate of Deposit
3.) A bank purchases a bond for $2 million. If the Reserve Requirement Ratio is 20%, what is the
total change in money supply from this purchase?
A.
B. $10 million
C. $4 million
D. $5 million
E. $1 million
,4.) Why does the money demand curve slope downwards?
A. It demonstrates how interest rates and quantity of money demanded have a direct
relationship.
B. It represents the assumption that the money supply is fixed.
C. It demonstrates that regardless of any interest rate fluctuations the quantity of money
demanded will be.
D. It demonstrates how the higher interest rates are the lower the quantity of money
demanded will be.
5.) Take a look at this graph:
What best explains the relationship between how the interest rate links the concepts of money
demand + investment to Aggregate Demand?
A. The interest rate leads to a bigger money demand, which leads to smaller investment,
which decreases Aggregate Demand.
B. The interest rate connects inflation rates with consumer confidence, which impacts
Aggregate Demand.
, C. The changes in the interest rate suggests that fiscal policy directly influences money
demand and investment.
D. The changes in the interest rate demonstrate that changes in the price level change money
demand, which affects investment, and eventually, Aggregate Demand.
6.) What best describes the concept of the reserve requirement?
A. The minimum amount of reserves a bank must hold.
B. The total amount of money a bank should lend to customers.
C. The interest rate that banks charge for loans.
D. The total amount of deposits held by a bank.
7.) How an increase in government spending can affect the Aggregate Demand (AD) curve?
A. An increase in government spending decreases consumer confidence, which results in a
lower AD.
B. An increase in government spending will shift the AD curve to the right.
C. An increase in government spending has no effect on AD as it is a fixed component.
D. An increase in government spending will only affect the Aggregate Supply (AS) curve.
E.
8.) Take a look at this graph:
*Note: This test includes a range of multiple choice, true/false, graph analysis, and free response questions, so you may be
prepared for the exam. An Answer Key is provided at the bottom, along with explanations and additional practice questions for
each of the questions should you miss a question on the initial practice test. It’s always a good idea to practice concepts you may
not understand. Most of the additional practice questions can be solved with the information on this practice test. I recommend
printing the exam for the best results, but doing the work on paper in general helps. Good luck! You’ll do great! :D
1.) The three primary tools used by _______________ to influence the money supply include
_____________, Discount Loans, and Reserve Requirements.
A. The Federal Reserve; Open Market Operations
B. The Central Bank; Interest Rates
C. The Federal Reserve; Monetary Policy,
D. The Central Bank; Open Market Operations
2.) “Clara buys a new microphone with money in her savings account.”
What function of money is being represented in this scenario?
A. Unit of Account
B. Medium of Exchange
C. Measure of Wealth
D. Certificate of Deposit
3.) A bank purchases a bond for $2 million. If the Reserve Requirement Ratio is 20%, what is the
total change in money supply from this purchase?
A.
B. $10 million
C. $4 million
D. $5 million
E. $1 million
,4.) Why does the money demand curve slope downwards?
A. It demonstrates how interest rates and quantity of money demanded have a direct
relationship.
B. It represents the assumption that the money supply is fixed.
C. It demonstrates that regardless of any interest rate fluctuations the quantity of money
demanded will be.
D. It demonstrates how the higher interest rates are the lower the quantity of money
demanded will be.
5.) Take a look at this graph:
What best explains the relationship between how the interest rate links the concepts of money
demand + investment to Aggregate Demand?
A. The interest rate leads to a bigger money demand, which leads to smaller investment,
which decreases Aggregate Demand.
B. The interest rate connects inflation rates with consumer confidence, which impacts
Aggregate Demand.
, C. The changes in the interest rate suggests that fiscal policy directly influences money
demand and investment.
D. The changes in the interest rate demonstrate that changes in the price level change money
demand, which affects investment, and eventually, Aggregate Demand.
6.) What best describes the concept of the reserve requirement?
A. The minimum amount of reserves a bank must hold.
B. The total amount of money a bank should lend to customers.
C. The interest rate that banks charge for loans.
D. The total amount of deposits held by a bank.
7.) How an increase in government spending can affect the Aggregate Demand (AD) curve?
A. An increase in government spending decreases consumer confidence, which results in a
lower AD.
B. An increase in government spending will shift the AD curve to the right.
C. An increase in government spending has no effect on AD as it is a fixed component.
D. An increase in government spending will only affect the Aggregate Supply (AS) curve.
E.
8.) Take a look at this graph:
