1. In 2000, home prices in the U.S. were rising around 15 percent per year and the interest rate
in the economy was 5 percent. Since the expectation of further appreciation of the houses continued
during the year 2001 and 2002, a good financial strategy at that time could be to:
A. borrow money and sell as many houses as one could.
B. lend money and sell as many houses as one could.
C. borrow money and buy as many houses as one could.
D. lend money and buy as many houses as one could
2. During a recession, monetary policy makers would probably recommend an open market:
A. sale of government securities that reduces interest rates.
B. purchase of government securities that reduces interest rates.
C. sale of government securities that raises interest rates.
D. purchase of government securities that raises interest rates.
3. If real income increases by 4 percent and the price level increases by 3 percent, nominal income must:
A. increase by 7 percent.
B. increase by 1 percent.
C. decrease by 1 percent.
D. decrease by 7 percent
4. For the owner of 500 shares of stock in General Electric, the shares of stock are a:
A. financial liability
B. financial asset
C. real liability
D. real asset
5. Which of the following is not included in the M1 definition of money?
A. Checking accounts.
C. Traveler's checks.
D. Savings accounts.
6. Describe what happens to the following indicating as increases or decreases when the
Federal Reserve conducts a PURCHASE of government securities on the open market:
Bank Reserves____ → Money supply____ → Interest rates ____ → Investment ____ → Agg Demand ___
This policy would be expansionary/contractionary (circle or highlight one) monetary policy.