Series 65 [2nd Edition] Exam
Question 1. Which of the following is a tool of monetary policy used by the Federal Reserve?
A) Changing income tax rates
B) Open market operations
C) Increasing government spending
D) Implementing tariffs
Answer: B
Explanation: The Federal Reserve uses open market operations—buying and selling government
securities—to influence the money supply, which is a key tool of monetary policy.
Question 2. Which economic indicator is considered a "leading" indicator?
A) Unemployment rate
B) Gross Domestic Product (GDP)
C) Stock market performance
D) Consumer Price Index (CPI)
Answer: C
Explanation: Stock market performance is a leading indicator, as it tends to change before the economy
as a whole changes.
Question 3. The stage of the business cycle where economic activity is at its highest is known as:
A) Expansion
B) Peak
C) Contraction
D) Trough
Answer: B
Explanation: The peak is the point at which economic activity reaches its highest before declining into a
contraction.
Question 4. The federal funds rate is best described as:
A) The interest rate charged by banks to their best customers
B) The rate at which banks lend reserves to each other overnight
C) The long-term government bond rate
D) The rate the Fed charges commercial banks
Answer: B
Explanation: The federal funds rate is the interest rate at which depository institutions lend balances to
each other overnight.
Question 5. Inflation is best described as:
A) A sustained increase in the general price level of goods and services
B) A decrease in the purchasing power of money due to falling prices
C) An increase in unemployment
D) A decline in GDP
Answer: A
Explanation: Inflation is defined as a sustained rise in the general price level, which erodes purchasing
power.
Question 6. Which of the following would most likely cause the value of the U.S. dollar to appreciate
relative to foreign currencies?
