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1) Everything else held constant, if aggregate output is to the ________ of the LM curve, then there is an excess supply of money which will cause the interest rate to ________ A) right; fall B) right; rise C) left; […]

1) According to Tobin’s q theory, when q is ________, firms will not purchase new investment goods because the market value of firms is ________ relative to the cost of capital A) low; low B) low; high C) high; low […]

1) One way of describing the solution that high net worth provides to the moral hazard problem is to say that it A) collateralizes the debt contract B) makes the debt contract incentive compatible C) state verifies the debt contract […]

1) The ________ interest rate is adjusted for expected changes in the price level A) ex ante real B) ex post real C) ex post nominal D) ex ante nominal 2) If additional information is not used when forming an […]

1) Which of the following statements about the characteristics of debt and equities is true? A) They can both be long-term financial instruments B) Bond holders are residual claimants C) The income from bonds is typically more variable than that […]

1) Complete Milton Friedman’s famous proposition: “Inflation is always and everywhere a ________ phenomenon” A) monetary B) political C) policy D) budgetary 2) Kevin purchasing concert tickets with his debit card is an example of the ________ function of money […]

1) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls […]

1) If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment, this can set the stage for a higher rate of money growth and A) cost-push inflation B) demand-pull […]

1) In Irving Fisher’s quantity theory of money, velocity was determined by A) interest rates B) real GDP C) the institutions in an economy that affect individuals’ transactions D) the price level 2) Everything else held constant, an increase in […]

1) An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant A) depreciate; lower B) appreciate; lower C) depreciate; higher D) appreciate; higher 2) […]

1) Prior to 2008, bank managers looked on reserve requirements A) as a tax on deposits B) as a subsidy on deposits C) as a subsidy on loans D) as a tax on loans 2) The view that expectations change […]

1) Debt deflation occurs when A) an economic downturn causes the price level to fall and a deterioration in firms’ net worth because of the increased burden of indebtedness B) rising interest rates worsen adverse selection and moral hazard problems […]

1) Financial institutions that accept deposits and make loans are called ________ institutions A) investment B) contractual savings C) depository D) underwriting 2) ________ in the domestic interest rate causes the demand for domestic assets to shift to the left […]

1) Everything else held constant, a decrease in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply B) an increase in money supply C) a decrease in the money […]

1) An expansionary monetary policy raises firms’ cash flows by ________ interest rates A) lowering real B) lowering nominal C) raising real D) raising nominal 2) Members of the Executive Board of the European System of Central Banks are appointed […]

1) Using the one-period valuation model, assuming a year-end dividend of $011, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be A) $11011 B) $12112 C) $10010 […]

1) Everything else held constant, a decrease in the cost of production ________ aggregate ________ A) increases; demand B) decreases; demand C) increases; supply D) decreases; supply 2) Prior to 2008, the bank’s cost of holding reserves equaled A) the […]

1) The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries A) theory of purchasing power parity B) law of one price C) theory of money neutrality […]

1) Conditions that likely contributed to a credit crunch during the global financial crisis include: A) capital shortfalls caused in part by falling real estate prices B) regulated hikes in bank capital requirements C) falling interest rates that raised interest […]

1) Which of the following can be described as involving direct finance? A) A corporation issues new shares of stock B) People buy shares in a mutual fund C) A pension fund manager buys a short-term corporate security in the […]

1) If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent B) 22 percent […]

1) Cutting the money supply by one-third is predicted by the quantity theory of money to cause A) a sharp decline in real output of one-third in the short run, and a fall in the price level by one-third in […]

1) When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves, it would A) increase the interest rate paid on excess reserves B) increase discount rate C) increase the required reserve ratio D) […]

1) If the required reserve ratio is 15 percent, the simple deposit multiplier is A) 150 B) 15 C) 667 D) 333 2) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, […]

1) Increasing transactions costs of selling an asset make the asset A) more valuable B) more liquid C) less liquid D) more moneylike 2) The “Greenspan doctrine” – central banks should not try to prick bubbles – was based on […]

1) Which of the following is not a disadvantage of of the Fed’s “just do it” approach to monetary policy? A) There is low transparency of policy B) There is low accountability for central bankers C) This type of policy […]

1) Which of the following is most likely to lead to inflationary monetary policy? A) Declining oil prices B) Resolution of conflict in the Middle East C) The enactment of a free-trade agreement with Mexico D) Rising government budget deficits […]

1) Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ […]

1) Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank’s assets to increase their rate sensitivity or, alternatively, ________ the duration of the bank’s liabilities A) shortening; lengthening B) shortening; shortening C) lengthening; […]

1) If expectations are formed rationally, then individuals A) will have a forecast that is 100% accurate all of the time B) change their forecast when faced with new information C) use only the information from past data on a […]

1) When interest rates rise in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________ A) falls; less; fall B) falls; more; rise C) rises; more; […]

1) When the level of unplanned inventory investment is equal to zero, the economy is A) in disequilibrium B) in a recession C) in equilibrium D) overheating 2) Deposit insurance is only one type of government safety net All of […]

1) Looking at the Net Interest Margin indicates that the poor bank performance in the late 1980s A) was not the result of interest-rate movements B) was not the result of risky loans made in the early 1980s C) resulted […]

1) Although it has a population about half that of the United States, Japan has A) many more banks B) about 25 percent of the number of banks C) more than 5000 commercial banks D) fewer than 100 commercial banks […]

1) Loophole mining refers to financial innovation designed to A) hide transactions from the IRS B) conceal transactions from the SEC C) get around regulations D) conceal transactions from the Treasury Department 2) If workers do not believe that policymakers […]

1) Which of the following statements about financial markets and securities is true? A) A bond is a long-term security that promises to make periodic payments called dividends to the firm’s residual claimants B) A debt instrument is intermediate term […]

1) China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas A) state B) domestic investor C) depositor D) domestic corporate 2) ________ in the domestic interest rate causes the demand […]

1) The growth of the subprime mortgage market led to A) increased demand for houses and helped fuel the boom in housing prices B) a decline in the housing industry because of higher default risk C) a decrease in home […]

1) A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity B) pays the bondholder the face value at maturity C) pays all interest and the face value at maturity D) pays […]

1) Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve’s federal funds target rate If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate […]

1) Even if the Fed could completely control the money supply, monetary policy would have critics because A) the Fed is asked to achieve many goals, some of which are incompatible with others B) the Fed’s goals do not include […]

1) The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall A) shifted the aggregate demand curve to the right B) shifted the aggregate demand curve to the left C) shifted the […]

1) From the standpoint of ________, specialization in lending is surprising but makes perfect sense when one considers the ________ problem A) moral hazard; diversification B) diversification; moral hazard C) adverse selection; diversification D) diversification; adverse selection 2) If a […]

1) When stock prices fall A) an individual’s wealth is not affected nor is their willingness to spend B) a business firm will be more likely to sell stock to finance investment spending C) an individual’s wealth may decrease but […]

1) A decrease in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate 2) Everything […]

1) There are two types of investment: ________ investmentthe spending by business firms on equipment and structures, and planned spending on residential housesand ________ investmentspending by business firms on additional holdings of raw materials, parts, and finished goods A) planned; […]

1) An expansionary monetary policy shifts the LM curve to the ________, reducing ________, everything else held constant A) left; output and increasing interest rates B) left; both real output and interest rates C) right; both interest rates and real […]

1) Savings and loan associations are regulated by the A) Federal Reserve System B) Securities and Exchange Commission C) Office of the Comptroller of the Currency D) Office of Thrift Supervision 2) The economy recovers quickly from most recessions, but […]

1) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent 2) Under a fixed exchange rate […]

1) One of the concerns of increased bank consolidation is the reduction in community banks which could result in A) less lending to small businesses B) loss of cultural identity C) higher interest rates D) more bank regulation 2) Because […]

1) If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of A) $12 million […]

1) A lesson of the Enron collapse is that government regulation A) always fails B) can reduce but not eliminate asymmetric information C) increases the problem of asymmetric information D) should be reduced 2) The originate-to-distribute business model has a […]

1) Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending A) decline; increases; encouraging […]

1) State whether the following statement is true or false AND explain why: “An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate” 2) State whether the following statement […]

1) The IS curve shifts to the left when A) taxes increase B) government spending increases C) the money supply increases D) autonomous planned investment spending increases 2) Everything else held constant, if a central bank makes an unsterilized sale […]

1) Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will decrease and the domestic currency will ________ A) purchase; appreciate B) purchase; depreciate C) sale; appreciate D) sale; […]

1) Credit risk management tools include A) deductibles B) collateral C) interest rate swaps D) duration analysis 2) Federal deposit insurance covers deposits up to $250,000, but as part of a doctrine called “too-big-to-fail” the FDIC sometimes ends up covering […]

1) Because policies in the United States were too expansionary from 1965 through 1973, the US suffered A) demand-pull inflation B) cost-push inflation, as workers sought higher wages in order to keep up with inflation C) both demand-pull and cost-push […]

1) The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate A) positively; negatively B) positively; positively C) negatively; negatively D) negatively; positively […]

1) The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%, then inflation is A) 2% B) 8% C) -2% D) 16% 2) The money […]

1) During the 1950s, Fed monetary policy targeted A) the monetary base B) the exchange rate C) discount loans D) interest rates 2) In the early stages of the 1980s banking crisis, financial institutions were especially harmed by A) declining […]

1) Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate A) increases the federal funds rate B) lowers the federal funds […]

1) Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans A) adverse selection B) moral hazard C) moral suasion D) intentional fraud 2) The Dow reached a […]

1) Every financial market has the following characteristic: A) It determines the level of interest rates B) It allows common stock to be traded C) It allows loans to be made D) It channels funds from lenders-savers to borrowers-spenders 2) […]

1) Macroeconomic equilibrium requires A) equilibrium in the goods market B) equilibrium in the money market C) equilibrium in both the goods and money markets D) equilibrium in neither the goods nor the money market 2) Which of the following […]

1) When the IS and LM curves are combined in the same diagram, the intersection of the two curves determines the equilibrium level of ________ as well as the ________ A) aggregate output; price level B) aggregate output; interest rate […]

1) When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in A) a contraction of economic activity B) an economic boom C) an increased opportunity for growth D) a call for government regulation 2) If the Federal Reserve conducts […]

1) In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from A) owning municipal bonds B) making real estate loans C) making personal loans D) owning common stock 2) […]

1) The teal book is the Fed research document containing A) the forecast of national economic variables for the next three years B) forecasts of the money aggregates conditional on different monetary policy stances C) information on the state of […]

1) The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________ A) adverse selection; moral hazard B) moral hazard; adverse selection C) costly state verification; free-riding […]

1) Using the Gordon growth model, if D1 is $50, ke is 7%, and g is 5%, then the present value of the stock is A) $250 B) $25 C) $50 D) $4673 2) In the liquidity trap, monetary policy […]

1) The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A) beige book B) green book C) blue book D) black book […]

1) To calculate the growth rate of a variable, you will A) calculate the percentage change from one time period to the next B) calculate the difference between the two variables C) add the ending value to the beginning value […]

1) The revenue a government gains from issuing money is A) interest B) rent C) seignorage D) the national dividend E) the inflation tax 2) If actual output is less than equilibrium output, firms will ________ output to keep from […]

1) In the liquidity preference framework, a one-time increase in the money supply results in a price level effect The maximum impact of the price level effect on interest rates occurs A) at the moment the price level hits its […]

1) With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is A) 3 percent B) 10 percent […]

1) Mutual savings banks are owned by A) shareholders B) partners C) depositors D) foreign investors 2) If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then […]

1) The absence of money illusion means that A) as real income doubles, the demand for money doubles B) as interest rates double, the demand for money doubles C) as the money supply doubles, the demand for money doubles D) […]

1) Under a fixed exchange rate regime, if the domestic currency is initially overvalued, that is, below par, the central bank must intervene to purchase the ________ currency by selling ________ assets A) domestic; foreign B) domestic; domestic C) foreign; […]

1) At the time of the South Korean financial crisis, the merchant banks were A) almost virtually unregulated B) subject to heavy government regulation C) engaged in long-term lending to the corporate sector D) restricted to long-term foreign borrowing 2) […]

1) Small-denomination time deposits refer to certificates of deposit with a denomination of less than A) $1,000 B) $10,000 C) $100,000 D) $1,000,000 2) According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial […]

1) The Fed’s discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems […]

1) The time it takes for policy makers to change policy instruments once they have decided on the new policy is called A) the data lag B) the recognition lag C) the legislative lag D) the implementation lag E) the […]

1) Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input A) three; ten B) five; ten C) three; twelve D) five; twelve 2) Suppose the economy is producing at […]

1) The decline in traditional banking internationally can be attributed to A) increased regulation B) improved information technology C) increasing monopoly power of banks over depositors D) increased protection from competition 2) Everything else held constant, when bonds become less […]

1) Everything else held constant, an increase in net taxes ________ aggregate ________ A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply 2) Which investment bank filed for bankruptcy on September 15, 2008 making it the largest […]

1) As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant A) foreign; foreign B) foreign; dollar C) dollar; foreign D) dollar; dollar 2) Evidence […]

1) The price of a consol equals the coupon payment A) times the interest rate B) plus the interest rate C) minus the interest rate D) divided by the interest rate 2) If the money supply is $600 and nominal […]

1) Compared to checks, paper currency and coins have the major drawbacks that they A) are easily stolen B) are hard to counterfeit C) are not the most liquid assets D) must be backed by gold 2) Everything else held […]

1) Suppose the economy is producing at the natural rate of output Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in […]

1) The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the A) Competitive Equality Banking Act of 1987 B) Financial Institutions Reform, Recovery and Enforcement Act of 1989 C) […]

1) A smart card is the equivalent of A) cash B) savings bonds C) savings deposits D) certificates of deposit 2) When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, […]

1) In the long-run ISLM model and with everything else held constant, the long-run effect of an expansionary monetary policy is to A) increase real output and the interest rate B) not change either real output or the interest rate […]

1) If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $95 trillion, then real GDP growth from 2002 to 2003 is A) 05% B) 5% C) 0% D) -5% 2) The spectacular growth in international […]

1) Conflicts of interest are a type of ________ problem that can happen when an institution provides multiple services A) adverse selection B) free-riding C) discounting D) moral hazard 2) The ability to use one resource to provide different products […]

1) A corporation acquires new funds only when its securities are sold in the A) secondary market by an investment bank B) primary market by an investment bank C) secondary market by a stock exchange broker D) secondary market by […]

1) Modern liability management has resulted in A) increased sales of certificates of deposits to raise funds B) increase importance of deposits as a source of funds C) reduced borrowing by banks in the overnight loan market D) failure by […]

1) The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as A) increased crime B) difficulty getting a loan C) currency devaluations D) loss of output 2) With ________, firms value assets […]

1) Banks acquire the funds that they use to purchase income-earning assets from such sources as A) cash items in the process of collection B) savings accounts C) reserves D) deposits at other banks 2) In the simple model of […]

1) A tax cut initially A) increases consumption expenditure by an amount greater than the tax cut B) increases consumption expenditure by an amount equal to the tax cut C) increases consumption expenditure by an amount that is less than […]

1) If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves A) defensive; inject B) defensive; drain C) […]

1) In the period 1965 through the 1970s, policymakers pursued ________ policies in order to achieve ________ A) expansionary; high employment B) expansionary; low inflation C) contractionary; high employment D) contractionary; low inflation 2) The delivery of financial services electronically […]

1) Because banks engage in regulatory arbitrage, the Basel Accord on risk-based capital requirements may result in A) reduced risk taking by banks B) reduced supervision of banks by regulators C) increased fraudulent behavior by banks D) increased risk taking […]

1) A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a A) simple loan B) fixed-payment loan C) coupon bond D) discount bond […]

1) Suppose the economy is producing at the natural rate of output An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything […]

1) The nominal interest rate minus the expected rate of inflation A) defines the real interest rate B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate C) is a less […]

1) Nonactivists of the policies believe that A) wages and prices are very flexible B) the self-correcting mechanism is very rapid C) government action is unnecessary D) all of the above 2) Everything else held constant, a decrease in planned […]

1) Assuming initially that rr = 15%, c = 40%, and e = 5%, an increase in e to 10% causes the M1 money multiplier to ________, everything else held constant A) increase from 215 to 233 B) decrease from […]

1) Bank’s make their profits primarily by issuing A) equity B) negotiable CDs C) loans D) NOW accounts 2) ________ occurs when market participants observe returns on a security that are larger than what is justified by the characteristics of […]

1) The difference between merchandise exports and imports is called the ________ balance A) current account B) capital account C) official reserve transactions D) trade 2) The reduction in transactions costs per dollar of investment as the size of transactions […]

1) Which of the following is not an advantage of inflation targeting? A) There is simplicity and clarity of the target B) Inflation targeting does not rely on a stable money-inflation relationship C) There is an immediate signal on the […]

1) An increase in the quantity of money supplied shifts the money supply curve to the ________ and the LM curve to the ________, everything else held constant A) right; left B) right; right C) left; left D) left; right […]

1) Everything else held constant, if aggregate output is to the right of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________ A) supply; fall B) supply; rise C) demand; fall […]

1) Long-term debt has a maturity that is A) between one and ten years B) less than a year C) between five and ten years D) ten years or longer 2) In general, banks would prefer to acquire funds quickly […]

1) When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________ A) remains unchanged; decrease B) remains unchanged; increase C) decreases; decrease D) decreases; remains unchanged 2) Inflation targets can increase […]

1) Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock […]

1) During World War II, whenever interest rates would rise and the price of bonds would begin to fall, the Fed would A) lower reserve requirements B) raise reserve requirements C) make open market purchases of government securities D) make […]

1) In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $250 in government bonds B) sold $100 in government bonds […]

1) Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending A) merely causes a movement along the IS curve and not a shift […]

1) A simple deposit multiplier equal to one implies a required reserve ratio equal to A) 100 percent B) 50 percent C) 25 percent D) 0 percent 2) In response to the overvalued dollar in the early 1970s, the German […]

1) If the money supply is $600 and nominal income is $3,000, the velocity of money is A) 1/50 B) 1/5 C) 5 D) 50 2) When we say that money is a stock variable, we mean that A) the […]

1) An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate […]

1) The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called A) the data lag B) the recognition lag C) the legislative lag D) the […]

1) Everything else held constant, a stronger dollar benefits ________ and hurts ________ A) American businesses; American consumers B) American businesses; foreign businesses C) American consumers; American businesses D) foreign businesses; American consumers 2) High-powered money minus currency in circulation […]

1) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves Given this information, we can say […]

1) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves Given this information, we can say […]

1) In the long-run ISLM model and with everything else held constant, as long as the level of output ________ the natural rate level, the price level will continue to ________, shifting the LM curve to the ________, until finally […]

1) In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant […]

1) Which of the following are primary concerns of the bank manager? A) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows B) Extending loans to borrowers who will pay low interest rates, but who are […]

1) Using the information contained in Situation 20-1, if autonomous consumption increases by $100, then equilibrium aggregate output will change by A) -$1,000 B) -$100 C) $100 D) $1,000 2) ________ policy involves decisions about government spending and taxation A) […]

1) In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is: A) a decrease in government budget deficits B) a decrease in expected inflation C) expectations of more profitable investment […]

1) If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves A) increase; defensive; inject B) decrease; defensive; […]

1) The net amount of international reserves that move between governments to finance international transactions is called the ________ balance A) capital account B) current account C) trade D) official reserve transactions 2) If borrowers with the most risky investment […]

1) Assume a bank has $200 million of assets with a duration of 25, and $190 million of liabilities with a duration of 105 If interest rates increase from 5 percent to 6 percent, the net worth of the bank […]

1) Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in business by A) issuing credit cards B) ignoring the regulations C) […]

1) If float is predicted to decrease because of good weather, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves A) defensive; inject B) defensive; drain C) […]

1) The Fed’s use of the ________ as an operating target in the 1970s resulted in ________ monetary policy A) federal funds rate; countercyclical B) federal funds rate; procyclical C) M1 money supply; countercyclical D) M1 money supply; procyclical 2) […]

1) Critics of nationwide banking fear A) an elimination of community banks B) increased lending to small businesses C) cutthroat competition D) banks with economies of scale problems 2) If a contractionary monetary policy lowers the price level by more […]

1) Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises B) the demand curve for bonds shifts to the left and the interest […]

1) On January 25, 2009, one US dollar traded on the foreign exchange market for about 333 Romanian new lei Therefore, one Romanian new lei would have purchased about ________ US dollars A) 030 B) 186 C) 286 D) 333 […]

1) The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter […]

1) Recent research indicates that inflation performance (low inflation) has been found to be best in countries with A) the most independent central banks B) political control of monetary policy C) money financing of budget deficits D) a policy of […]

1) Unemployment resulting from a mismatch of workers’ skills and job requirements is called A) frictional unemployment B) structural unemployment C) seasonal unemployment D) cyclical unemployment 2) In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the […]

1) Referring to the Economic Stimulus Act of 2008, the expansionary effect of the government stimulus was overwhelmed by the continuing deterioration in credit market conditions Everything else held constant and using the ISLM model, the net effect would cause […]

1) Which of the following items are not counted in US GDP? A) your purchase of a new Ford Mustang B) your purchase of new tires for your old car C) GM’s purchase of tires for new cars D) a […]

1) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, […]

1) If your nominal income in 1998 is $50,000, and prices increase by 50% between 1998 and 2011, then to have the same real income, your nominal income in 2011 must be A) $50,000 B) $75,000 C) $100,000 D) $150,000 […]

1) One reason financial systems in developing and transition countries are underdeveloped is A) they have weak links to their governments B) they make loans only to nonprofit entities C) the legal system may be poor making it difficult to […]

1) In the Gordon growth model, a decrease in the required rate of return on equity A) increases the current stock price B) increases the future stock price C) reduces the future stock price D) reduces the current stock price […]

1) A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system A) causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently B) allows for a […]

1) Bonds that are sold in a foreign country and are denominated in the country’s currency in which they are sold are known as A) foreign bonds B) Eurobonds C) equity bonds D) country bonds 2) The actual execution of […]

1) A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A) commercial paper B) a negotiable certificate of deposit C) […]

1) The trend in recent years is that more and more governments A) have been granting greater independence to their central banks B) have been reducing the independence of their central banks to make them more accountable for poor economic […]

1) Foreign banks may engage in banking activities in the United States by opening all of the following except A) an agency office of the foreign bank B) a subsidiary US bank C) a branch of the foreign bank D) […]

1) In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to […]

1) A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate […]

1) In the figure above, one factor not responsible for the decline in the demand for money is A) a decline the price level B) a decline in income C) an increase in income D) a decline in the expected […]

1) The interest rate the Fed charges banks borrowing from the Fed is the A) federal funds rate B) Treasury bill rate C) discount rate D) prime rate 2) If the economy is on the IS curve, but is to […]

1) Banks hold capital because A) they are required to by regulatory authorities B) higher capital increases the returns to the owners C) it increases the likelihood of bankruptcy D) higher capital increases the return on equity 2) The most […]

1) When banks calculate the losses the institution would incur if an unusual combination of bad events happened, the bank is using the ________ approach A) stress-test B) value-at-risk C) trading-loss D) maximum value 2) In the generalized dividend model, […]

1) Everything else held constant, when a country’s currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive A) more; less B) more; more C) less; less D) less; more 2) On January […]