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A credit crunch a. is a sharp decrease in banks’ willingness to lend b. often results from restrictive Federal Reserve actions c. is accurately represented by both of the above d. is accurately represented by neither of the above Answer: […]

In a sharply expanding economy: a. demand for funds rises and interest rates fall b. demand for funds rises and interest rates rise c. demand for funds falls and interest rates fall d. demand for funds falls and interest rates […]

How many of the U.S. economic downturns since 1929 have been characterized by deflation? a. none b. one c. five d. most Answer: International comparisons of CPI price inflation rates show that, during 1970 – 1990, a. the United States […]

During the Great Depression of the 1930s a. the excess reserve ratio increased b. the currency ratio increased c. both of the above occurred d. neither of the above occurred Answer: Empirically, larger budget deficits have not been proven to […]

Which of the following empirical regularities cannot be explained by pure expectations theory? a. the tendency for movements in the yield curve to be upward or downward shifts, rather than rotations b. the tendency for yield curves to slope upward […]

Anything that causes the demand for money relative to income to increase a. will cause velocity to increase b. will cause velocity to decrease c. will have no impact on velocity d. will have an unpredictable effect on velocity Answer: […]

The risk premium tends to vary in the following manner relative to the business cycle: a. countercyclically b. procyclically c. about the same over all phases of the business cycle d. unrelated to business cycle conditions Answer: An increase in […]

On the commercial bank balance sheet, which of the following is an asset? a. real estate loans b. capital accounts c. borrowings d. all of the above Answer: Suppose that society has the loss function L = 0.5(%DP – 2%)2 […]

Suppose a 360-day Treasury bill issued today sells at a discount rate of 5 percent. Suppose interest rates remain constant in the next year. We can state that, 180 days from now, the price of this Treasury bill will be […]

Due to the nature of their business, savings and loan associations and mutual savings banks experience problems when: a. short-term interest rates rise sharply b. long-term yields rise sharply relative to short-term yields c. deposits increase rapidly d. financial intermediation […]

Most of the wartime stimulus to aggregate demand comes from a. increases in consumption b. increases in investment c. increases in government spending d. increases in net exports Answer: Households that are surplus units must transfer their surplus funds to […]

The expectations theory of term structure assumes that: a. ascending yield curves prevail the most frequently b. investors attempt to maximize returns over some horizon c. investors have preferences for long-term securities d. borrowers have preferences for long-term securities Answer: […]

The NAIRU a. stays constant over time b. is easily measurable c. is known to policymakers d. is characterized by none of the above Answer: A $1,000 sale of government securities by the Federal Reserve to the public will cause […]

The most fundamental cause of the first S&L industry crisis in the early 1980s was a. the deposit insurance system b. fraud and dishonesty in the S&L industry c. government policies and regulations d. the policy of forbearance Answer: Keynesians […]

If the Federal Reserve bank buys securities from dealers a. B and M increase, while R remains unchanged b. R and B increase, while M remains unchanged c. R and M increase, while B remains unchanged d. R, B, and […]

The fundamental principle illustrated by the production of the fishing net in the Crusoe and Friday example is: a. the role played by financial intermediaries in economic growth b. the role of investment in calling forth saving c. the importance […]

Adoption of an inflation targeting regime tends to a. reduce the central bank’s flexibility b. reduce the instability of output caused by supply shocks c. reduce the transparency of the central bank d. do all of the above Answer: The […]

Monetarists believe that, in the early 1930s, a. the accumulation of excess reserves resulted from an increase in bank demand for excess reserves b. the link between B and M1 was broken by a liquidity trap c. monetary policy was […]

Wage and price controls were used to restrain inflation during the ____ administration. a. Eisenhower b. Nixon c. Johnson d. Kennedy Answer: In the 1920s, farmers in the United States a. enjoyed rapidly rising agricultural prices b. saw farm profits […]

The forward exchange market is a. used by speculators to turn large profits on a small initial investment b. used by traders of goods to hedge against exchange rate risk c. used by traders in international assets to equalize returns […]

Which stock market index do most economists believe best represents the performance of the typical American’s stock market portfolio? a. the Dow-Jones Industrial Average b. the NASDAQ index c. the Russell 2000 d. the S&P 500 Index Answer: On U.S. […]

Which of the following are positively or directly related? a. liquidity and yield b. risk and yield c. risk and liquidity d. none of the above Answer: An increase in market interest rates will cause the excess reserve ratio to […]

Relative to 30 years ago, the most rapid growth in exchange market activities has been in response to growth in a. capital flows b. merchandise trade flows c. nontradable goods d. services flows Answer: Which of the following may be […]

Adoption of a credible anti-inflation policy by the central bank is likely to result in a. an upward movement along the Phillips curve b. an upward shift in the Phillips curve c. a downward movement along the Phillips curve d. […]

Concerning Keynesian and monetarist views on appropriate monetary policy targets, we can state that a. Keynesians prefer to focus on monetary aggregates b. monetarists prefer to focus on bond yields c. both of the above are true d. neither of […]

Interest rates typically display a ____ pattern. a. countercyclical b. cyclically neutral c. procyclical d. none of the above Answer: Which of the following would increase real interest rates? a. an increase in the rate of time preference b. an […]

It is clear that the long-run movement in the monetary base is dominated by a. bank reserves b. discounts and advances c. Treasury deposits at the Federal Reserve d. the Fed portfolio of securities Answer: Which of the following has […]

In the United States, banks may be chartered by a. the federal government b. state governments c. both of the above d. neither of the above Answer: Desperate for a double mocha latte from Starbucks, you withdraw $2 from your […]

The FDICIA requires a. extremely undercapitalized banks to close their doors before they become insolvent b. banks with riskier asset structures to pay higher deposit insurance premiums c. banks with less capital to pay higher deposit insurance premiums d. all […]

The ECB is generally regarded to be ____ independent than the Federal Reserve. a. approximately equally b. less c. more d. we cannot generalize about the independence of the ECB Answer: A particular type of financial intermediary obtains funds through […]

Other things being equal, the present value of a bond increases with: a. higher annual coupons (dollar returns promised from the bond) b. lower market yields c. both of the above d. none of the above Answer: Which type of […]

The basic trend of long-term bond yields in the U.S. was one of: a. decline from 1950 to 1980 and increase since then b. increase from 1950 to 1960, decline from 1960 to 1980, and increase since 1980 c. increase […]

A bond has a coupon rate of 8 percent, has 3 years to maturity, and sells for $1,200. Its yield to maturity is: a. 12.21 percent b. 6.67 percent c. 5.55 percent d. 1.11 percent Answer: Which of the following […]

Which of the following is a function performed by the twelve Federal Reserve banks? a. conducting research on regional and national economic issues b. clearing checks c. withdrawing old or damaged currency from circulation d. all of the above Answer: […]

Due to the nature of its asset structure, the industry most vulnerable to the high interest rates of the early 1980s was the ____ industry. a. credit union b. commercial banking c. money market mutual fund d. savings and loan […]

Assuming no compensatory actions by the Fed, a sharp increase in k would cause a. a decrease in B b. an increase in B c. an increase in M d. none of the above Answer: The regulatory body in charge […]

An increase in the discount rate charged to banks who borrow at the Fed will cause the excess reserve ratio to ____ and the multiplier to ____. a. increase; increase b. decrease; decrease c. increase; decrease d. decrease; increase Answer: […]

Assume Bank A chooses to hold no excess reserves and receives a new deposit of $4,000. If the reserve requirement is 10 percent, how much can the bank loan out? a. $3,600 b. $4,000 c. $36,000 d. $40,000 Answer: The […]

As a general rule, over the last few decades a. the government has run deficits far more often than it has generated surpluses b. the government has generated surpluses far more often than it has run deficits c. the government […]

The Federal Reserve a. adheres to a strict inflation target b. does not explicitly target inflation c. is given a range of permissible rates in which inflation must fall d. is characterized by none of the above Answer: The aggregate […]

The existence of financial intermediaries has the following consequence: a. it increases interest rates, hurting home buyers b. it hurts small savers by creating another “middleman” c. it stimulates saving and investment, thus helping growth d. none of the above […]

The tendency for recessions to increase the level of the NAIRU is called a. the self-correction mechanism b. automatic stabilization c. stagflation d. hysteresis Answer: The distribution of stock ownership among households in the United States shows that a. there […]

Which was not a motive for establishing the Federal Reserve System? a. to combat inflation and unemployment b. to provide for the issue of currency c. to provide a lender of last resort d. to improve the system of check […]

The Federal Reserve implements its open market operations tool by a. making changes in the interest rate at which it lends funds to banks b. changing the fraction of deposits that banks must hold as reserves c. buying and selling […]

Which of the following will likely trigger an increase in re? a. The Fed sells securities in the open market and boosts interest rates. b. A large U.S. corporation unexpectedly goes bankrupt. c. Banks become more confident as economic uncertainty […]

“Cash items in the process of collection” refers to a. checks deposited in a particular bank which have not yet been credited to that bank b. accounts payable to local merchants, etc., due to trade credit arrangements c. checks written […]

Which institution would we expect to have the most liquid asset structure? a. Allstate Auto Insurance b. Franklin Savings and Loan c. The Prudential Life Insurance Company d. TIAA/CREF Retirement Fund Answer: Empirical evidence on early Keynesian views indicates that […]

Given other factors, the price of Wal-Mart stock will increase a. if nominal interest rates fall b. if the corporate income tax rate is reduced c. if real interest rates fall d. in all of the above cases Answer: The […]

Over long periods of time (say 30 years or more), investors would have received the highest returns by investing in a. stocks b. corporate bonds c. government bonds d. gold Answer: The decline in interest rates is most pronounced in: […]

If equilibrium output is below potential, then a. the unemployment rate must be at the natural rate of unemployment b. the unemployment rate must be above the natural rate of unemployment c. the unemployment rate must be below the natural […]

Inflation targeting involves a. setting acceptable inflation at a single level–for example, 4 percent b. setting acceptable inflation within a band of acceptable inflation rates–for example, between 4 and 6 percent c. either of the above d. neither of the […]

To a bank, demand deposits are a(n) a. asset b. capital account c. liability d. none of the above Answer: It is likely that the inflationary bias in the U.S. economy is in part a product of a. the McFadden […]

Liabilities of commercial banks may be divided into the following categories: a. demand deposits, time deposits, and borrowings b. demand deposits, time deposits, and securities c. demand deposits, time deposits, and loans d. loans, demand deposits, and other liabilities Answer: […]

Today, our money is “backed” a. by an implicit faith that our government will keep the growth of money in reasonable moderation b. by a combination of gold certificates and silver certificates c. 25% by gold certificates held by the […]

Assuming a 10% reserve requirement, a withdrawal of $1,000 cash by a depositor will immediately cause ____ and eventually cause ____. a. bank reserves to fall by $1,000; the money supply to fall by $9,000 b. bank reserves to fall […]

Other things being equal, an increase in the minimum wage will lead to a. greater consumer income, stimulating AD and thus reducing prices and output b. higher costs of production, reducing AS and decreasing prices and output c. increased input […]

If an inflation targeting regime increases the central bank’s credibility in targeting inflation, the magnitude by which the AS curve shifts leftward due to inflation expectations is a. reduced b. increased c. constant d. not enough information is given to […]

The Bretton Woods conference resulted in the creation of a. the World Bank b. the International Monetary Fund c. the “adjustable peg” exchange rate system d. all of the above Answer: Which decade was characterized by stagflation–the simultaneous existence of […]

A look at the GDP growth data over the past century appears to reveal that a. active policy has had no effect on the instability of output b. active policy has made output more unstable c. active policy is capable […]

Banks create money when they a. expand loans and buy securities b. expand loans and sell securities c. reduce loans and buy securities d. reduce loans and sell securities Answer: Which of the following is listed on the asset side […]