1. Economic policy affects
a. only the amount of money in the economy.
b. only the lending policy of financial intermediaries.
c. the entire financial system.
d. how financial securities are traded and no other part of the financial system.
2. Which of the following is NOT a financial policymaker?
a. Securities and Exchange Commission (SEC)
b. Federal Deposit Insurance Corporation (FDIC)
c. Consumer Financial Protection Bureau (CFPB)
d. Federal Reserve System (the Fed)
3. Which policymaking institution determines the money supply, sets the rules for how checks are cleared and how
banks obtain new currency, and determines what activities banks may or may not engage in?
a. Treasury Department.
b. Commerce Department.
c. Securities and Exchange Commission.
d. Federal Reserve System.
4. Earning interest on past interest is referred to as
a. present value.
b. super interest.
c. compounding.
d. discounting.
5. More than half of all U.S. dollars can be found
a. in foreign countries.
b. in the United States.
c. in the underground economy.
d. in bank vaults.
6. Americans should not worry about all the dollars held by foreigners because
a. most of the currency is reinvested into America.
b. taxes are lower as a result.
c. interest rates are lower as a result.
d. stock prices are higher as a result.
7. Interest rates on long-term loans are generally
loans are riskier.
a. lower; short-term
b. lower; long-term
c. higher; long-term
d. higher; short-term
than interest rates on short-term loans, partly because
8. The expected rate of change in prices is known as the
a. forecasted mean CPI.
b. Okun’s law coefficient.
c. augmented inflation rate.
d. expected inflation rate.
9. The nominal interest rate minus the expected inflation rate equals the
a. potential interest rate.
b. natural interest rate.
c. true interest rate.
d. real interest rate.
10. Buying stocks gives an investor
a. a very low but safe return.
b. ownership in corporations.
c. the riskiest asset available in the market.
d. a pure and random speculative gamble.
11. During the 2000s, banks became complacent about making mortgage loans because
a. there was not a single bank failure in the decade.
b. bank stocks performed better than the rest of the stock market.
c. the banks counted on housing prices to keep appreciating.
d. the government eliminated the FDIC.
12. When the overall level of business activity declines persistently, there is said to be
a. a revolution.
b. a hyperinflation.
c. a recession.
d. an expansion.
13. Economists who try to predict recessions find that recessions are
a. easy to predict.
b. difficult to predict.
c. non-existent before the year 2000.
d. non–existent since the year 2000.
14. The Federal Reserve creates money by
a. printing bills and circulating them in public meetings.
b. giving dollar bills to banks to circulate.
c. changing a number in its computer system.
d. spending money on government purchases.
15. In the long run, the only economic variable that the Federal Reserve can affect is
a. inflation.
b. output.
c. unemployment.
d. the exchange rate.
16. The percentage by which real gross domestic product is above or below its potential level is called the
a. inflation rate
b. output gap
c. real interest rate
d. rate of compounding
17. An equation that relates the interest rate to the output gap and the inflation rate is
a. the Phillips relation.
b. the Sharpe ratio.
c. Okun‘s law.
d. the Taylor rule.