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; fall
D) left; rise
2) A $1000 face value coupon bond with a $60 coupon payment every year has a
coupon rate of
A) 6 percent
B) 5 percent
C) 6 percent
D) 10 percent
3) If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real
GDP is $5 trillion, an increase in the money supply to $2 trillion
A) increases real GDP to $10 trillion
B) causes velocity to fall to 25
C) increases the price level to 2
D) increases the price level to 2 and velocity to 10
4) Interest-rate risk is the riskiness of an asset’s returns due to
A) interest-rate changes
B) changes in the coupon rate
C) default of the borrower
D) changes in the asset’s maturity
5) A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to ________,
everything else held constant
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
6) The government institution that has responsibility for the amount of money and
credit supplied in the economy as a whole is the
A) central bank
B) commercial bank
C) bank of settlement
D) monetary fund
7) Everything else held constant, in the market for reserves, when the federal funds rate
equals the discount rate, lowering the discount rate
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect of the federal funds rate
8) Economists have focused more attention on the formation of expectations in recent
years This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a
major impact on economic activity
B) expectations influence only a few individuals, have little impact on the overall
economy, but can have important effects on a few markets
C) expectations influence many individuals, have little impact on the overall economy,
but can have distributional effects
D) models that ignore expectations have little predictive power, even in the short run
9) A breakdown of financial markets can result in
A) financial stability
B) rapid economic growth
C) political instability
D) stable prices
10) The Argentine banking crisis of 2001 resulted from Argentina’s banks being
required to
A) purchase large amounts of government debt
B) pay back the value of failed loans
C) make risky real estate loans
D) make loans to only state-owned businesses
11) Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy Which of the following is not
one of these lessons?
A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy
B) Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero
C) Avoiding unanticipated fluctuations in the price level is an important objective of
monetary policy, thus providing a rationale for price stability as the primary long-run
goal for monetary policy
D) Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are important
elements in various monetary policy transmission mechanisms
12) Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor
B) You buy shares in a mutual fund
C) You buy a US Treasury bill from the US Treasury
D) A corporation buys a short-term security issued by another corporation in the
primary market
13) Which of the following instruments is not traded in a money market?
A) Residential mortgages
B) US Treasury Bills
C) Negotiable bank certificates of deposit
D) Commercial paper
14) An expansionary monetary policy lowers the real interest rate, causing the domestic
currency to ________, thereby ________ net exports
A) appreciate; raising
B) appreciate; lowering
C) depreciate; raising
D) depreciate; lowering
15) One possible reason for slower growth in developing and transition countries is
A) capital may not be directed to its most productive use
B) strict accounting standards are too stringent for the banks to meet
C) the weak link between government and financial intermediaries
D) the lack of adverse selection and moral hazard problems
16) The Bretton Woods agreement created the ________, which was given the task of
promoting the growth of world trade by setting rules for the maintenance of fixed
exchange rates and by making loans to countries that were experiencing balance of
payments difficulties
A) IMF
B) World Bank
C) Central Settlements Bank
D) Bank of International Settlements