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 rise
Answer:
One problem with using active monetary policy to bring output to its full-employment
level is
a. economists are unsure of exactly what the full-employment level is
b. economists don’t know how quickly or slowly AD will respond to changes in the
money supply
c. economists are uncertain about the shapes and positions of the AS and AD curves
d. all of the above
Answer:
To remain prudent, which type of institution needs to maintain the most liquid asset
structure?
a. credit unions
b. life insurance companies
c. stock mutual funds
d. money market mutual funds
Answer:
The original purpose of the Federal Reserve System was to
a. hold debt issued by the Treasury to finance WWI
b. serve as a lender of last resort to the banking system
c. conduct monetary policy to stabilize employment and prices
d. all of the above
Answer:
The Employment Act of 1946 identified the government’s economic objectives as
a. promotion of maximum purchasing power
b. promotion of maximum employment
c. promotion of maximum production
d. all of the above
Answer:
In Friedman’s view, during recessions, measured velocity
a. falls because current income exceeds permanent income
b. falls because permanent income exceeds current income
c. rises because current income exceeds permanent income
d. rises because permanent income exceeds current income
Answer:
Which of the following potential intermediate monetary policy target variables scores
lowest on the criterion of controllability?
a. discount loans
b. the monetary base
c. nonborrowed reserves
d. nominal interest rates
Answer:
The Comptroller of the Currency
a. was created by the Banking Act of 1863
b. supervises all national banks
c. is an office of the Federal Reserve System
d. all of the above
Answer:
Which of the following has been used as a nominal anchor for monetary policy?
a. exchange rates
b. inflation rates
c. money growth rates
d. all of the above
Answer:
A recovery will be a “jobless” recovery if
a. growth in the cost of inputs exceeds growth in the cost of outputs
b. output growth is slower than the growth of consumption expenditures
c. productivity growth exceeds output growth
d. none of the above is true
Answer:
If the reserve requirement is 10%, a purchase of $100 of securities by the Fed will
eventually cause the money supply to rise by
a. $1,000
b. $900
c. $100
d. $90
Answer:
Given a 15 percent interest rate, the value today of a promise to receive one dollar in 20
years is:
a. 14 cents
b. 6 cents
c. 39 cents
d. 25 cents
Answer:
The most volatile component of GDP expenditures is
a. consumption expenditures
b. government expenditures
c. investment expenditures
d. net exports
Answer:
When a commercial bank buys securities from a dealer
a. it does not change the monetary base, but it does increase the monetary supply
b. it creates base money (increases the monetary base)
c. it destroys base money (reduces the monetary base)
d. it changes neither the monetary base nor the money supply
Answer:
Banks are not permitted to hold
a. capital accounts in the amount of more than 10 percent of total assets
b. equities
c. municipal bonds
d. long-term government debt
Answer:
Federal budget deficits:
a. rose during the 1990s
b. are the excess of federal spending over federal tax revenues
c. are unconstitutional
d. are generally financed in the United States by printing money
Answer:
Those who argue that the apparent increased stability in output and milder recessions of
the last fifty years cannot be credited to the Fed suggest that
a. income tax rates have had no effect on economic stability
b. automatic stabilizers have declined in importance over the last fifty years
c. the apparent increase in economic stability is an illusion resulting from better data
collection and tabulation methods
d. all of the above are correct
Answer:
The price/earnings (PE) ratio:
a. tends to be fairly constant across stocks
b. is the ratio of the current annual earnings per share of stock to that stock’s price
c. is an extremely popular and long-standing indicator of stock valuations
d. tends to fall when a company is expected to grow rapidly
Answer:
If output is below potential output, the self-correcting mechanism will work by
a. automatically increasing aggregate demand
b. increasing input prices
c. reducing wages
d. increasing wages
Answer:
In the nations that have adopted inflation targeting,
a. inflation has failed to decline in most cases
b. inflation has decreased in about half of the countries
c. inflation has decreased substantially in almost every case
d. the targeting regime has been subsequently abandoned in most cases
Answer:
Which of the following components of GDP expenditures does monetary policy tend to
affect the least?
a. C (consumption)
b. I (investment)
c. G (government spending)
d. NX (net exports)
Answer:
Which of the following did not contribute to the S&L crisis?
a. business cycle conditions at the beginning of the crisis
b. the high inflation of the late 1970s
c. extremely low interest rates, which reduced earnings on mortgages
d. the reduction in oil prices in the mid-1980s
Answer:
The income velocity of money is measured as the ratio of
a. demand deposits to currency
b. gross domestic product to the money supply
c. the money supply to currency in circulation
d. the money supply to the monetary base
Answer:
If the coupon rate of a bond is less than the current yield:
a. the bond sells at face value
b. the bond sells at a premium to face value
c. the bond sells at a discount from face value
d. insufficient information is given to answer the question
Answer:
Over time, banks in the United States:
a. have been a source of financial innovations
b. have become more distinct from other depository institutions
c. have seen increasingly stiffer regulation
d. have become relatively unimportant financial intermediaries
Answer:
The Federal Reserve’s maintenance of very low interest rates during the 1940s
contributed to
a. a rapid decline of the monetary base and monetary aggregates
b. the development of an inflationary gap
c. the unemployment rate moving sharply above the NAIRU
d. all of the above
Answer:
When using short-term interest rates as operating targets to achieve an intermediate
money supply target, generally
a. business cycle conditions will cause the Fed to increase money growth during
recessions
b. the Fed can achieve both money and interest rate targets at any given time
c. monetary policy is destined to be procyclical (destabilizing)
d. none of the above is true
Answer:
Most important policy decisions at the Fed are made by the
a. boards of the district Federal Reserve banks
b. presidents of the district Federal Reserve banks
c. FOMC
d. Congress
Answer:
According to the text, a former member of the Board of Governors of the Federal
Reserve System estimates that the Chairman of the Board of Governors alone accounts
for about what portion of the actual power of the entire Federal Reserve System?
a. 70 percent
b. 45 percent
c. 20 percent
d. less than 10 percent
Answer:
The best evidence in support of the Keynesian view of the role of the Federal Reserve
in the Great Depression is conveyed by
a. the behavior of the money supply
b. the behavior of reserve requirements
c. the behavior of short-term interest rates
d. the behavior of total bank reserves
Answer: