Tobin’s model of the speculative demand for money shows that people hold money as a
________ as a way of reducing ________.
A) medium of exchange; transaction costs
B) medium of exchange; risk
C) store of wealth; transaction costs
D) store of wealth; risk
Answer:
Banks hold excess and secondary reserves to
A) reduce the interest-rate risk problem.
B) provide for deposit outflows.
C) satisfy margin requirements.
D) achieve higher earnings than they can with loans.
Answer:
The Phillips curve indicates that when the labor market is ________, production costs
will ________ and aggregate supply increases.
A) easy; rise
B) easy; fall
C) tight; fall
D) tight; rise
Answer:
Eurodollars are
A) dollar-dominated deposits held in banks outside the United States.
B) deposits held by U.S. banks in Europe.
C) deposits held by U.S. banks in foreign countries.
D) dollar-dominated deposits held in U.S. banks by Europeans.
Answer:
If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has total reserves of
A) $16,000.
B) $20,000.
C) $26,000.
D) $36,000.
Answer:
Moral hazard is an important concern of insurance arrangements because the existence
of insurance
A) provides increased incentives for risk taking.
B) is a hindrance to efficient risk taking.
C) causes the private cost of the insured activity to increase.
D) creates an adverse selection problem but no moral hazard problem.
Answer:
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 achievement of the target.
D) Inflation targeting reduces the effects of inflation shocks.
Answer:
In the Keynesian framework, as long as output is below the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to
________ production.
A) negative; lower
B) negative; raise
C) positive; lower
D) positive; raise
Answer:
Everything else held constant, increased demand for a country’s ________ causes its
currency to appreciate in the long run, while increased demand for ________ causes its
currency to depreciate.
A) imports; imports
B) imports; exports
C) exports; imports
D) exports; exports
Answer:
A short-term debt instrument issued by well-known corporations is called
A) commercial paper.
B) corporate bonds.
C) municipal bonds.
D) commercial mortgages.
Answer:
Recent financial innovation makes the Federal Reserve’s job of conducting monetary
policy
A) easier, since the Fed now knows what to consider money.
B) more difficult, since the Fed now knows what to consider money.
C) easier, since the Fed no longer knows what to consider money.
D) more difficult, since the Fed no longer knows what to consider money.
Answer:
The East Asia currency crisis in 1997 started in
A) Japan.
B) Thailand.
C) South Korea.
D) the Philippines.
Answer:
________ quantity theory of money suggests that the demand for money is purely a
function of income, and interest rates have no effect on the demand for money.
A) Keynes’s
B) Fisher’s
C) Friedman’s
D) Tobin’s
Answer:
The political business cycle refers to the phenomenon that just before elections,
politicians enact ________ policies. After the elections, the bad effects of these policies
(for example, ________ ) have to be counteracted with ________ policies.
A) expansionary; higher unemployment; contractionary
B) expansionary; a higher inflation rate; contractionary
C) contractionary; higher unemployment; expansionary
D) contractionary; a higher inflation rate; expansionary
Answer:
According to the efficient markets hypothesis, the current price of a financial security
A) is the discounted net present value of future interest payments.
B) is determined by the highest successful bidder.
C) fully reflects all available relevant information.
D) is a result of none of the above.
Answer:
If actual output is greater than equilibrium output, firms will ________ output to keep
from ________ inventories.
A) increase; accumulating
B) increase; depleting
C) decrease; depleting
D) decrease; accumulating
Answer:
Under a fixed exchange rate regime, if a country has an ________ exchange rate, then
its central bank’s attempt to keep its currency from appreciating will result in a
________ of international reserves.
A) undervalued; gain
B) undervalued; loss
C) overvalued; gain
D) overvalued; loss
Answer:
When the economy is hit by a negative demand shock and the central bank pursues
policies to increase aggregate demand to its initial level, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will be unchanged.
E) both B and D.
Answer:
Nominal GDP is output measured in ________ prices while real GDP is output
measured in ________ prices.
A) current; current
B) current; fixed
C) fixed; fixed
D) fixed; current
Answer:
Under a fixed exchange rate regime, if the domestic currency is initially ________, that
is, ________ par, the central bank must intervene to purchase the domestic currency by
selling foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
Answer:
Discount policy affects the money supply by affecting the volume of ________ and the
________.
A) excess reserves; monetary base
B) borrowed reserves; monetary base
C) excess reserves; money multiplier
D) borrowed reserves; money multiplier
Answer:
The data lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C) the time it takes to pass legislation to implement a particular policy.
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E) the time it takes for the policy actually to have an impact on the economy.
Answer:
Nonactivists of policies contend that a policy of shifting the aggregate ________ curve
will be costly because it produces ________ volatility in both the price level and output.
A) supply; less
B) supply; more
C) demand; less
D) demand; more
Answer:
The concept of adverse selection helps to explain
A) why collateral is not a common feature of many debt contracts.
B) why large, well-established corporations find it so difficult to borrow funds in
securities markets.
C) why financial markets are among the most heavily regulated sectors of the economy.
D) why stocks are the most important source of external financing for businesses.
Answer:
A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A) 8 percent.
B) 10 percent.
C) 12 percent.
D) 14 percent.
Answer:
A central bank ________ of domestic currency and corresponding ________ of foreign
assets in the foreign exchange market leads to an equal increase in its international
reserves and the monetary base, everything else held constant.
A) sale; purchase
B) sale; sale
C) purchase; sale
D) purchase; purchase
Answer:
If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is slow, then the
A) interest rate will fall.
B) interest rate will rise.
C) interest rate will initially fall but eventually climb above the initial level in response
to an increase in money growth.
D) interest rate will initially rise but eventually fall below the initial level in response to
an increase in money growth.
Answer:
With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the
maximum amount New Bank could lend is
A) $90.
B) $100.
C) $10.
D) $110.
Answer:
Everything else held constant, when a country’s currency appreciates, the country’s
goods abroad become ________ expensive and foreign goods in that country become
________ expensive.
A) more; less
B) more; more
C) less; less
D) less; more
Answer:
Of the following, the largest is
A) money market deposit accounts.
B) demand deposits.
C) M1.
D) M2.
Answer:
If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
A) 2.5
B) 1.67
C) 2.3
D) 0.651
Answer: