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1) When the economy slips into a recession, normally the demand for bonds ________,
the supply of bonds ________, and the interest rate ________, everything else held
constant
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
2) The figure above illustrates the effect of an increased rate of money supply growth at
time period T0 From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
B) liquidity effect is larger than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
C) liquidity effect is larger than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation
3) Suppose that there is a positive aggregate demand shock and the central bank
commits to an inflation rate target But if the commitment is not credible, then
A) the public's expected inflation will remain unchanged
B) the short-run aggregate supply curve will rise
C) over time inflation will fall back down to the inflation target
D) all of the above
E) both A and B
4) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, nine million dollars in excess reserves, and faces a required
reserve ratio of ten percent Given this information, we can say First National Bank has
________ million dollars in required reserves
A) one
B) two
C) eight
D) ten
5) Economies of scale enable financial institutions to
A) reduce transactions costs
B) avoid the asymmetric information problem
C) avoid adverse selection problems
D) reduce moral hazard
6) The primary reason for the recent reduction in the number of banks is
A) bank failures
B) re-regulation of banking
C) restrictions on interstate branching
D) mergers and acquisitions
7) If the deficit is financed by selling bonds to the ________, the money supply will
________, causing aggregate demand to ________
A) public; rise; increase
B) public; fall; decrease
C) central bank; rise; increase
D) central bank; fall; decrease
8) Which of the following statements comparing the European System of Central Banks
and the Federal Reserve System is TRUE?
A) The budgets of the Federal Reserve Banks are controlled by the Board of Governors,
while the National Central Banks control their own budgets and the budget of the
European Central Bank
B) The European Central Bank has similar power over the National Central Banks
when compared to the level of power the Board of Governors has over the Federal
Reserve Banks
C) Just like the Federal Reserve System, monetary operations are centralized in the
European System of Central Banks with the European Central Bank
D) The European Central Bank's involvement in supervision and regulation of financial
institutions is comparable to the Board of Governors' involvement
9) If a mutual fund outperforms the market in one period, evidence suggests that this
fund is
A) highly likely to consistently outperform the market in subsequent periods due to its
superior investment strategy
B) likely to under-perform the market in subsequent periods to average its overall
returns
C) not likely to consistently outperform the market in subsequent periods
D) not likely to outperform the market in any subsequent period
10) Because Treasury bills pay a higher return than money and have no risk
A) the transactions demand for money may be zero
B) the precautionary demand for money may be zero
C) the speculative demand for money may be zero
D) all three of the above motives for holding money will be zero
11) From 1950-2011 the price level in the United States increased more than
A) twofold
B) threefold
C) sixfold
D) ninefold
12) When the financial crisis started in August 2007, inflation was rising and the Fed
began an aggressive easing lowering of the federal funds rate, which indicated that
A) there was an upward movement along the monetary policy curve
B) there was a downward movement along the monetary policy curve
C) the monetary policy curve shifted upward
D) the monetary policy curve shifted downward
13) Suppose the US economy is producing at the natural rate of output A depreciation
of the US dollar will cause ________ in real GDP in the short run and ________ in
inflation in the long run, everything else held constant (Assume the depreciation causes
no effects in the supply side of the economy)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
14) Suppose the US economy is producing at the natural rate of output An appreciation
of the US dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant (Assume the appreciation causes
no effects in the supply side of the economy)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
15) Which of the following is NOT an argument against using monetary policy to prick
asset-price bubbles?
A) The effect of increasing interest rates on asset prices is uncertain
B) A bubble may only exist in some asset-prices and monetary policy will affect all
asset prices
C) Using monetary policy to prick an asset-price bubble may have adverse effect on the
aggregate economy
D) Even though credit-drive bubbles are easier to identify, they are still relatively hard
to identify
16) Everything else held constant, a decrease in wealth
A) increases the demand for stocks
B) increases the demand for bonds
C) reduces the demand for silver
D) increases the demand for gold
17) The primary assets of credit unions are
A) municipal bonds
B) business loans
C) consumer loans
D) mortgages
18) The economist who proposed that, "Inflation is always and everywhere a monetary
phenomenon" was
A) John Maynard Keynes
B) John R Hicks
C) Milton Friedman
D) Franco Modigliani
