The main center of the Eurodollar market is
A) London.
B) Basel.
C) Paris.
D) New York.
Suppose the economy is producing at the natural rate of output. An open market sale of
bonds by the Fed will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
The demand for houses decreases, all else equal, when
A) wealth increases.
B) real estate prices are expected to increase.
C) stock prices become more volatile.
D) gold prices are expected to increase.
If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its
yield to maturity is
A) 0 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.
Financing government spending with taxes
A) causes both reserves and the monetary base to rise.
B) causes both reserves and the monetary base to decline.
C) causes reserves to rise, but the monetary base to decline.
D) has no net effect on the monetary base.
The payoffs for financial derivatives are linked to
A) securities that will be issued in the future.
B) the volatility of interest rates.
C) previously issued securities.
D) government regulations specifying allowable rates of return.
Which of the following instruments are traded in a money market?
A) bank commercial loans
B) commercial paper
C) state and local government bonds
D) residential mortgages
The ________ interest rate more accurately reflects the true cost of borrowing.
A) nominal
B) real
C) discount
D) market
In the equation of exchange, the concept that provides the link between M and PY is
called
A) the velocity of money.
B) aggregate demand.
C) aggregate supply.
D) the money multiplier.
Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the German
central bank was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
In the long-run ISLM model and with everything else held constant, the long-run effect
of a contractionary fiscal policy is to ________ real output and ________ the interest
rate.
A) not change; not change
B) decrease; decrease
C) decrease; not change
D) not change; decrease
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market purchase ________ the ________ of reserves which
causes the federal funds rate to fall, everything else held constant.
A) increases; supply
B) increases; demand
C) decreases; supply
D) decreases; demand
Which of the following is NOT an operating instrument?
A) nonborrowed reserves
B) monetary base
C) federal funds interest rate
D) discount rate
A criticism of the monetarist autonomous spending variable is that
A) some types of autonomous spending do not affect aggregate demand.
B) some types of autonomous spending affect aggregate demand before the spending
occurs. Some types of autonomous spending affect aggregate demand when they occur.
C) some types of autonomous spending affect aggregate demand only long after they
occur.
D) Keynesians do not think that autonomous spending affects aggregate demand.
The bailout of the savings and loan industry was much delayed and, therefore, much
more costly to taxpayers because
A) of regulators’ initial attempts to downplay the seriousness of problems within the
thrift industry.
B) politicians listened to the taxpayers rather than the S&L lobbyists.
C) Congress did not wait long enough for many of the problems in the thrift industry to
correct themselves.
D) regulators could not be fired, therefore, they didn’t care if they did a good job or not.
Monetarists’ preference for reduced-form models is based on their belief that
A) reverse causation is a problem.
B) structural models may understate money’s effect on economic activity.
C) money supply changes are always endogenous.
D) monetary policy affects only investment spending.
Keynes’s theory of the demand for money implies that velocity is
A) not constant but fluctuates with movements in interest rates.
B) not constant but fluctuates with movements in the price level.
C) not constant but fluctuates with movements in the time of year.
D) a constant.
When the Federal Reserve calls in a discount loan from a bank, the monetary base
________ and reserves ________.
A) remains unchanged; decrease
B) remains unchanged; increase
C) decreases; decrease
D) decreases; remains unchanged
Policymakers in a country with a balance of payments surplus may not want to see their
country’s currency appreciate because this would
A) hurt consumers in their country by making foreign goods more expensive.
B) hurt domestic businesses by making foreign goods cheaper in their country.
C) increase inflation in their country.
D) decrease the wealth of the country.
The efficient markets hypothesis suggests that if an unexploited profit opportunity
arises in an efficient market
A) it will tend to go unnoticed for some time.
B) it will be quickly eliminated.
C) financial analysts are your best source of this information.
D) all profits will be eliminated through taxation.
The fluctuations in both money supply growth and the federal funds rate during
1979-1982 suggest that the Fed
A) had shifted to borrowed reserves as an operating target.
B) had shifted to total reserves as an operating target.
C) had shifted to the monetary base as an operating target.
D) never intended to target monetary aggregates.
When the Federal Reserve extends a discount loan to a bank, the monetary base
________ and reserves ________.
A) remains unchanged; decrease
B) remains unchanged; increase
C) increases; increase
D) increases; remain unchanged
If you sold a short futures contract you will hope that bond prices
A) rise.
B) fall.
C) are stable.
D) fluctuate.
The ________ is the final amount that will be paid to the holder of a coupon bond.
A) discount value
B) coupon value
C) face value
D) present value
The more interest-sensitive is money demand, the
A) more effective is fiscal policy relative to monetary policy.
B) more effective is monetary policy relative to fiscal policy.
C) steeper is the IS curve.
D) steeper is the LM curve.
An expansionary monetary policy may cause asset prices to rise, thereby reducing the
likelihood of financial distress and causing consumer durable and housing expenditures
to rise. This monetary transmission mechanism is referred to as
A) the household liquidity effect.
B) the wealth effect.
C) Tobin’s q theory.
D) the cash flow effect.
A financial panic was averted in October 1987 following “Black Monday” when the
Fed announced that
A) it was lowering the discount rate.
B) it would provide discount loans to any bank that would make loans to the security
industry.
C) it stood ready to purchase common stocks to prevent a further slide in stock prices.
D) it was raising the discount rate.
If a bank manager wants to protect the bank against losses that would be incurred on its
portfolio of treasury securities should interest rates rise, he could ________ options on
financial futures.
A) buy put
B) buy call
C) sell put
D) sell call
________ may antagonize customers and thus can be a very costly way of acquiring
funds to meet an unexpected deposit outflow.
A) Selling securities
B) Selling loans
C) Calling in loans
D) Selling negotiable CDs
Although it has a population about half that of the United States, Japan has
A) many more banks.
B) about 25 percent of the number of banks.
C) more than 5000 commercial banks.
D) fewer than 100 commercial banks.
In the market for money, an interest rate below equilibrium results in an excess
________ money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
Which of the following are reported as liabilities on a bank’s balance sheet?
A) reserves
B) checkable deposits
C) consumer loans
D) deposits with other banks
The public’s fear of centralized power and distrust of moneyed interests led to the
demise of the first two experiments in central banking, otherwise known as
A) the First Bank of the United States and the Second Bank of the United States.
B) the First Bank of the United States and the Central Bank of the United States.
C) the First Central Bank of the United States and the Second Central Bank of the
United States.
D) the First Bank of North America and the Second Bank of North America.