1) If policymakers set a target for unemployment that is too low because it is less than
the natural rate of unemployment, this can set the stage for a higher rate of money
growth and
A) cost-push inflation
B) demand-pull inflation
C) cost-pull inflation
D) demand-push inflation
2) When a new depositor opens a checking account at the First National Bank, the
bank’s assets ________ and its liabilities ________
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
3) The Governing Council usually meets ________ times a year
A) four
B) six
C) eight
D) twelve
4) The monetary policy strategy that provides the least accountability is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
5) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds
from a bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10
B) $100
C) $100 times the reciprocal of the required reserve ratio
D) $100 times the required reserve ratio
6) A $5 million deposit outflow from a bank has the immediate effect of
A) reducing deposits and reserves by $5 million
B) reducing deposits and loans by $5 million
C) reducing deposits and securities by $5 million
D) reducing deposits and capital by $5 million
7) Because of an expected rise in interest rates in the future, a banker will likely
A) make long-term rather than short-term loans
B) buy short-term rather than long-term bonds
C) buy long-term rather than short-term bonds
D) make either short or long-term loans; expectations of future interest rates are
irrelevant
8) An autonomous easing of monetary policy
A) causes an upward movement along the monetary policy curve
B) causes a downward movement along the monetary policy curve
C) shifts the monetary policy curve upward
D) shifts the monetary policy curve downward
9) Planned investment spending is higher
A) when real interest rate is higher
B) during financial frictions
C) when businesses are optimistic
D) all of the above
E) A and C
10) During a recession, output declines resulting in
A) lower unemployment in the economy
B) higher unemployment in the economy
C) no impact on the unemployment in the economy
D) higher wages for the workers
11) The share of checkable deposits in total bank liabilities has
A) expanded moderately over time
B) expanded dramatically over time
C) shrunk over time
D) remained virtually unchanged since 1960
12) With regard to external sources of financing for nonfinancial businesses in the
United States, which of the following are accurate statements?
A) Marketable securities account for a larger share of external business financing in the
United States than in Germany and Japan
B) Since 1970, most of the newly issued corporate bonds and commercial paper have
been sold directly to American households
C) Direct finance accounts for more than 50 percent of the external financing of
American businesses
D) Smaller businesses almost always raise funds by issuing marketable securities
13) Suppose the economy is producing at the natural rate of output An open market
purchase of bonds by the Fed will cause ________ in real GDP in the long run and
________ in inflation in the long 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
14) According to the purchasing power parity theory, a rise in the United States price
level of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso
B) the dollar to depreciate 1 percent relative to the peso
C) the dollar to depreciate 5 percent relative to the peso
D) the dollar to appreciate 5 percent relative to the peso
15) Everything else held constant, a balanced budget increase in government spending
(that is, an increase in government spending that is matched by an identical increase in
net taxes) will
A) increase aggregate demand, but not by as much as if just government spending
increases
B) increase aggregate demand by more than if just government spending increases
C) not affect aggregate demand
D) decrease aggregate demand
16) The time and money spent in carrying out financial transactions are called
A) economies of scale
B) financial intermediation
C) liquidity services
D) transaction costs
17) By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) adverse selection
B) moral hazard
C) transactions costs
D) diversification
18) An increase in the monetary base that goes into currency is ________, while an
increase that goes into deposits is ________
A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied