In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement decreases
the demand for reserves, ________ the federal funds interest rate, everything else held
constant.
A) rise; lowering
B) decline; raising
C) decline; lowering
D) rise; raising
Answer:
________ in the domestic interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to appreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
Answer:
Everything else held constant, if the tax-exempt status of municipal bonds were
eliminated, then
A) the interest rates on municipal bonds would still be less than the interest rate on
Treasury bonds.
B) the interest rate on municipal bonds would equal the rate on Treasury bonds.
C) the interest rate on municipal bonds would exceed the rate on Treasury bonds.
D) the interest rates on municipal, Treasury, and corporate bonds would all increase.
Answer:
If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of
“unfair” trade practices, and Japanese demand for American exports increases at the
same time, then, in the long run ________, everything else held constant.
A) the Japanese yen will appreciate relative to the U.S. dollar
B) the Japanese yen will depreciate relative to the U.S. dollar
C) the Japanese yen will either appreciate, depreciate or remain constant against the
U.S. dollar
D) there will be no effect on the Japanese yen relative to the U.S. dollar
Answer:
When the federal funds rate equals the interest rate paid on excess reserves
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
Answer:
An increase in stock prices ________ the size of people’s wealth and may ________
their willingness to spend, everything else held constant.
A) increases; increase
B) increases; decrease
C) decreases; increase
D) decreases; decrease
Answer:
An autonomous tightening 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.
Answer:
The amount of borrowed reserves is ________ related to the discount rate, and is
________ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Answer:
Which of the following is not a contractual savings institution?
A) A life insurance company
B) A pension fund
C) A savings and loan association
D) A fire and casualty insurance company
Answer:
Suppose that there is a positive aggregate demand shock and the central bank commits
to an inflation rate target. If the commitment is credible, then
A) the public’s expected inflation will remain unchanged.
B) the short-run aggregate supply curve will not shift.
C) over time inflation will fall back down to the inflation target.
D) all of the above.
E) both A and B.
Answer:
The ________ problem of discretionary policy arises because economic behavior is
influenced by what firms and people expect the monetary authorities to do in the future.
A) moral hazard
B) time-inconsistency
C) nominal-anchor
D) rational-expectation
Answer:
Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will not change.
E) both A and B.
Answer:
The theory of portfolio choice indicates that higher interest rates make money
________ desirable, and the demand for real money balances ________.
A) less; falls
B) more; falls
C) less; rises
D) more; rises
Answer:
In the long-run ISLM model and with everything else held constant, an increase in the
money supply leaves the level of output and interest rates unchanged, an outcome
called
A) interest rate overshooting.
B) long-run money neutrality.
C) long-run crowding out.
D) the long-run Phillips curve.
Answer:
Everything else held constant, an increase in the cost of production ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply
Answer:
The demand for silver decreases, other things equal, when
A) the gold market is expected to boom.
B) the market for silver becomes more liquid.
C) wealth grows rapidly.
D) interest rates are expected to rise.
Answer:
Sweep accounts which were created to avoid reserve requirements became possible
because of a change in
A) deposit ceilings.
B) technology.
C) government rules.
D) bank mergers.
Answer:
For a commodity to function effectively as money it must be
A) easily standardized, making it easy to ascertain its value.
B) difficult to make change.
C) deteriorate quickly so that its supply does not become too large.
D) hard to carry around.
Answer:
Under exchange-rate targeting, the central bank in the targeting country ________ lose
the ability to pursue its own independent monetary policy and any shocks to the anchor
country is ________ transmitted to the targeting country.
A) does; directly
B) does not; directly
C) does; not directly
D) does not; not directly
Answer:
When the economy suffers a temporary negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate output drops in the short run.
B) output will return to potential output over time.
C) aggregate output is stabilized.
D) all of the above.
E) both A and B.
Answer:
Holding everything else constant,
A) if asset A’s risk rises relative to that of alternative assets, the demand will increase
for asset A.
B) the more liquid is asset A, relative to alternative assets, the greater will be the
demand for asset A.
C) the lower the expected return to asset A relative to alternative assets, the greater will
be the demand for asset A.
D) if wealth increases, demand for asset A increases and demand for alternative assets
decreases.
Answer:
An inverted yield curve predicts that short-term interest rates
A) are expected to rise in the future.
B) will rise and then fall in the future.
C) will remain unchanged in the future.
D) will fall in the future.
Answer:
In the simple deposit expansion model, an expansion in checkable deposits of $1,000
when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1000 in government bonds.
D) purchased $100 in government bonds.
Answer:
The directive of prompt corrective action means that
A) the FDIC will intervene earlier and more vigorously when a bank gets into trouble.
B) the banks must take actions quickly to resolve reserve disputes.
C) bank failures cannot occur.
D) there must be an immediate response to an increase in interest rates.
Answer:
If Treasury deposits at the Fed are predicted to ________, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A) increase; defensive; inject
B) decrease; defensive; inject
C) increase; dynamic; inject
D) decrease; dynamic; drain
Answer:
According to the liquidity premium theory of the term structure
A) because buyers of bonds may prefer bonds of one maturity over another, interest
rates on bonds of different maturities do not move together over time.
B) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds plus a term premium.
C) because of the positive term premium, the yield curve will not be observed to be
downward sloping.
D) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
Answer:
Suppose that the European Central Bank enacts expansionary policy. Everything else
held constant, this will cause the demand for U.S. assets to ________ and the U.S.
dollar to ________.
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
Answer:
American farmers who sell beef to Europe benefit most from
A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a European ban on imports of American beef.
Answer:
The portfolio theories of money demand state that the demand for real money balances
is ________ related to income and ________ related to the nominal interest rate.
A) positively; negatively
B) positively; positively
C) negatively; negatively
D) negatively; positively
Answer: