Everything else held constant, if a central bank makes an unsterilized purchase of
foreign assets, then the domestic money supply will ________ and the domestic
currency will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
If a central bank does not want to allow the domestic currency to depreciate, it will
________ international reserves by purchasing its currency, thereby ________ the
monetary base and increasing the risk of higher unemployment.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
Answer:
An autonomous monetary policy easing temporarily ________ real interest rates and
________ aggregate output in the short run, but in the long run real interest rates and
aggregate output return to the equilibrium levels.
A. reduces; raises
B. reduces; lowers
C. increases; lowers
D. increases; raises
Answer:
Which of the following bonds would you prefer to be buying?
A. a $10,000 face-value security with a 10 percent coupon selling for $9,000
B. a $10,000 face-value security with a 7 percent coupon selling for $10,000
C. a $10,000 face-value security with a 9 percent coupon selling for $10,000
D. a $10,000 face-value security with a 10 percent coupon selling for $10,000
Answer:
Psychologists have found that people tend to be ________ in their own judgments.
A. underconfident
B. overconfident
C. indecisive
D. insecure
Answer:
When the interest rate changes,
A. the demand curve for bonds shifts to the right.
B. the demand curve for bonds shifts to the left.
C. the supply curve for bonds shifts to the right.
D. it is because either the demand or the supply curve has shifted.
Answer:
If a forecast made using all available information is NOT perfectly accurate, then it is
A. still a rational expectation.
B. not a rational expectation.
C. an adaptive expectation.
D. a second-best expectation.
Answer:
Economic theory suggests that ________ interest rates are ________ important than
________ interest rates in explaining investment behavior.
A. nominal; more; real
B. real; less; nominal
C. real; more; nominal
D. market; more; real
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess ________ of money which will cause the interest rate to fall.
A. right; supply
B. right; demand
C. left; supply
D. left; demand
Answer:
A bank is insolvent when
A. its liabilities exceed its assets.
B. its assets exceed its liabilities.
C. its capital exceeds its liabilities.
D. its assets increase in value.
Answer:
The ________ is below the coupon rate when the bond price is ________ its par value.
A. yield to maturity; above
B. yield to maturity; below
C. discount rate; above
D. discount rate; below
Answer:
Prior to almost all recessions since 1950, there has been a drop in
A. inflation.
B. the money stock.
C. the growth rate of the money stock.
D. interest rates.
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:
The First Bank of the United States
A. was disbanded in 1811 when its charter was not renewed.
B. had its charter renewal vetoed in 1832.
C. was fundamental in helping the Federal Government finance the War of 1812
D. None of the above.
Answer:
Which of the following is NOT an example of a backup line of credit?
A. loan commitments
B. overdraft privileges
C. standby letters of credit
D. mortgages
Answer:
To keep from running out of international reserves under the Bretton Woods system, a
country had to implement ________ monetary policy to ________ its currency.
A) expansionary; strengthen
B) expansionary; weaken
C) contractionary; strengthen
D) contractionary; weaken
Answer:
In the 1970s, the Fed selected an interest rate as an operating target rather than a reserve
aggregate primarily because it
A. had no interest in targeting a monetary aggregate, as evidenced by its unwillingness
to target a reserve aggregate.
B. was still very concerned with achieving interest rate stability.
C. was committed to targeting free reserves.
D. was committed to the real bills doctrine.
Answer:
All but the most primitive societies use money as a medium of exchange, implying that
A. the use of money is economically efficient.
B. barter exchange is economically efficient.
C. barter exchange cannot work outside the family.
D. inflation is not a concern.
Answer:
When the interest rate is ________, ________ investments in physical capital will earn
more than the cost of borrowed funds, so planned investment spending is ________.
A. high; few; high
B. high; few; low
C. low; few; high
D. low; many; low
E. high; many; high
Answer:
In the Keynesian framework, as long as output is above 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:
A major controversy involving the banking industry in its early years was
A. whether banks should both accept deposits and make loans or whether these
functions should be separated into different institutions.
B. whether the federal government or the states should charter banks.
C. what percent of deposits banks should hold as fractional reserves.
D. whether banks should be allowed to issue their own bank notes.
Answer:
As the relative expected return on dollar assets increases, foreigners will want to hold
more ________ assets and less ________ assets, everything else held constant.
A. foreign; foreign
B. foreign; dollar
C. dollar; foreign
D. dollar; dollar
Answer:
Which of the following is included in M2 but NOT in M1?
A. NOW accounts
B. demand deposits
C. currency
D. money market mutual fund shares (retail)
Answer:
In the Baumol-Tobin analysis of transactions demand for money, either an increase in
________ or a decrease in ________ increases money demand.
A. income; interest rate
B. interest rates; brokerage fees
C. brokerage fees; income
D. interest rate; income
Answer:
A bank that wants to monitor the check payment practices of its commercial borrowers,
so that moral hazard can be reduced, will require borrowers to
A. place a bank officer on their board of directors.
B. place a corporate officer on the bank’s board of directors.
C. keep compensating balances in a checking account at the bank.
D. purchase the bank’s CDs.
Answer:
The global financial crisis showed the need for increased financial regulation, however,
too much or poorly designed regulation could
A. choke off financial innovation.
B. increase the efficiency of the financial system.
C. increase economic growth.
D. increase international financial integration.
Answer:
An increase in Treasury deposits at the Fed causes
a. the monetary base to increase.
b. the monetary base to decrease.
c. Fed assets to increase but has no effect on the monetary base.
d. Fed assets to decrease but has no effect on the monetary base.
Answer:
Agreements such as the ________ are attempts to standardize international banking
regulations.
A. Basel Accord
B. UN Bank Accord
C. GATT Accord
D. WTO Accord
Answer:
Changes in stock prices
A. do not affect people’s wealth and their willingness to spend.
B. affect firms’ decisions to sell stock to finance investment spending.
C. occur in regular patterns.
D. are unimportant to decision makers.
Answer:
Movements of ________ interest rates indicate that, contrary to the early Keynesians’
beliefs, monetary policy was ________ during the Great Depression.
A. nominal; tight
B. nominal; easy
C. real; tight
D. real; easy
Answer:
A put option gives the owner the
A. right to sell the underlying security.
B. obligation to sell the underlying security.
C. right to buy the underlying security.
D. obligation to buy the underlying security.
Answer: