BUS 528 Midterm 2 | Course Paper

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1) Debt deflation occurs when

A) an economic downturn causes the price level to fall and a deterioration in firms’ net

worth because of the increased burden of indebtedness

B) rising interest rates worsen adverse selection and moral hazard problems

C) lenders reduce their lending due to declining stock prices (equity deflation) that

lowers the value of collateral

D) corporations pay back their loans before the scheduled maturity date

2) The difference between money and income is that

A) money is a flow and income is a stock

B) money is a stock and income is a flow

C) there is no differencemoney and income are both stocks

D) there is no differencemoney and income are both flows

3) 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) rise; defensive; drain

B) fall; defensive; drain

C) rise; dynamic; inject

D) fall; dynamic; drain

4) The total collection of pieces of property that serve to store value is a person’s

A) wealth

B) income

C) money

D) credit

5) Suppose that the Bank of Japan buys US dollar assets with yen-denominated assets

Everything else held constant, this transaction will cause ________ in the foreign assets

held by the Federal Reserve and ________ in the US monetary base

A) an increase; an increase

B) an increase; a decrease

C) a decrease; an increase

D) a decrease; a decrease

6) With the creation of the Federal Deposit Insurance Corporation,

A) member banks of the Federal Reserve System were given the option to purchase

FDIC insurance for their depositors, while non-member commercial banks were

required to buy deposit insurance

B) member banks of the Federal Reserve System were required to purchase FDIC

insurance for their depositors, while non-member commercial banks could choose to

buy deposit insurance

C) both member and non-member banks of the Federal Reserve System were required

to purchase FDIC insurance for their depositors

D) both member and non-member banks of the Federal Reserve System could choose,

but were not required, to purchase FDIC insurance for their depositors

7) In the figure above, illustrates the effect of an increased rate of money supply growth

at time period 0 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

8) If brokerage commissions on bond sales decrease, then, other things equal, the

demand for bonds will ________ and the demand for real estate will ________

A) increase; increase

B) increase; decrease

C) decrease; decrease

D) decrease; increase

9) An increase in unplanned inventory investment for the entire economy equals the

excess of

A) output over aggregate supply

B) output over aggregate demand

C) aggregate supply over output

D) aggregate demand over output

10) 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