During the Great Depression of the 1930s
a. the excess reserve ratio increased
b. the currency ratio increased
c. both of the above occurred
d. neither of the above occurred
Answer:
Empirically, larger budget deficits have not been proven to dramatically increase the
level of interest rates. This may be due to:
a. the difficulty of isolating the effects of budget deficits from other factors
b. Ricardian equivalence
c. the existence of a huge pool of international capital
d. all of the above
Answer:
A $10 dollar bill is an example of:
a. fiat money
b. electronic money
c. commodity money
d. full-bodied money
Answer:
According to the text, which of the following items served least efficiently as a store of
value in the period 1926-2003?
a. Treasury bills
b. money
c. corporate bonds
d. gold
Answer:
The major stock indices understate the total return from investing in equities because
a. major indices include some stocks that are not heavily traded
b. major indices do not account for dividend reinvestment
c. both of the above are true
d. none of the above–most stock indices actually overstate the total return from
investing in equities
Answer:
Inflation targeting:
a. is effective only when the central bank’s promises to control inflation are credible
b. involves a band of inflation rates targeted by the central bank
c. results in a flatter yield curve if a policy is effective in reducing long-term inflation
expectations
d. all of the above are true
Answer:
The relatively large number of banks in the U.S. is indicative of
a. a high degree of competition in the financial sector
b. past government policies designed to restrict where and how banks may operate
c. the result of consumer choice
d. all of the above
Answer:
Which of the following events would increase (shift rightward) the aggregate demand
curve in the United States?
a. income in Japan rises
b. house prices in the U.S. increase sharply
c. consumer confidence in the U.S. increases
d. all of the above
Answer:
Suppose upon graduation you take a management position with General Motors in
Detroit. Everything else being held constant, your welfare will be best promoted if the
U.S.-Japan exchange rate is:
a. 100 yen/$
b. 200 yen/$
c. $.02/yen
d. $.10/yen
Answer:
Assume the marginal propensity to consume wealth is 0.03. In this event, an increase in
aggregate market capitalization of stocks held by households of $100 billion will
a. boost investment spending by $3 billion
b. boost consumption spending by $3 billion
c. boost government purchases by $3 billion
d. do none of the above
Answer:
Executive board members of the European central bank are appointed
a. according to respective national laws
b. by heads of state
c. by the president of the EU
d. by none of the above
Answer:
Of the following, the first nation to implement an inflation-targeting regime was
a. New Zealand, in 1979
b. New Zealand, in 1990
c. Korea, in 1979
d. Korea, in 1990
Answer:
The chief function of the forward exchange market is to
a. give speculators an outlet for their activity
b. hedge against exchange rate risk
c. pay for goods and services in advance
d. none of the above
Answer:
The real after-tax rate of interest:
a. has been negative
b. is the most relevant from a decision making standpoint
c. will always be lower than the simple real rate of interest
d. all of the above
Answer:
You loan your neighbor Sam $10,000 for some home repairs. Sam takes the money to
Las Vegas in the hopes he can triple his money, knowing he stands to net $20,000 while
risking the loss of only your $10,000. This example illustrates the problem known as:
a. adverse selection
b. moral hazard
c. both of the above
d. neither of the above
Answer:
Increases in firms’ stock prices and net worth
a. reduce adverse selection problems, but aggravate moral hazard problems
b. aggravate adverse selection problems, but reduce moral hazard problems
c. aggravate both adverse selection problems and moral hazard problems
d. reduce both adverse selection problems and moral hazard problems
Answer:
Suppose the central bank adopts a 4 percent constant money growth rule. Next year, a
booming economy results in 3 percent growth in real output, and surging consumer
confidence raises velocity by 8 percent. In this case,
a. nominal GDP will grow by 12 percent
b. the inflation rate will be 7 percent
c. both of the above will occur
d. neither of the above will occur
Answer:
The European System of Central Banks is patterned after
a. the Bundesbank
b. the Federal Reserve
c. both of the above
d. neither of the above
Answer:
Suppose today’s 1-year bond yield is 5 percent, and you expect 1-year bond yields to
jump to 7 percent next year, then fall to 3 percent the year after that. If the pure
expectations theory is correct, the yield today on a three-year bond should be:
a. 5 percent
b. 6 percent
c. 7 percent
d. cannot determine answer with given information
Answer:
Given a 6 percent market yield on competitive instruments, a new one-year Treasury
bill (face value = $1,000) will be priced at approximately:
a. $943
b. $985
c. $970
d. $1,000
Answer:
Which measure of money most fully reflects the medium of exchange function?
a. divisia aggregates
b. M3
c. M2
d. M1
Answer:
The ____ is the time that elapses between the point at which the necessity of a policy
action is realized and the time in which it is undertaken.
a. implementation lag
b. recognition lag
c. impact lag
d. none of the above
Answer:
Which of the following is true about leading indicators?
a. Leading indicators consist of surveys done with households and professional
economists.
b. Leading indicators are almost perfect indicators of future economic movements.
c. Leading indicators are data series that fluctuate in advance of economic activity.
d. None of the above is correct.
Answer:
Net free reserves
a. are defined as excess reserves less discount loans
b. are highly exogenous
c. tend to move procyclically (rising during economic expansions)
d. were used as a target of policy in the 1980s
Answer:
In an exhibit in the text, which of the following is not accountable in part for the S&L
fiasco?
a. accounting firms
b. Congress
c. the Federal Reserve
d. none of the above–all contributed to the problem
Answer:
Which of the following securities is not held by commercial banks?
a. corporate bonds
b. government agency bonds
c. municipal bonds
d. Treasury bills
Answer:
When the Fed purchases $600,000 of securities in the open market,
a. the monetary base decreases by $600,000
b. bank reserves increase by $600,000
c. the monetary base increases by more than $600,000
d. none of the above occurs
Answer:
The Phillips curve illustrates
a. the short-run tradeoff between prices and output
b. the short-run tradeoff between inflation and unemployment
c. the long-run link between output and employment
d. the long-run tradeoff between inflation and interest rates
Answer:
The criteria on which to judge the merits of a variable as an intermediate target of
monetary policy include
a. controllability
b. political feasibility
c. stability
d. all of the above
Answer:
The textbook indicates that an increase in stock prices feeds back to boost
a. consumption spending
b. investment spending
c. both of the above
d. neither of the above
Answer:
The time inconsistency problem arises because of
a. the incentives of the monetary authority
b. inflexible wages and prices
c. the long and variable lags of policy
d. uncertainty about the positions of the AS and AD curves
Answer:
Suppose that economic activity is strongly increasing during the expansion phase of the
business cycle. Then endogenous forces tend to cause
a. the monetary base to fall
b. the monetary base to rise
c. nonborrowed reserves to fall
d. nonborrowed reserves to rise
Answer:
A bond has a coupon rate of 6 percent and sells at a discount. This implies that yields to
maturity on similar instruments must be:
a. equal to 6 percent
b. greater than 6 percent
c. less than 6 percent
d. insufficient information is given to answer the question
Answer:
According to an exhibit in the text on P-Star analysis, one can define P-Star as
a. M2V/Y
b. M2Y/V
c. M2V/P
d. M2VY
Answer: