In a liquidity trap, monetary policy has ________ effect on aggregate spending because
a change in the money supply has ________ effect on interest rates.
A. no; no
B. no; a large
C. no; a small
D. a large; a large
Answer:
The mandate for the monetary policy goals that has been given to the Federal Reserve
System is an example of a ________ mandate.
A. primary
B. dual
C. secondary
D. hierarchical
Answer:
To lower interest rates on residential mortgages to stimulate the housing market, the Fed
extended its open market operations to purchase
A. mortgage-backed securities.
B. commercial papers.
C. long-term Treasuries.
D. Treasury bills and Treasury notes.
Answer:
Through correspondent banking, large banks provide services to small banks, including
A. loan guarantees.
B. foreign exchange transactions.
C. issuing stock.
D. debt reduction.
Answer:
According to aggregate demand and supply analysis, the negative demand shock of
2000-2004 had the effect of
A. increasing aggregate output, lowering unemployment, and raising inflation.
B. decreasing aggregate output, raising unemployment, and raising inflation.
C. increasing aggregate output, lowering unemployment, and lowering inflation.
D. decreasing aggregate output, raising unemployment, and lowering inflation.
Answer:
The aggregate demand curve is downward sloping because a higher inflation rate leads
the central bank to raise ________ interest rates, thereby ________ the level of
equilibrium aggregate output., everything else held constant.
A. real; lowering
B. real; raising
C. nominal; lowering
D. nominal; raising
Answer:
The primary assets of a finance company are
A. municipal bonds.
B. corporate stocks and bonds.
C. consumer and business loans.
D. mortgages.
Answer:
Periods of price deflation, such as the Great Depression, are characterized by
A. low nominal rates but high real rates of interest.
B. low nominal and real interest rates.
C. real rates of interest lower than the nominal rate of interest.
D. high nominal and real rates of interest.
Answer:
With an interest rate of 6 percent, the present value of $100 next year is approximately
A. $106.
B. $100.
C. $94.
D. $92.
Answer:
If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike
price of 114, and at the expiration date the price is 110, your ________ is ________.
A. profit; $1000
B. loss; $1000
C. profit; $3000
D. loss; $3000
Answer:
When the yield curve is flat or downward-sloping, it suggest that the economy is more
likely to enter
A. a recession.
B. an expansion.
C. a boom time.
D. a period of increasing output.
Answer:
If aggregate demand falls short of current output, business firms will ________
production to ________ inventories.
A. cut; keep from accumulating
B. expand; keep from accumulating
C. cut; build up
D. expand; build up
Answer:
A clause in a debt contract requiring that the borrower purchase insurance against loss
of the asset financed with the loan is called a
A) collateral-insurance clause.
B) prescription covenant.
C) restrictive covenant.
D) proscription covenant.
Answer:
When using rational expectations, forecast errors will, on average, be ________ and
________ be predicted ahead of time.
A. positive; can
B. positive; cannot
C. negative; can
D. zero; cannot
Answer:
The Federal Deposit Insurance Corporation Improvement Act of 1991
A. increased the FDIC’s ability to borrow from the Treasury to deal with failed banks.
B. increased the FDIC’s ability to use the too-big-to-fail doctrine.
C. eliminated governmentally-administered deposit insurance.
D. eliminated restrictions on nationwide banking.
Answer:
The money market is in equilibrium
A) at any point on the IS curve.
B) at any point on the LM curve.
C) at only one point on the LM curve.
D) only at the intersection of the IS and LM curves.
Answer:
Which of the following is a TRUE statement concerning bank holding companies?
A) Bank holding companies own few large banks.
B) Bank holding companies have experienced dramatic growth in the past three
decades.
C) The McFadden Act has prevented bank holding companies from establishing branch
banks.
D) Bank holding companies can own only banks.
Answer:
Prices and returns for ________ bonds are more volatile than those for ________
bonds, everything else held constant.
A. long-term; long-term
B. long-term; short-term
C. short-term; long-term
D. short-term; short-term
Answer:
Based on the Net Interest Margin the poor bank performance in the late 1980s
A. was not the result of interest-rate movements.
B. was not the result of risky loans made in the early 1980s.
C. resulted from a narrowing of the gap between interest earned on assets and inters
paid on liabilities.
D. resulted from a huge decrease in provisions for loan losses.
Answer:
Everything else held constant, an increase in planned investment expenditure ________
aggregate ________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in terms of ________ percent.
A. dollar; dollars is 7
B. euro; dollars is 1
C. dollar; euros is 1
D. euro; euros is 7
Answer:
If aggregate output is below the natural rate level, nonactivists of policies would
recommend that the government
A. do nothing.
B. try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right.
C. try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right.
D. try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left.
Answer:
An analysis of the political economy of the savings and loan crisis helps one to
understand
A. why politicians aided the efforts of thrift regulators, raising regulatory appropriations
and encouraging closing of insolvent thrifts.
B. why thrift regulators were so quick to inform Congress of the problems that existed
in the thrift industry.
C. why thrift regulators willingly acceded to pressures placed upon them by members
of Congress.
D. why politicians listened so closely to the taxpayers they represented.
E.
Answer:
The public’s fear of centralized power and distrust of moneyed interests led to the
demise of the first two experiments in central banking, otherwise known as
A. the First Bank of the United States and the Second Bank of the United States.
B. the First Bank of the United States and the Central Bank of the United States.
C. the First Central Bank of the United States and the Second Central Bank of the
United States.
D. the First Bank of North America and the Second Bank of North America.
Answer:
In the long-run equilibrium
A. output is a function of autonomous expenditures.
B. inflation is a function of past inflation.
C. inflation equals potential output.
D. output equals potential output.
Answer:
GDP measured with constant prices is referred to as
A. real GDP.
B. nominal GDP.
C. the GDP deflator.
D. industrial production.
Answer:
The price of a coupon bond and the yield to maturity are ________ related; that is, as
the yield to maturity ________, the price of the bond ________.
A. positively; rises; rises
B. negatively; falls; falls
C. positively; rises; falls
D. negatively; rises; falls
Answer:
Suppose the economy is producing at the natural rate of output. An open market sale 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
Answer:
Everything else held constant, a decline in interest rates will cause spending on housing
to
A. fall.
B. remain unchanged.
C. either rise, fall, or remain the same.
D. rise.
Answer:
If the price of diamonds is expected to decrease, all else equal, then the demand for
diamonds ________ and the demand for platinum ________.
A. decreases; increases
B. decreases; decreases
C. increases; increases
D. increases; decreases
Answer:
Keynes argued that when interest rates were high relative to some normal value, people
would expect bond prices to ________, so the quantity of money demanded would
________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
Under the Bretton Woods system, when a country adopted an expansionary monetary
policy, thereby causing a balance of payments ________, the country would eventually
be forced to implement ________ monetary policy.
A) deficit; expansionary
B) deficit; contractionary
C) surplus; expansionary
D) surplus; contractionary
Answer:
With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the
maximum amount New Bank could lend is
A. $90.
B. $100.
C. $10.
D. $110.
Answer:
Everything else held constant, when the inflation rate is expected to rise, interest rates
will ________; this result has been termed the ________.
A. fall; Keynes effect
B. fall; Fisher effect
C. rise; Keynes effect
D. rise; Fisher effect
Answer: