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1) Using the one-period valuation model, assuming a year-end dividend of $011, an
expected sales price of $110, and a required rate of return of 10%, the current price of
the stock would be
A) $11011
B) $12112
C) $10010
D) $10011
2) Since the early 1990s, the Fed has conducted monetary policy by setting a target for
the
A) level of borrowed reserves
B) monetary base
C) federal funds rate
D) inflation rate
3) Everything else held constant, if total consumption increases from $600 to $800
because of an increase of disposable income of $400, then the mpc is equal to
A) 02
B) 04
C) 05
D) 06
4) Subject to the approval of the Board of Governors, the decision of choosing the
president of a district Federal Reserve Bank is made by
A) all nine district bank directors
B) the six district bank directors elected by the member banks
C) three district bank directors who are professional bankers
D) district bank directors who are not professional bankers
E) class A and class B directors
5) In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain positive and firms will continue to
________ production
A) below; lower
B) above; lower
C) below; raise
D) above; raise
6) If a person selling bonds to the Fed cashes the Fed's check, then reserves ________
and currency in circulation ________, everything else held constant
A) remain unchanged; declines
B) remain unchanged; increases
C) decline; remains unchanged
D) increase; remains unchanged
7) Dennis notices that jackets are on sale for $99 In this case money is functioning as a
A) medium of exchange
B) unit of account
C) store of value
D) payments-system ruler
8) The economist Irving Fisher, after whom the Fisher effect is named, explained why
interest rates ________ as the expected rate of inflation ________, everything else held
constant
A) rise; increases
B) rise; stabilizes
C) fall; stabilizes
D) fall; increases
9) Suppose the Bank of China permanently decreases its purchases of US government
bonds and, instead, holds more dollars on deposit at the Federal Reserve Everything
else held constant, a open market ________ would be the appropriate monetary policy
action for the Fed to take to offset the expected ________ in the monetary base in the
United States
A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase
10) A shift in tastes toward foreign goods ________ net exports in the US and causes
the quantity of aggregate output demanded to ________ in the US, everything else held
constant
A) decreases; rise
B) decreases; fall
C) increases; rise
D) increases; fall
11) The equivalent to the Federal Reserve's discount rate in the European System of
Central Banks is the
A) federal funds rate
B) marginal lending rate
C) deposit facility rate
D) lombard rate
12) A decline in the money supply shifts the LM curve to the left, causing the interest
rate to ________ and output to ________, everything else held constant
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
13) In the long-run ISLM model and with everything else held constant, the long-run
effect of a fall in net exports is to ________ real output and ________ the interest rate
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
14) One way to derive aggregate demand is by looking at its four component parts,
which are
A) consumer expenditures, planned investment spending, government spending, and net
exports
B) consumer expenditures, actual investment spending, government spending, and net
exports
C) consumer expenditures, planned investment spending, government spending, and
gross exports
D) consumer expenditures, planned investment spending, government spending, and
taxes
15) The theory of bureaucratic behavior when applied to the Fed helps to explain why
the Fed
A) was supportive of congressional attempts to limit the central bank's autonomy
B) was so secretive about the conduct of future monetary policy
C) sought less control over banks in the 1980s
D) was willing to take on powerful groups that may threaten its autonomy
16) The process of asset transformation refers to the conversion of
A) safer assets into risky assets
B) safer assets into safer liabilities
C) risky assets into safer assets
D) risky assets into risky liabilities
17) Methods of financing government spending are described by an expression called
the government budget constraint, which states the following:
A) the government budget deficit must equal the sum of the change in the monetary
base and the change in government bonds held by the public
B) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the public
C) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Fed
D) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Treasury
