Evidence from the United States and other foreign countries indicates that
A) there is a strong positive association between inflation and growth rate of money
over long periods of time.
B) there is little support for the assertion that “inflation is always and everywhere a
monetary phenomenon.”
C) countries with low monetary growth rates tend to experience higher rates of
inflation, all else being constant.
D) money growth is clearly unrelated to inflation.
Assume equilibrium at full employment for an economy characterized by the simple
Keynesian model. If the government raises taxes to eliminate a budget deficit, then
A) the rate of unemployment will increase.
B) the level of aggregate output will increase.
C) the price level will increase.
D) the rate of interest will fall.
The Fed’s quantitative easing is to purchase ________ to affect credit spreads.
A) long-term securities
B) short-term securities
C) both long-term and short-term securities
D) private assets
As interest rates rise, the expected absolute return of money ________, money’s
expected return relative to bonds ________.
A) does not change; decrease
B) rises; decrease
C) does not change; increase
D) falls; decrease
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________
U.S. dollars.
A) 0.30
B) 0.87
C) 1.15
D) 3.10
The IS curve shifts to the left when
A) taxes increase.
B) government spending increases.
C) the money supply increases.
D) autonomous planned investment spending increases.
Under a fixed exchange rate regime, if the domestic currency is initially overvalued,
that is, below par, the central bank must intervene to purchase the ________ currency
by selling ________ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Suppose that the Bank of Japan buys yen-denominated assets with U.S. dollar assets.
Everything else held constant, this transaction will cause ________ in the foreign assets
held by the Federal Reserve and ________ in the U.S. monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
If an individual moves money from a demand deposit account to a money market
deposit account
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
In September 1992, the Bundesbank attempted to keep the mark from appreciating
relative to the British pound, but it failed because participants in the foreign exchange
market came to expect the
A) appreciation of the mark.
B) depreciation of the mark.
C) revaluation of the dollar.
D) end of the Exchange Rate Mechanism.
The difference of rate-sensitive liabilities and rate-sensitive assets is known as the
A) duration.
B) interest-sensitivity index.
C) rate-risk index.
D) gap.
Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or
0.05, then the current stock price is
A) $10.
B) $20.
C) $30.
D) $40.
Property that is pledged to the lender in the event that a borrower cannot make his or
her debt payment is called
A) collateral.
B) points.
C) interest.
D) good faith money.
A capital ________ can promote financial instability in an emerging-market country
because it is what forces a country to ________ its currency.
A) inflow; devalue
B) inflow; revalue
C) outflow; devalue
D) outflow; revalue
When housing prices began to decline after their peak in 2006, many subprime
borrowers found that their mortgages were “underwater.” This meant that
A) the value of the house fell below the amount of the mortgage.
B) the basement flooded since they could not afford to fix the leaky plumbing.
C) the roof leaked during a rainstorm.
D) the amount that they owed on their mortgage was less than the value of their house.
The interest rate on Baa corporate bonds is ________, on average, than interest rates on
Treasuries, and the spread between these rates became ________ in the 1970s.
A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger
A capital ________ can promote financial instability in an emerging-market country
because it can lead to a lending boom and excessive risk-taking on the part of banks,
which helps trigger a ________.
A) inflow; financial crisis
B) inflow; currency devaluation
C) outflow; financial crisis
D) outflow; currency devaluation
Which of the following is NOT a contractual savings institution?
A) a life insurance company
B) a pension fund
C) a savings and loan association
D) a fire and casualty insurance company
What country is given credit for the birth of the Eurodollar market?
A) the United States
B) England
C) the Soviet Union
D) Japan
The Fed’s use of the federal funds rate as an operating target in the 1970s resulted in
A) countercyclical monetary policy.
B) too slow growth in M1 throughout the decade.
C) procyclical monetary policy.
D) too rapid growth in M1 throughout the decade.
If, in retaliation for “unfair” trade practices, Congress imposes a 30 percent tariff on
Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods
increases, then, in the long run, ________, everything else held constant.
A) the Japanese yen should appreciate relative to the U.S. dollar
B) the Japanese yen should depreciate relative to the U.S. dollar
C) there is no effect on the Japanese yen relative to the U.S. dollar
D) the Japanese yen could appreciate, depreciate or remain constant relative to the U.S.
dollar
It is true that inflation is a
A) continuous increase in the money supply.
B) continuous fall in prices.
C) decline in interest rates.
D) continually rising price level.
One possible reason for slower growth in developing and transition countries is
A) capital may not be directed to its most productive use.
B) strict accounting standards are too stringent for the banks to meet.
C) the weak link between government and financial intermediaries.
D) the lack of adverse selection and moral hazard problems.
According to Tobin’s q theory, when equity prices are high the market price of existing
capital is ________ relative to new capital, so expenditure on fixed investment is
________.
A) cheap; low
B) dear; low
C) cheap; high
D) dear; high
A contractionary monetary policy raises the real interest rate, causing the domestic
currency to ________, thereby ________ net exports.
A) appreciate; raising
B) appreciate; lowering
C) depreciate; raising
D) depreciate; lowering
If you bought a long futures contract you hope that bond prices
A) rise.
B) fall.
C) are stable.
D) fluctuate.
If a corporation begins to suffer large losses, then the default risk on the corporate bond
will
A) increase and the bond’s return will become more uncertain, meaning the expected
return on the corporate bond will fall.
B) increase and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will fall.
C) decrease and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will fall.
D) decrease and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will rise.
One financial intermediary in our financial structure that helps to reduce the moral
hazard from arising from the principal-agent problem is the
A) venture capital firm.
B) money market mutual fund.
C) pawn broker.
D) savings and loan association.
As in the United States, an important factor in the banking crises in Latin America was
the
A) financial liberalization that occurred in the 1980s.
B) decline in real interest rates that occurred in the 1980s.
C) high inflation that occurred in the 1980s.
D) sluggish economic growth that occurred in the 1980s.
Which of the following does NOT shift the IS curve?
A) an increase in autonomous consumption
B) an increase in government spending
C) a decline in government spending
D) a fall in the interest rate
If the money supply is $2 trillion and velocity is 5, then nominal GDP is
A) $1 trillion.
B) $2 trillion.
C) $5 trillion.
D) $10 trillion.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an decrease in the currency-deposit ratio to 30%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.8 to 3.25
B) decrease from 3.25 to 2.8
C) increase from 2.8 to 3.5
D) decrease from 3.5 to 2.8