Anything that causes the demand for money relative to income to increase
a. will cause velocity to increase
b. will cause velocity to decrease
c. will have no impact on velocity
d. will have an unpredictable effect on velocity
Answer:
The real independence of the Federal Reserve is ultimately limited by the fact that
a. the salaries of some Federal Reserve officials exceed that of the president of the
United States
b. operating funds are appropriated by Congress
c. members of the Board of Governors often curry favor with the president in order to
enhance chances for reappointment
d. Congress could significantly change the nature of the Fed
Answer:
Today’s yield curve is flat. If the liquidity premium theory is correct,
a. short term interest rates are expected to rise in the future
b. short term interest rates are expected to remain constant in the future
c. short term interest rates are expected to fall in the future
d. we can reach no conclusion about the future behavior of short term interest rates
Answer:
Suppose long-term government bond yields currently are around 7 percent. Then,
regarding the U.S. government 6s of 2026, we can state that:
a. the bond will sell at a price that provides a yield of 6 percent
b. the bond will sell to provide a yield above the coupon rate
c. the bond will sell to provide a yield below the coupon rate
d. the price will exceed face value or maturity value
Answer:
Anything that increases people’s desire to hold money relative to annual income will
cause
a. velocity to rise
b. velocity to fall
c. nothing to happen to velocity
d. not enough information is given to answer the question
Answer:
A multiple contraction of deposits is most likely to occur if
a. reserves exceed required reserves
b. excess reserves exceed required reserves
c. required reserves exceed excess reserves
d. required reserves exceed reserves
Answer:
When the Federal Reserve purchases securities in the open market, the supply of bank
reserves ____ and the federal funds rate ____.
a. increases; falls
b. decreases; falls
c. increases; rises
d. decreases; rises
Answer:
Choose the response that ranks the following targets and goals from most controllable
to least controllable.
a. net free reserves; long-term interest rate; monetary base; GDP growth rate
b. monetary base; total bank reserves; short-term interest rate; money supply
c. portfolio of securities; monetary base; M1 money supply; unemployment rate
d. short-term interest rate; inflation rate; M1 money supply; exchange rate
Answer:
Which of the following is true about the maturity date of equities?
a. Equities have no maturity date.
b. Equities are issued in maturities ranging from 1 to 30 years.
c. Equities tend to have longer maturities than comparable bonds.
d. An equity’s risk increases proportionately with an increase in its maturity.
Answer:
Policy non-activists believe that the economy
a. is inherently stable
b. has powerful self-correcting mechanisms
c. cannot be improved by a central bank’s monetary policy actions
d. is characterized by all of the above
Answer:
Today, the factors that determine whether the Comptroller of the Currency and state
banking commissions approve charter applications do not include
a. the qualifications of the bank’s proposed management
b. the competitive threat the new bank may pose to existing banks
c. the quantity of capital contributed by the prospective owners
d. the bank’s potential to achieve and maintain profitability
Answer:
In the Greenspan era of the Fed (1987 – 2004),
a. the federal funds rate deviated sharply from the Taylor rule
b. the federal funds rate tracked the Taylor rule closely
c. the federal funds rate was always lower than the Taylor rule’s prediction
d. none of the above is correct
Answer:
Since the mid-1970s, net exports
a. have been negative
b. have increased (in absolute value) as a share of GDP
c. both of the above are correct
d. neither of the above is correct
Answer:
Which of the following events would increase the demand for funds and boost interest
rates?
a. consumer confidence improves
b. household thriftiness increases
c. the stock market declines sharply
d. inflation expectations decline
Answer:
The self-correcting mechanism relies on ____ to restore the economy to long-run
equilibrium.
a. aggregate demand shifts
b. aggregate supply shifts
c. both aggregate demand and aggregate supply shifts
d. neither aggregate demand nor aggregate supply shifts
Answer:
Over the past seventy years we have seen the balance of power in the Federal Reserve
shift
a. from the Board of Governors to the district banks
b. from the district banks to the Board of Governors
c. from zero accountability to government to full accountability to the U.S. Treasury
d. none of the above is true
Answer:
Which of the following factors would work to increase the velocity of money?
a. lower interest rates
b. increased economic uncertainty
c. financial innovations
d. none of the above
Answer:
To achieve an ultimate goal of policy, the Fed must
a. choose to target a variable which is more controllable than the ultimate goal
b. choose to target the most controllable variables within its power
c. target that goal directly
d. do none of the above
Answer:
The term premium implicit in the liquidity premium theory is based on the fact that:
a. investors in short-term bonds are exposed to greater default risk than investors in
long-term bonds
b. investors in short-term bonds are exposed to greater market risk than investors in
long-term bonds
c. investors in long-term bonds are exposed to greater market risk than investors in
short-term bonds
d. investors in long-term bonds are exposed to greater default risk than investors in
short-term bonds
Answer:
In general, the higher the rate of expected inflation,
a. the lower we would expect the nominal interest rate will be
b. the higher we would expect the real interest rate will be
c. the higher we would expect the nominal interest rate will be
d. none of the above is true
Answer:
We expect Tobin’s q to rise when
a. the market value of firms decreases
b. the replacement cost of capital increases
c. either the market value of firms or the replacement cost of capital increases
d. none of the above occurs
Answer:
In order to stimulate economic activity, the Fed could aggressively
a. buy securities in the open market
b. sell securities in the open market
c. raise the discount rate
d. raise reserve requirements
Answer:
Active monetary policy can be difficult because
a. the level of the NAIRU is uncertain
b. the power of policy to affect the AD curve is variable and uncertain
c. the positions of the AS and AD curves are uncertain
d. all of the above are true
Answer:
Suppose you observe that the yield curve is currently strongly inverted. According to an
exhibit in the text, this typically means that:
a. the economy is probably at the trough (low point of the cycle)
b. inflation is about to accelerate
c. a recession will soon occur
d. none of the above are likely
Answer:
Monetarists use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. bank reserves declined approximately 18 percent
b. the discount rate-Treasury bill yield spread was very low
c. the monetary base actually increased somewhat
d. stock prices fell dramatically
Answer:
The pure expectations theory of term structure fails to explain:
a. why the yield curve is downward sloping when market interest rates are unusually
high
b. why the yield curve is predominantly upward sloping
c. why interest rates on different assets tend to move together
d. all of the above
Answer:
Central banks have some similar characteristics as private commercial banks. For
example, like commercial banks, central banks
a. have capital accounts–ownership claims
b. make certain types of loans
c. purchase government securities
d. do all of the above
Answer:
An anchor is a mechanism or mode of monetary policy that
a. assures the public that unemployment will not rise over the next few years
b. assures the public that per-capita GDP will rise over the next few years
c. assures the public that serious inflation will not be allowed over the next few years
d. is described by none of the above
Answer:
When the Federal Reserve purchases $200,000 of securities from a dealer, assuming a
10 percent reserve requirement,
a. the money supply will ultimately rise by $1,800,000
b. aggregate bank required reserves will ultimately rise by $20,000
c. aggregate bank excess reserves initially rise by $180,000
d. all of the above occur
Answer:
In recent years, the Fed’s net income has been approximately
a. $40 to $50 billion per year
b. $20 to $30 billion per year
c. $1 to $10 billion per year
d. $800 to $900 million per year
Answer:
When the dollar depreciates,
a. the U.S. terms of trade deteriorate
b. the trade deficit widens
c. imported goods become less expensive to U.S. consumers
d. none of the above occurs
Answer: