Empirical evidence shows that the quantity theory of money is a good theory of
inflation
A) in the long run, but not in the short run.
B) in the short run, but not in the longrun.
C) in both the long run and the short run.
D) not in either the long run nor the short run.
If the Fed wants to temporarily inject reserves into the banking system, it will engage in
A) a repurchase agreement.
B) a matched sale-purchase transaction.
C) a reverse repurchase agreement.
D) an open market sale.
During the bank panics of the Great Depression the currency ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.
If monetary policy can influence ________ prices and conditions in ________ markets,
then it can affect spending through channels other than the traditional interest-rate
channel.
A) asset; labor
B) asset; credit
C) commodity; labor
D) commodity; credit
In the long-run ISLM model and with everything else held constant, the long-run effect
of an autonomous fall in consumption expenditure is to ________ real output and
________ the interest rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
If prices in the bond market become more volatile, everything else held constant, the
demand curve for bonds shifts ________ and interest rates ________.
A) left; rise
B) left; fall
C) right; rise
D) right; fall
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market sale ________ the supply of reserves causing the
federal funds rate to ________, everything else held constant.
A) decreases; decrease
B) increases; decrease
C) increases; increase
D) decreases; increase
A problem with the too-big-to-fail policy is that it ________ the incentives for
________ by big banks.
A) increases; moral hazard
B) decreases; moral hazard
C) decreases; adverse selection
D) increases; adverse selection
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.
When the expected inflation rate increases, the demand for bonds ________, the supply
of bonds ________, and the interest rate ________, everything else held constant.
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
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.
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be unchanged.
D) inflation will be unchanged.
The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as
A) the real interest rate.
B) the nominal interest rate.
C) the rate of inflation.
D) the rate of deflation.
An innovation that blurred the distinction between brokerage firms and commercial
banks was Merrill Lynch’s development in 1977 of the
A) cash management account.
B) money market mutual fund.
C) individual retirement account.
D) discount brokerage.
One of the problems experienced by the savings and loan industry during the 1980s was
A) managers lack of expertise to manage risk in new lines of business.
B) heavy regulations in the new areas open to S&Ls.
C) slow growth in lending.
D) close monitoring by the FSLIC.
Under a fixed exchange rate regime, a central bank that does not want to acquire
international reserves to keep its currency from ________ will decide to ________ its
currency.
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue
The long-run aggregate supply curve shifts to the right when there is
A) a decrease in the total amount of capital in the economy.
B) a decrease in the total amount of labor supplied in the economy.
C) a decrease in the available technology.
D) a decline in the natural rate of unemployment.
If you sell a $100,000 interest-rate futures contract for 110, and the price of the
Treasury securities on the expiration date is 106, your ________ is ________.
A) profit; $4000
B) loss; $4000
C) profit; $6000
D) loss; $6000
The short-run aggregate supply curve shifts to the right when
A) output gap is higher.
B) output gap is lower.
C) expected inflation is higher.
D) expected inflation is lower.
Mutual savings banks are owned by
A) shareholders.
B) partners.
C) depositors.
D) foreign investors.
A central bank ________ of domestic currency and corresponding ________ of foreign
assets in the foreign exchange market leads to an equal decline in its international
reserves and the monetary base, everything else held constant.
A) sale; purchase
B) sale; sale
C) purchase; sale
D) purchase; purchase
Low stock market prices might ________ consumers willingness to spend and might
________ businesses willingness to undertake investment projects.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Which of the followings is NOT true about the word “autonomous” that economists
use?
A) Changes in autonomous components are associated with movements along a curve.
B) Changes in autonomous components are associated with shifts of a curve.
C) The autonomous component of a variable is exogenous.
D) The autonomous component of a variable is independent of other variables in the
model.
Which of the following statements concerning external sources of financing for
nonfinancial businesses in the United States are TRUE?
A) Issuing marketable securities is the primary way that they finance their activities.
B) Bonds are the least important source of external funds to finance their activities.
C) Stocks are a relatively unimportant source of finance for their activities.
D) Selling bonds directly to the American household is a major source of funding for
American businesses.
When Americans or foreigners expect the return on dollar assets to be high relative to
the return on foreign assets, there is a ________ demand for dollar assets and a
correspondingly ________ demand for foreign assets.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
All else equal, when interest rates ________, the duration of a coupon bond ________.
A) rise; falls
B) rise; increases
C) falls; falls
D) falls; does not change
One way for banks to reduce the principal-agent problems associated with trading
activities is to
A) set limits on the total amount of a traders’ transactions.
B) make sure that the person conducting the trades is also the person responsible for
recording the transactions.
C) encourage traders to take on more risk if the potential rewards are higher.
D) reduce the regulations on the traders so that they have more flexibility in conducting
trades.
From 2000 to 2014, the dollar depreciated substantially against other currencies. This
drop in value most likely benefitted
A) European citizens traveling in the U.S.
B) U.S. citizens traveling in Europe.
C) U.S. manufacturers importing parts from abroad.
D) U.S. citizens purchasing foreign-made automobiles.
Which of the following statements concerning bank regulation in the United States is
TRUE?
A) The Office of the Comptroller of the Currency has the primary responsibility for
state banks that are members of the Federal Reserve System.
B) The Federal Reserve and the state banking authorities jointly have responsibility for
the state banks that are members of the Federal Reserve System.
C) The Office of the Comptroller of the Currency has sole regulatory responsibility
over bank holding companies.
D) The state banking authorities have sole regulatory responsibility for all state banks.
The U.S. government can play an important role in establishing the credibility of
anti-inflation policy by
A) demonstrating fiscal responsibility.
B) monitoring the Fed.
C) conducting fiscal policy.
D) all of the above.
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