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1) If you expect the inflation rate to be 15 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) 7 percent
B) 22 percent
C) -15 percent
D) -8 percent
2) An increase in the domestic interest rate causes the demand for domestic assets to
shift to the ________ and the domestic currency to ________, everything else held
constant
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
3) Agreements such as the ________ are attempts to standardize international banking
regulations
A) Basel Accord
B) UN Bank Accord
C) GATT Accord
D) WTO Accord
4) Under the Exchange Rate Mechanism of the European Monetary System, when the
German mark depreciated below its lower limit against the British pound, the Bank of
England was required to buy ________ and sell ________, thereby ________
international reserves
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
5) Everything else held constant, the vertical section of the supply curve of reserves is
shortened when the
A) discount rate increases
B) discount rate decreases
C) federal funds rate rises
D) federal funds rate falls
6) Open market operations intended to offset movements in noncontrollable factors
(such as float) that affect reserves and the monetary base are called
A) defensive open market operations
B) dynamic open market operations
C) offensive open market operations
D) reactionary open market operations
7) When compared to the Fed's ________ anchor approach, ________ targeting can
make the institutional framework for the conduct of monetary policy more consistent
with democratic principles
A) nominal; inflation
B) implicit; monetary
C) nominal; monetary
D) implicit; inflation
8) The ability to use the too-big-to-fail policy was curtailed by the passage of the
FDICIA To use this action today, the FDIC must get approval of a two-thirds majority
of both the Board of Governors of the Federal Reserve and the directors of the FDIC
and also the approval of the
A) Secretary of the Treasury
B) Senate Finance Committee Chairperson
C) President of the United States
D) Governor of the state in which the failed bank is located
9) Moral hazard and adverse selection problems increased in prominence in the 1980s
A) as deregulation required savings and loans and mutual savings banks to be more
cautious
B) following a burst of financial innovation in the 1970s and early 1980s that produced
new financial instruments and markets, thereby widening the scope for risk taking
C) following a decrease in federal deposit insurance from $100,000 to $40,000
D) as interest rates were sharply decreased to bring down inflation
10) When the economy is hit by a negative demand 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 lower
D) inflation will not change
E) both A and B
11) In deriving the aggregate demand curve a ________ inflation rate leads the central
bank to ________ real interest rates, thereby ________ the level of equilibrium
aggregate output
A) higher; raise; lowering
B) lower; raise; lowering
C) higher; lower; lowering
D) higher; lower; raising
12) If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is
A) 025
B) 4
C) 8
D) 16
13) Equity contracts account for a small fraction of external funds raised by American
businesses because
A) costly state verification makes the equity contract less desirable than the debt
contract
B) of the reduced scope for moral hazard problems under equity contracts, as compared
to debt contracts
C) equity contracts do not permit borrowing firms to raise additional funds by issuing
debt
D) there is no moral hazard problem when using a debt contract
14) The present value of an expected future payment ________ as the interest rate
increases
A) falls
B) rises
C) is constant
D) is unaffected
15) If an economy experiences high interest rates and high unemployment, the ISLM
framework predicts that ________ policy has been too ________
A) fiscal; expansionary
B) fiscal; contractionary
C) monetary; expansionary
D) monetary; contractionary
