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1) Cutting the money supply by one-third is predicted by the quantity theory of money
to cause
A) a sharp decline in real output of one-third in the short run, and a fall in the price
level by one-third in the long run
B) a decline in real output by one-third
C) a decline in output by one-sixth, and a decline in the price level of one-sixth
D) a decline in the price level by one-third
2) The account that shows international transactions involving currently produced
goods and services is called the
A) trade balance
B) current account
C) balance of payments
D) capital account
3) The experience of disintermediation in the banking industry illustrates that
A) more regulation of financial markets may avoid such problems in the future
B) banks are unable to remain competitive with other financial intermediaries
C) consumers no longer desire the services that banks provide
D) markets invent alternatives to costly regulations
4) The time it takes for the policy actually to have an impact on the economy is called
A) the data lag
B) the recognition lag
C) the legislative lag
D) the implementation lag
E) the effectiveness lag
5) The monetary base minus currency in circulation equals
A) reserves
B) the borrowed base
C) the nonborrowed base
D) discount loans
6) In the Keynesian liquidity preference framework, a rise in the price level causes the
demand for money to ________ and the demand curve to shift to the ________,
everything else held constant
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
7) Holding many risky assets and thus reducing the overall risk an investor faces is
called
A) diversification
B) foolishness
C) risk acceptance
D) capitalization
8) Everything else held constant, if disposable income increases by 200 and
consumption expenditure increases by 150, the mpc is
A) 0
B) 015
C) 05
D) 075
9) The existence of deposit insurance can increase the likelihood that depositors will
need deposit protection, as banks with deposit insurance
A) are likely to take on greater risks than they otherwise would
B) are likely to be too conservative, reducing the probability of turning a profit
C) are likely to regard deposits as an unattractive source of funds due to depositors'
demands for safety
D) are placed at a competitive disadvantage in acquiring funds
10) Despite an expansionary monetary policy, an economy experiences a recession
Everything else held constant, the recession could occur in spite of the rightward shift
of the LM curve if
A) consumer confidence decreases sharply
B) there is an investment boom
C) the money supply increases
D) taxes are cut
