1) A monetary policy strategy that uses a fixed exchange rate regime that ties the value
of a currency to the currency of a large, low inflation country is called ________
targeting.
A) exchange-rate
B) currency
C) monetary
D) inflation
2) The presence of so many commercial banks in the United States is most likely the
result of
A) consumers’ strong desire for dealing with only local banks
B) adverse selection and moral hazard problems that give local banks a competitive
advantage over larger banks
C) prior regulations that restricted the ability of these financial institutions to open
branches
D) consumers’ preference for state banks
3) 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
4) Evidence from the United States during the period 1973-2002 indicates that the value
of the dollar and the measure of the ________ interest rate rose and fell together.
A) real
B) nominal
C) expected
D) actual
5) Everything else held constant, if the federal government were to guarantee today that
it will pay creditors if a corporation goes bankrupt in the future, the interest rate on
corporate bonds will ________ and the interest rate on Treasury securities will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
6) In the Gordon growth model, a decrease in the required rate of return on equity
A) increases the current stock price
B) increases the future stock price
C) reduces the future stock price
D) reduces the current stock price
7) When real income ________, the demand curve for money shifts to the ________
and the interest rate ________, everything else held constant.
A) falls; right; rises
B) rises; right; rises
C) falls; left; rises
D) rises; left; rises
8) A borrowed reserves target is ________ because increases in income ________
interest rates and discount loans, causing the Fed to ________ the monetary base,
everything else held constant.
A) procyclical; increase; increase
B) countercyclical; increase; increase
C) procyclical; reduce; reduce
D) countercyclical; reduce; reduce
9) The quantity interest income minus interest expenses divided by assets is a measure
of bank performance known as
A) operating income
B) net interest margin
C) return on assets
D) return on equity
10) Which of the following bonds are considered to be default-risk free?
A) Municipal bonds
B) Investment-grade bonds
C) U.S. Treasury bonds
D) Junk bonds
11) The global financial crisis lead to a decline in stock prices because
A) of a lowered expected dividend growth rate
B) of a lowered required return on investment in equity
C) higher expected future stock prices
D) higher current dividends
12) Everything else held constant, in the market for reserves, when the federal funds
rate equals the discount rate, lowering the discount rate
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect of the federal funds rate
13) The time-inconsistency problem with monetary policy tells us that, if policymakers
use discretionary policy, there is a higher probability that the ________ will be higher,
compared to policy makers following a behavior rule.
A) inflation rate
B) unemployment rate
C) interest rate
D) foreign exchange rate
14) The opportunity cost of holding money is
A) the level of income
B) the price level
C) the interest rate
D) the discount rate
15) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the left and the domestic currency to ________, everything
else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
16) If brokerage commissions on bond sales decrease, then, other things equal, the
demand for bonds will ________ and the demand for real estate will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
17) In the period 1965 through the 1970s, policymakers pursued ________ policies in
order to achieve ________.
A) expansionary; high employment
B) expansionary; low inflation
C) contractionary; high employment
D) contractionary; low inflation
18) By analyzing aggregate demand through its component parts, we can conclude that,
everything else held constant, a decline in the inflation rate causes
A) an increase in real interest rates, an increase in investment spending, and a decline in
aggregate output demand
B) a decline in real interest rates, a decrease in investment spending, and an increase in
aggregate output demand
C) a decline in real interest rates, an increase in investment spending, and an increase in
aggregate output demand
D) an increase in real interest rates, a decline in investment spending, and a decline in
aggregate output demand
19) A positive supply shock causes ________ to ________.
A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase
20) 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
21) Which of the following items are not counted in U.S. GDP?
A) your purchase of a new Ford Mustang
B) your purchase of new tires for your old car
C) GM’s purchase of tires for new cars
D) a foreign consumer’s purchase of a new Ford Mustang
22) Tobin’s q is defined as the market value of firms ________ the replacement cost of
capital.
A) times
B) minus
C) plus
D) divided by
23) You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry
B) you expect interest rates to fall
C) gold becomes more liquid
D) stock prices are expected to fall
24) The amount of borrowed reserves is ________ related to the discount rate, and is
________ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
25) In the one-period valuation model, the value of a share of stock today depends upon
A) the present value of both the dividends and the expected sales price
B) only the present value of the future dividends
C) the actual value of the dividends and expected sales price received in one year
D) the future value of dividends and the actual sales price
26) Everything else held constant, an increase in the currency ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
27) Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.55 to 2.8
B) decrease from 2.8 to 2.55
C) increase from 1.82 to 2
D) decrease from 2 to 1.82
28) If real estate prices are expected to drop, all else equal, the demand for bonds
________ and the interest rate_______.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
29) 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
30) Suppose the U.S. economy is producing at the natural rate of output. An
appreciation of the U.S. dollar will cause ________ in real GDP in the short run and
________ in inflation in the long run, everything else held constant. (Assume the
appreciation causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
31) When the price level ________, the demand curve for money shifts to the ________
and the interest rate ________, everything else held constant.
A) falls; left; falls
B) rises; right; falls
C) falls; left; rises
D) rises; right; rises
32) During the 1950s, the Fed targeted
A) M1
B) M2
C) the monetary base
D) money market conditions
33) Social Security is a
A) fully funded pension plan
B) federally insured private pension plan
C) government sponsored private pension plan
D) “pay-as-you-go” system
34) Keynes’s liquidity preference theory indicates that the demand for money
A) is purely a function of income, and interest rates have no effect on the demand for
money
B) is purely a function of interest rates, and income has no effect on the demand for
money
C) is a function of both income and interest rates
D) is a function of both government spending and income
35) Under the Sarbanes-Oxley Act of 2002, the provision that gives more funding to the
SEC is an example of
A) regulate for transparency
B) supervisory oversight
C) separation of functions
D) socialization of information production