According to the liquidity preference theory, the demand for money is ________ related
to aggregate output and ________ related to interest rates.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Answer:
Under the European System of Central Banks, the National Central Banks have the
same role as the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
Answer:
This theory views shocks to tastes (workers’ willingness to work, for example) and
technology (productivity) as the major driving forces behind short-run fluctuations in
the business cycle because these shocks lead to substantial short-run fluctuations in the
natural rate of output.
A) The natural rate hypothesis
B) Hysteresis
C) Real business cycle theory
D) The Phillips curve model
Answer:
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.
Answer:
Higher government deficits ________ the supply of bonds and shift the supply curve to
the ________, everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Answer:
The speculative demand for money may not exist because
A) banks now pay interest on some types of checkable deposits.
B) there are alternative riskless assets paying higher returns than the return on money.
C) the transactions demand can be shown to depend on interest rates.
D) government regulations have eliminated risk in the financial markets.
Answer:
According to the liquidity premium theory, a yield curve that is flat means that
A) bond purchasers expect interest rates to rise in the future.
B) bond purchasers expect interest rates to stay the same.
C) bond purchasers expect interest rates to fall in the future.
D) the yield curve has nothing to do with expectations of bond purchasers.
Answer:
The finance of government spending through a Treasury sale of bonds which are then
purchased by the Fed
A) causes both reserves and the monetary base to rise.
B) causes both reserves and the monetary base to decline.
C) causes reserves to rise, but the monetary base to decline.
D) has no net effect on the monetary base.
Answer:
Which of the following are investment intermediaries?
A) Life insurance companies
B) Mutual funds
C) Pension funds
D) State and local government retirement funds
Answer:
The FDIC must take steps to close down banks whose equity capital is less than
________ of assets.
A) 4%
B) 3%
C) 2%
D) 1%
Answer:
Everything else held constant, when bonds become less widely traded, and as a
consequence the market becomes less liquid, the demand curve for bonds shifts to the
________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
Answer:
________ 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
Answer:
The difference between merchandise exports and imports is called the ________
balance.
A) current account
B) capital account
C) official reserve transactions
D) trade
Answer:
According to this theory of the term structure, bonds of different maturities are not
substitutes for one another.
A) Segmented markets theory
B) Expectations theory
C) Liquidity premium theory
D) Separable markets theory
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a decline in the reserve requirement ________ the
demand of reserves, ________ the federal funds rate, everything else held constant.
A) decreases; lowering
B) increases; lowering
C) increases; raising
D) decreases; raising
Answer:
The concept of ________ is based on the common-sense notion that a dollar paid to you
in the future is less valuable to you than a dollar today.
A) present value
B) future value
C) interest
D) deflation
Answer:
Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation by
comparing
A) how fast prices rise relative to wages.
B) the unemployment rate with its natural rate level.
C) when prices rise relative to wages.
D) government debt to real GDP.
Answer:
Tobin’s model of the speculative demand for money shows that people can reduce their
________ by ________ their asset holdings.
A) wealth; diversifying
B) risk; specializing
C) return; diversifying
D) risk; diversifying
Answer:
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
Answer:
Evidence from the time period 1960-1980 indicates that inflation in the United States
resulted from
A) an employment target that was set too high.
B) the government’s inability to sell bonds to the Fed.
C) an expansion in the money supply to finance federal government expenditures.
D) the excessive sale of government bonds to the public.
Answer:
Everything else held constant, an increase in planned investment expenditure ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
The interest rate thought to have the most important impact on aggregate demand is the
A) short-term interest rate.
B) T-bill rate.
C) rate on 90-day CDs.
D) long-term interest rate.
Answer:
All of the following might create problems from financial liberalization in emerging
countries except
A) ineffective screening of borrowers.
B) limits on risk-taking.
C) lax government supervision of banks.
D) lenders failure to monitor borrowers.
Answer:
If the consumption function is expressed as C = a + mpc × YD, then “mpc” represents
A) autonomous consumer expenditure.
B) the marginal propensity to consume.
C) the expenditure multiplier.
D) disposable income.
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________
U.S. dollars.
A) 0.30
B) 0.87
C) 1.15
D) 3.10
Answer:
An expansionary monetary policy raises firms’ cash flows by ________ interest rates.
A) lowering real
B) lowering nominal
C) raising real
D) raising nominal
Answer:
Under the Bretton Woods system, the IMF could encourage ________ countries to
pursue ________ monetary policies that would strengthen their currency or eliminate
their balance of payment deficits.
A) surplus; expansionary
B) surplus; contractionary
C) deficit; expansionary
D) deficit; contractionary
Answer:
The reason that economists are so interested in the stability of velocity is because if the
demand for money is not stable, then steady growth of the money supply
A) is going to promote price stability at the expense of low unemployment.
B) is going to promote low unemployment at the expense of price stability.
C) is an ineffective way to conduct monetary policy.
D) can still be used to conduct monetary policy if the goal is price stability.
Answer:
Keynes’s motivation in developing the aggregate output determination model stemmed
from his concern with explaining
A) the hyperinflations of the 1920s.
B) why the Great Depression occurred.
C) the high unemployment in Great Britain before World War I.
D) the high unemployment in Great Britain after World War II.
Answer:
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.
Answer:
With the creation of the Federal Deposit Insurance Corporation,
A) member banks of the Federal Reserve System were given the option to purchase
FDIC insurance for their depositors, while non-member commercial banks were
required to buy deposit insurance.
B) member banks of the Federal Reserve System were required to purchase FDIC
insurance for their depositors, while non-member commercial banks could choose to
buy deposit insurance.
C) both member and non-member banks of the Federal Reserve System were required
to purchase FDIC insurance for their depositors.
D) both member and non-member banks of the Federal Reserve System could choose,
but were not required, to purchase FDIC insurance for their depositors.
Answer: