Which of the following is NOT included in the measure of M1?
A. NOW accounts
B. demand deposits
C. currency
D. savings deposits
Answer:
An appreciation of the U.S. dollar makes foreign goods cheaper relative to American
goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS
curve in the U.S., everything else held constant.
A. fall; leftward
B. rise; leftward
C. fall; rightward
D. rise; rightward
Answer:
Bonds that are sold in a foreign country and are denominated in a currency other than
that of the country in which it is sold are known as
A. foreign bonds.
B. Eurobonds.
C. equity bonds.
D. country bonds.
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves. Given this information, we can say First National
Bank has ________ million dollars in required reserves.
A. one
B. two
C. eight
D. ten
Answer:
Which of the following long-term bonds has the highest interest rate?
A. corporate Baa bonds
B. U.S. Treasury bonds
C. corporate Aaa bonds
D. municipal bonds
Answer:
An increase in the riskiness of corporate bonds will ________ the yield on corporate
bonds and ________ the yield on Treasury securities, everything else held constant.
A. increase; increase
B. reduce; reduce
C. increase; reduce
D. reduce; increase
Answer:
Everything else held constant, a decrease in autonomous consumer spending will cause
the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Answer:
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets.
A. noncollateralized risk
B. free-riding
C. asymmetric information
D. costly state verification
Answer:
If workers believe that government policymakers will increase aggregate demand to
avoid a politically unpopular increase in unemployment when workers demand higher
wages, then workers will not fear higher unemployment and their wage demands will
result in
A. demand-pull inflation.
B. hyperinflation.
C. deflation.
D. cost-push inflation.
Answer:
Macroprudential supervision policies try to prevent a leverage cycle by changing capital
requirements so that they ________ during an expansion and ________ during a
downturn.
A. increase; decrease
B. increase; increase
C. decrease; increase
D. decrease; decrease
Answer:
A substantial decrease in the aggregate price level that reduces firms’ net worth may
stall a recovery from a recession. This process is called
A. debt deflation.
B. moral hazard.
C. insolvency.
D. illiquidity.
Answer:
In the Keynesian cross diagram, an increase in autonomous consumer expenditure
causes the aggregate demand function to shift up, the equilibrium level of aggregate
output to ________, and the IS curve to shift to the ________, everything else held
constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to raise
production.
A. below; negative
B. above; negative
C. below; positive
D. above; positive
Answer:
According to the liquidity premium theory of the term structure, a downward sloping
yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Answer:
If float is predicted to decrease because of unseasonably good weather, the manager of
the trading desk at the Federal Reserve Bank of New York will likely conduct a
________ open market ________ of securities.
A. defensive; sale
B. defensive; purchase
C. dynamic; sale
D. dynamic; purchase
Answer:
Which regulatory body charters national banks?
A. the Federal Reserve
B. the FDIC
C. the Comptroller of the Currency
D. the U.S. Treasury
Answer:
A decline in the expected inflation rate causes the demand for money to ________ and
the demand curve to shift to the ________, everything else held constant.
A. decrease; right
B. decrease; left
C. increase; right
D. increase; left
Answer:
Milton Friedman called the response of lower interest rates resulting from an increase in
the money supply the ________ effect.
A. liquidity
B. price level
C. expected-inflation
D. income
Answer:
In emerging market countries, many firms have debt denominated in foreign currency
like the dollar or yen. A depreciation of the domestic currency
A. results in increases in the firm’s indebtedness in domestic currency terms, even
though the value of their assets remains unchanged.
B. results in an increase in the value of the firm’s assets.
C. means that the firm does not owe as much on their foreign debt.
D. strengthens their balance sheet in terms of the domestic currency.
Answer:
Which of the following was the fastest-growing financial intermediary of the 1970s?
A. commercial banks
B. credit unions
C. finance companies
D. money market mutual funds
Answer:
A sharp depreciation of the domestic currency after a currency crisis leads to
A. higher inflation.
B. lower import prices.
C. lower interest rates.
D. decrease in the value of foreign currency-denominated liabilities.
Answer:
Suppose Ford Motor Company issues a 5% bond with a stipulation that if a national
index of SUV sales drops by 10%, then Ford can decrease the coupon rate to 3%. This
security is called a
A. credit option.
B. credit swap.
C. credit-linked note.
D. credit default swap.
Answer:
If an individual moves money from a money market deposit account to currency
A. M1 increases and M2 stays the same.
B. M1 stays the same and M2 increases.
C. M1 stays the same and M2 stays the same.
D. M1 increases and M2 decreases.
Answer:
When a country forgoes its own currency and starts using another country’s currency as
its own, we say that this country has________
A) created a currency board.
B) undergone dollarization.
C) adopted a managed exchange system.
D) adopted an exchange rate monetary system.
Answer:
The implementation lag is
A. the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B. the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C. the time it takes to pass legislation to implement a particular policy.
D. the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E. the time it takes for the policy actually to have an impact on the economy.
Answer:
Financing government spending with taxes
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:
A reason why rogue traders have bankrupt their banks is due to
A. the separation of trading activities from the bookkeepers.
B. stringent supervision of trading activities by bank management.
C. accounting errors.
D. a failure to maintain proper internal controls.
Answer:
The majority of members of the Federal Open Market Committee are
A. Federal Reserve Bank presidents.
B. members of the Federal Advisory Council.
C. presidents of member banks.
D. the seven members of the Board of Governors.
Answer:
Although the dominance of ________ over ________ is clear in all countries, the
relative importance of bond versus stock markets differs widely.
A. financial intermediaries; securities markets
B. financial intermediaries; government agencies
C. government agencies; financial intermediaries
D. government agencies; securities markets
Answer:
If a pension fund has insufficient contributions and earnings to pay benefits, it is said it
be
A. underfunded.
B. at par.
C. fully funded.
D. under par.
Answer:
Everything else held constant, an increase in the riskiness of bonds relative to
alternative assets causes the demand for bonds to ________ and the demand curve to
shift to the ________.
A. rise; right
B. rise; left
C. fall; right
D. fall; left
Answer:
Under a fixed exchange rate regime, if the domestic currency is initially undervalued,
that is, above par, the central bank must intervene to sell the ________ currency by
purchasing ________ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer:
If the economy is on the LM curve, but is to the left of the IS curve, aggregate output
will ________ and the interest rate will ________.
A. rise; rise
B. rise; fall
C. fall; rise
D. fall; fall
Answer:
A permanent negative supply shock leads to ________ output ________.
A. higher; in both the short and long runs
B. higher; in the short run but not in the long run
C. lower; in both the short and long runs
D. lower; in the short run but not in the long run
Answer:
Everything else held constant, a balanced budget increase in government spending (that
is, an increase in government spending that is matched by an identical increase in net
taxes) will
A. increase aggregate demand, but not by as much as if just government spending
increases.
B. increase aggregate demand by more than if just government spending increases.
C. not affect aggregate demand.
D. decrease aggregate demand.
Answer: