The ________ states that exchange rates between any two currencies will adjust to
reflect changes in the price levels of the two countries.
A) theory of purchasing power parity
B) law of one price
C) theory of money neutrality
D) quantity theory of money
Answer:
An increase in the interest rate
A) increases the demand for money.
B) increases the quantity of money demanded.
C) decreases the demand for money.
D) decreases the quantity of money demanded.
Answer:
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes
equals $50, and the mpc equals 0.9.
In an open economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net
exports.
D) consumer expenditure, planned investment spending, government spending, and net
exports.
Answer:
When compared to exchange systems that rely on money, disadvantages of the barter
system include:
A) the requirement of a double coincidence of wants.
B) lowering the cost of exchanging goods over time.
C) lowering the cost of exchange to those who would specialize.
D) encouraging specialization and the division of labor.
Answer:
The current international financial system is a managed float exchange rate system
because
A) exchange rates fluctuate in response to, but are not determined solely by, market
forces.
B) some countries keep their currencies pegged to the dollar, which is not allowed to
fluctuate.
C) all countries allow their exchange rates to fluctuate in response to market forces.
D) all countries peg their currencies to the dollar which is allowed to fluctuate in
response to market forces.
Answer:
Duration analysis involves comparing the average duration of the bank’s ________ to
the average duration of its ________.
A) securities portfolio; non-deposit liabilities
B) assets; liabilities
C) loan portfolio; deposit liabilities
D) assets; deposit liabilities
Answer:
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment
every year is
A) $650.
B) $1,300.
C) $130.
D) $13.
Answer:
The combination of a successful wage push by workers and the government’s
commitment to high employment leads to
A) demand-pull inflation.
B) supply-side inflation.
C) supply-shock inflation.
D) cost-push inflation.
Answer:
Pieces of property that serve as a store of value are called
A) assets.
B) units of account.
C) liabilities.
D) borrowings.
Answer:
When banks offer borrowers smaller loans than they have requested, banks are said to
A) shave credit.
B) rediscount the loan.
C) raze credit.
D) ration credit.
Answer:
From before the financial crisis began in September of 2007 to when the crisis was over
at the end of 2009, amount of Federal Reserve assets rose, leading to
A) a huge increase in the monetary base.
B) a huge expansion of the money supply.
C) an economic expansion.
D) a high inflation.
Answer:
An increase in the foreign 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
Answer:
Much of the credit for prevention of a financial market meltdown after “Black Monday”
(October 19, 1987) must be given to the Federal Reserve System and its chairman
A) Paul Volker.
B) Alan Blinder.
C) Arthur Burns.
D) Alan Greenspan.
Answer:
When the economy suffers a temporary negative supply shock and the monetary policy
makers try to stabilize economic activity in the short run, then
A) aggregate demand curve shifts rightward.
B) output will be at its potential.
C) inflation rate will be higher.
D) all of the above.
E) both A and B.
Answer:
The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of the fact that
A) paper is more costly to produce than precious metals.
B) precious metals were not generally acceptable.
C) precious metals were difficult to carry and transport.
D) paper money is less accepted than checks.
Answer:
In a business cycle expansion, the ________ of bonds increases and the ________
curve shifts to the ________ as business investments are expected to be more
profitable.
A) supply; supply; right
B) supply; supply; left
C) demand; demand; right
D) demand; demand; left
Answer:
If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the
bank could
A) borrow from another bank in the federal funds market.
B) buy U.S. Treasury bills.
C) increase loans.
D) buy corporate bonds.
Answer:
If a security pays $55 in one year and $133 in three years, its present value is $150 if
the interest rate is
A) 5 percent.
B) 10 percent.
C) 5 percent.
D) 15 percent.
Answer:
If people expect nominal interest rates to be lower in the future, the expected return to
bonds ________, and the demand for money ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer:
To maintain fixed exchange rates when countries had balance of payments deficits and
were losing international reserves, the ________ would loan ________ countries
international reserves contributed by other members.
A) IMF; deficit
B) IMF; surplus
C) World Bank; deficit
D) World Bank; surplus
Answer:
U.S. banks have most of their branches in
A) Latin America, the Far East, the Caribbean, and London.
B) Latin America, the Middle East, the Caribbean, and London.
C) Mexico, the Middle East, the Caribbean, and London.
D) South America, the Middle East, the Caribbean, and Canada.
Answer:
Under an exchange-rate targeting rule for monetary policy, a crawling peg
A) fixes the value of the domestic currency to a commodity such as gold.
B) fixes the value of the domestic currency to that of a large, low-inflation country.
C) allows the domestic currency to depreciate at a steady rate so that inflation in the
pegging country can be higher than that of the anchor country.
D) allows the domestic currency to depreciate at a steady rate so that inflation in the
pegging country can be lower than that of the anchor country.
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:
A decrease in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
Answer:
A financial market in which previously issued securities can be resold is called a
________ market.
A) primary
B) secondary
C) tertiary
D) used securities
Answer:
Decisions by depositors to increase their holdings of ________, or of banks to hold
________ will result in a smaller expansion of deposits than the simple model predicts.
A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves
Answer:
Which of the following bank assets is the most liquid?
A) Consumer loans
B) Reserves
C) Cash items in process of collection
D) U.S. government securities
Answer:
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
Answer:
Everything else held constant, if interest rates are expected to fall in the future, the
demand for long-term bonds today ________ and the demand curve shifts to the
________.
A) rises; right
B) rises; left
C) falls; right
D) falls; left
Answer:
A decrease in the liquidity of corporate bonds will ________ the price of corporate
bonds and ________ the yield of Treasury bonds, everything else held constant.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Answer:
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes
equals $50, and the mpc equals 0.9.
Using the information in Situation 20-2, if taxes increase by $10, then the equilibrium
aggregate output will change by
A) -$90.
B) -$10.
C) $10.
D) $90.
Answer: