A return to the gold standard, that is, using gold for money will ________ the ________
for gold, ________ its price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) increase; supply; increasing
D) decrease; supply; increasing
Answer:
If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the
real depreciates from ________ per real to ________ per real.
A) $0.67; $0.50
B) $0.33; $0.50
C) $0.75; $0.50
D) $0.50; $0.67
E) $0.50; $0.75
Answer:
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the long
run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) no change; no change
Answer:
The Keynesian theory of money demand emphasizes the importance of
A) a constant velocity.
B) irrational behavior on the part of some economic agents.
C) interest rates on the demand for money.
D) expectations.
Answer:
Credit card debt is
A) secured debt.
B) unsecured debt.
C) restricted debt.
D) unrestricted debt.
Answer:
If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for
real GDP is
A) 5%.
B) 10%.
C) 50%.
D) 5%.
Answer:
If during the past decade the average rate of monetary growth has been 5% and the
average inflation rate has been 5%, everything else held constant, when the Federal
Reserve announces that the new rate of monetary growth will be 10%, the adaptive
expectation forecast of the inflation rate is
A) 5%.
B) between 5 and 10%.
C) 10%.
D) more than 10%.
Answer:
When the Fed purchases artwork to decorate the conference room at the Federal
Reserve Bank of Kansas City,
A) reserves rise, but the monetary base falls.
B) reserves fall.
C) currency in circulation falls.
D) the monetary base rises.
Answer:
Everything else held constant, an appreciation of the domestic currency 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:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes
the aggregate demand function to shift ________, the equilibrium level of aggregate
output to fall, and the IS curve to shift to the ________, everything else held constant.
A) up; left
B) up; right
C) down; left
D) down; right
Answer:
You read a story in the newspaper announcing the proposed merger of Dell Computer
and Gateway. The merger is expected to greatly increase Gateway’s profitability. If you
decide to invest in Gateway stock, you can expect to earn
A) above average returns since you will share in the higher profits.
B) above average returns since your stock price will definitely appreciate as higher
profits are earned.
C) below average returns since computer makers have low profit rates.
D) a normal return since stock prices adjust to reflect expected changes in profitability
almost immediately.
Answer:
Economists have focused more attention on the formation of expectations in recent
years. This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a
major impact on economic activity.
B) expectations influence only a few individuals, have little impact on the overall
economy, but can have important effects on a few markets.
C) expectations influence many individuals, have little impact on the overall economy,
but can have distributional effects.
D) models that ignore expectations have little predictive power, even in the short run.
Answer:
Regulators attempt to reduce the riskiness of banks’ asset portfolios by
A) limiting the amount of loans in particular categories or to individual borrowers.
B) encouraging banks to hold risky assets such as common stocks.
C) establishing a minimum interest rate floor that banks can earn on certain assets.
D) requiring collateral for all loans.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of an autonomous fall in consumption expenditure is to ________ real output and
________ the interest rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
Answer:
Between May and July 1997, concerns about the large current account deficit in
Thailand and the weakness in the Thai financial system caused speculators to suspect
that Thailand might be forced to
A) devalue its currency.
B) sell baht to prop up its value.
C) buy dollars to prop up the baht.
D) impose capital controls.
Answer:
As the payments system evolves from barter to a monetary system,
A) commodity money is likely to precede the use of paper currency.
B) transaction costs increase.
C) the number of prices that need to be calculated increase rather dramatically.
D) specialization decreases.
Answer:
An autonomous rise in ________ shifts the LM curve to the ________, everything else
held constant.
A) net exports; right
B) net exports; left
C) money demand; right
D) money demand; left
Answer:
If young business professionals in America suddenly decide that driving German-made
cars is an important status symbol, net exports will tend to ________ causing aggregate
demand to ________, everything else held constant.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
Answer:
At the time of the South Korean financial crisis, the government allowed many chaebol
owned finance companies to convert to merchant banks. Finance companies ________
allowed to borrow abroad and merchant banks ________.
A) were not; could borrow abroad
B) were not; could not borrow abroad
C) were; could borrow abroad
D) were; could not borrow abroad
Answer:
When Jane Brown writes a $100 check to her nephew and he cashes the check, Ms.
Brown’s bank ________ assets of $100 and ________ liabilities of $100.
A) gains; gains
B) gains; loses
C) loses; gains
D) loses; loses
Answer:
A decrease in the quantity of money supplied shifts the money supply curve to the
________, and the LM curve to the ________, everything else held constant.
A) right; left
B) right; right
C) left; left
D) left; right
Answer:
The Fed accidentally discovered open market operations in the early
A) 1920s.
B) 1910s.
C) 1900s.
D) 1890s.
Answer:
Keynes’s model of the demand for money suggests that velocity is ________ related to
________.
A) positively; interest rates
B) negatively; interest rates
C) positively; bond values
D) positively; stock prices
Answer:
According to the liquidity premium theory of the term structure, a flat 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:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, increasing the interest rate paid on excess reserves from 1% to 2%
A) lowers the federal funds rate.
B) raises the federal funds rate
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Answer:
If you expect the inflation rate to be 15 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) 7 percent.
B) 22 percent.
C) -15 percent.
D) -8 percent.
Answer:
If the required reserve ratio is 15 percent, the simple deposit multiplier is
A) 15
B) 1.5
C) 6.67
D) 3.33
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.
Aggregate output is increased by a decrease in
A) autonomous consumption.
B) government spending.
C) planned investment.
D) net taxes.
Answer:
Because central banks have not been willing to give up their option of intervening in the
foreign exchange market, the current international financial system can best be
described as a
A) variable-pegged exchange rate system.
B) moving-pegged exchange rate system.
C) hybrid of a fixed exchange rate and flexible exchange rate system.
D) flexible-exchange, dollar-pegged exchange rate system.
Answer:
If the yield curve has a mild upward slope, the liquidity premium theory (assuming a
mild preference for shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
Answer:
The opportunity cost of holding excess reserves is the federal funds rate
A) minus the discount rate.
B) plus the discount rate.
C) plus the interest rate paid on excess reserves.
D) minus the interest rate paid on excess reserves.
Answer:
The theory of bureaucratic behavior when applied to the Fed helps to explain why the
Fed
A) was supportive of congressional attempts to limit the central bank’s autonomy.
B) was so secretive about the conduct of future monetary policy.
C) sought less control over banks in the 1980s.
D) was willing to take on powerful groups that may threaten its autonomy.
Answer: