The NAIRU
a. stays constant over time
b. is easily measurable
c. is known to policymakers
d. is characterized by none of the above
Answer:
A $1,000 sale of government securities by the Federal Reserve to the public will cause
a. a $1,000 decrease in B
b. a $1,000 decrease in R
c. both of the above
d. neither of the above
Answer:
The Smoot-Hawley Tariff Act of 1930
a. put an end to banking panics in parts of the United States
b. increased the number of exports from the United States, while reducing its imports
c. caused the collapse of the export industries of several nations
d. is still in place today
Answer:
Suppose today’s 1-year bond yield is 5 percent, and you expect 1-year bond yields to
jump to 7 percent next year, then fall to 3 percent the year after that. If the liquidity
premium theory is correct, the yield today on a 3-year bond should be:
a. 5 percent
b. 6 percent
c. 7 percent
d. cannot determine answer with given information
Answer:
Suppose that in a given week, A increases by $500, Ft decreases by $300, Ff increases
by $400, float decreases by $100, and P increases by $200. The net impact on the
monetary base is to
a. decrease it by $100
b. decrease it by $300
c. increase it by $500
d. increase it by $700
Answer:
The predominant source of the net income of the Federal Reserve derives from
a. profits from operations in the foreign exchange market
b. priced services it provides banks and others
c. interest on its loans to banks
d. none of the above
Answer:
The capital market instrument outstanding in largest volume is
a. corporate bonds
b. U.S. Treasury bonds and notes
c. corporate equities
d. residential mortgages
Answer:
If demand for money rises due to a sharp decline in interest rates while the supply of
money remains constant, then which of the following occurs?
a. GDP rises
b. velocity of money falls
c. velocity of money remains constant
d. none of the above
Answer:
Which of the following is necessarily true?
a. velocity of M1 is larger than velocity of M2
b. velocity of M2 is larger than velocity of M1
c. velocity of M3 is larger than velocity of M2
d. none of the above
Answer:
The money supply is determined by the actions of
a. banks
b. the Fed
c. the public
d. all of the above
Answer:
Weighted average measures of money (divisia aggregates) were developed:
a. because traditional measures implicitly assume that all monetary assets are perfect
substitutes
b. to find a closer link between money and ultimate economic activity
c. because traditional simple-sum measures could not explain the behavior of key
macroeconomic variables
d. all of the above
Answer:
Which of the following most clearly meets the criterion of a ‘strong currency” over the
period 1974-2004?
a. the Canadian dollar
b. the Australian dollar
c. the Swiss franc
d. the U.S. dollar
Answer:
The development of representative full-bodied commodity money stemmed mainly
from the underlying commodity’s lack of:
a. velocity
b. scarcity
c. portability
d. durability
Answer:
Which of the following events might end a virtuous cycle?
a. an increase in investment
b. an increase in oil prices
c. an increase in consumer confidence
d. a reduction in taxes
Answer:
Changes in interest rates are likely to alter economic activity via their effect on
a. consumption
b. investment
c. net exports
d. all of the above
Answer:
Suppose the Fed aggressively increases interest rates to restrain economic activity.
Given other factors, this action should cause the currency ratio (Cp/DDO) to
a. fall and the money supply multiplier to fall
b. rise and the money supply multiplier to rise
c. fall and the money supply multiplier to rise
d. rise and the money supply multiplier to fall
Answer:
Approaches to regulating banking institutions have historically (prior to the 1980s)
focused on
a. restricting competition to keep profits robust
b. limiting the holding of risky assets
c. ensuring a low-cost source of funds
d. all of the above
Answer:
An amortized mortgage:
a. involves period payments of interest only
b. is generally a type of short-term mortgage
c. is insured today by the Federal Home Loan Bank Board
d. is the predominant use of funds by savings and loan associations
Answer:
Early proponents of a national bank argued that one was necessary because
a. a strong banking system was critical to the industrial development of the nation
b. an entity was needed to consolidate and hold the debt issued to fight the
revolutionary war
c. at the time, there was no common currency
d. all of the above
Answer:
Excessive monetary stimulus is likely to cause
a. demand pull inflation
b. supply shock inflation
c. demand push deflation
d. cost push inflation
Answer:
An increase in the money supply will cause
a. aggregate supply to increase
b. aggregate supply to decrease
c. aggregate demand to increase
d. aggregate demand to decrease
Answer:
Policy activists believe that the economy
a. cannot be improved by a central bank’s monetary policy actions
b. has powerful self-correcting mechanisms
c. is inherently stable
d. is inherently unstable
Answer:
In the short run, velocity typically displays a ____ pattern.
a. countercyclical
b. procyclical
c. neutral (neither countercyclical nor procyclical)
d. all of the above are equally true
Answer:
Suppose that Fed Governor Hawk proposes the following version of the Taylor rule:
Fed funds rate = 2% + %DP + 0.8(%DP – 2%) + 0.3(Y – Y*)/Y. However, Fed Governor
Dove proposes a different version: Fed funds rate = 2% + %DP + 0.3(%DP – 2%) +
0.8(Y – Y*)/Y. It is clear that Governor Hawk is most concerned with controlling ____
and Governor Dove is most concerned with controlling ____.
a. inflation; inflation
b. inflation; unemployment
c. unemployment; inflation
d. unemployment; unemployment
Answer:
Monetary policy consists of:
a. adjusting the level of government expenditures to stimulate economic activity
b. controlling taxes to influence consumer and business spending
c. influencing the availability of bank credit by changing interest rates
d. all of the above
Answer:
Long-run depreciation of a nation’s currency may be indicative of
a. high money growth in that nation
b. high inflation in that nation
c. low productivity growth in that nation
d. all of the above
Answer:
Each FOMC meeting results in production of
a. an annual report
b. a testimonial speech to Congress
c. a policy directive
d. a tape recording of the proceedings that is released to the press
Answer:
A major factor contributing to the political independence of the Federal Reserve is that
a. members of the Board of Governors may only serve two terms
b. members of the Board of Governors are appointed by the president of the United
States
c. the Fed is financially independent of congressional appropriations
d. all of the above are true
Answer:
Given other events, which of the following events tends to reduce the money supply
multiplier (M1/B)?
a. funds are cleared from larger banks to smaller banks
b. higher interest rates trigger a reduction in re
c. lower income tax rates trigger a reduction in k
d. none of the above
Answer:
The “Free Banking Era”
a. prompted the issuance of the charter for the Second Bank of the United States
b. was a period of exceptionally lenient banking standards immediately prior to the
Great Depression of the 1930s
c. was characterized by a proliferation of banknotes
d. all of the above
Answer:
During the Great Depression
a. the currency ratio fell
b. the excess reserve ratio fell
c. total bank reserves fell
d. the monetary base fell by more than 10 percent
Answer:
A good stock market index weights the shares of the firms in the index by their
a. book value
b. P/E ratios
c. market capitalization
d. trading frequency
Answer:
The bulk of the transactions in the foreign exchange market are driven by
a. the flow of financial assets between countries
b. the flow of goods between countries
c. the flow of services between countries
d. none of the above
Answer: