The increase in the currency ratio during World War II was due to
a. bank panics.
b. a drop in the rate of interest paid on checking deposits.
c. the spread of ATMs.
d. high taxes and illegal activities.
Answer:
Everything else held constant, a decrease in net taxes 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:
A key assumption in the segmented markets theory is that bonds of different maturities
A. are not substitutes at all.
B. are perfect substitutes.
C. are substitutes only if the investor is given a premium incentive.
D. are substitutes but not perfect substitutes.
Answer:
If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A. 0.5%.
B. 5%.
C. 0%.
D. -5%.
Answer:
Financial markets quickly eliminate unexploited profit opportunities through changes in
A. dividend payments.
B. tax laws.
C. asset prices.
D. monetary policy.
Answer:
Assume that autonomous consumption equals $200 and that the mpc equals 0.8. If
disposable income equals $1000, then total consumption equals
A. $80.
B. $200.
C. $800.
D. $1000.
Answer:
________ is a flow of earnings per unit of time.
A. Income
B. Money
C. Wealth
D. Currency
Answer:
The demand for silver decreases, other things equal, when
A. the gold market is expected to boom.
B. the market for silver becomes more liquid.
C. wealth grows rapidly.
D. interest rates are expected to rise.
Answer:
A coupon bond that has no maturity date and no repayment of principal is called a
A. consol.
B. cabinet.
C. Treasury bill.
D. Treasury note.
Answer:
The limited memberships and high dollar minimums for hedge funds means that these
funds are
A. subject to weaker regulation than other mutual funds.
B. more stringently regulated for fear of collapse.
C. limited in the types of assets they can purchase.
D. under the control of the U.S. Treasury.
Answer:
Allowing bank branching across state lines gives banks greater ability to coordinate
bank operations. This makes it easier for them to receive the benefits of
A) the dual banking system.
B) economies of scale.
C) disintermediation.
D) interest-rate irregularities.
Answer:
Which of the following does NOT appear in the current account part of the balance of
payments?
A) a loan of $1 million from Bank of America to Brazil
B) foreign aid to El Salvador
C) an Air France ticket bought by an American
D) income earned by General Motors from its plants abroad
Answer:
According to the traditional interest-rate channel, expansionary monetary policy lowers
the real interest rate, thereby raising expenditure on
A) business fixed investment.
B) government expenditure.
C) consumer nondurables.
D) net exports.
Answer:
The primary liabilities of depository institutions are
A. premiums from policies.
B. shares.
C. deposits.
D. bonds.
Answer:
Tobin’s model of the speculative demand for money shows that people hold money as a
store of wealth as a way of
A. reducing risk.
B. reducing income.
C. avoiding taxes.
D. reducing transactions cost.
Answer:
Budget deficits are important because deficits
A. cause bank failures.
B. always cause interest rates to fall.
C. can result in higher rates of monetary growth.
D. always cause prices to fall.
Answer:
Suppose the U.S. economy is producing at the natural rate of output. An appreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the long run, everything else held constant. (Assume the appreciation causes
no effects in the supply side of the economy.)
A. an increase; an increase
B. a decrease; a decrease
C. no change; an increase
D. no change; a decrease
Answer:
At its inception, the Federal Reserve was intended to be
A. the Treasury’s banker.
B. the issuer of government debt.
C. a lender-of-last-resort.
D. a regulator of bank holding companies.
Answer:
Which of the following bank assets is the most liquid?
A. consumer loans
B. reserves
C. state and local government securities
D. U.S. government securities
Answer:
Suppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10), where π is
inflation and Y is output; and the aggregate demand curve is Y= 11 – 0.5π. The
equilibrium output is ________ and the equilibrium inflation rate is ________ %.
A. 10; 2
B. 17.5; 2
C. 2; 10
D. 10; 5
Answer:
Because Treasury bills pay a higher return than money and have no risk
A. the transactions demand for money may be zero.
B. the precautionary demand for money may be zero.
C. the speculative demand for money may be zero.
D. all three of the above motives for holding money will be zero.
Answer:
Which of the following did not contribute to the failing of Freddie Mac and Freddie
Mae?
A. Problems with adverse selection.
B. Problems with moral hazard.
C. Weak regulatory oversight.
D. Unethical accounting practices.
Answer:
During the Great Depression years 1930-1933 there was a very high rate of business
failures and defaults, we would expect the risk premium for ________ bonds to be very
high.
A. U.S. Treasury
B. corporate Aaa
C. municipal
D. corporate Baa
Answer:
Because sterilized interventions mean offsetting open market operations, there is no
impact on the monetary base and the money supply, and therefore a sterilized
intervention
A) causes the exchange rate to overshoot in the short run.
B) causes the exchange rate to undershoot in the short run.
C) causes the exchange rate to depreciate in the short run, but has no effect on the
exchange rate in the long run.
D) has no effect on the exchange rate.
Answer:
Well-functioning financial markets promote
A. inflation.
B. deflation.
C. unemployment.
D. growth.
Answer:
Duration is
A. an asset’s term to maturity.
B. the time until the next interest payment for a coupon bond.
C. the average lifetime of a debt security’s stream of payments.
D. the time between interest payments for a coupon bond.
Answer:
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $2 million in reserves, then it will not have enough reserves to support a
deposit outflow of
A. $1.2 million.
B. $1.1 million.
C. $1 million.
D. $900,000.
Answer:
With ________, firms value assets on their balance sheet at what they would sell for in
the market.
A. mark-to-market accounting
B. book-value accounting
C. historical-cost accounting
D. off-balance sheet accounting
Answer:
When regulators chose to allow insolvent S&Ls to continue to operate rather than to
close them, they were pursuing a policy of
A. regulatory forbearance.
B. regulatory kindness.
C. ostrich reasoning.
D. ignorance reasoning.
Answer:
Based on the Taylor Principle, a central bank’s endogenous response of decreasing
interest rates when inflation falls
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Answer:
Which of the following functions is NOT performed by any of the twelve regional
Federal Reserve Banks?
A. check clearing
B. conducting economic research
C. setting interest rates payable on time deposits
D. issuing new currency
Answer:
If there are four goods in a barter economy, then one needs to know ________ prices in
order to exchange one good for another.
A. 8
B. 6
C. 5
D. 4
Answer: