In a one-period valuation model, a decrease in the required return on investments in
equity causes a(n) ________ in the ________ price of a stock.
A) increase; current
B) increase; expected sales
C) decrease; current
D) decrease; expected sales
Answer:
To say that inflation is a monetary phenomenon seems to beg the question:
A) Why does inflationary monetary policy occur?
B) Why do politicians seek reelection?
C) Why is the Fed independent?
D) Why does the U.S. Treasury print so much money?
Answer:
Everything else held constant, Americans who love French wine benefit most from
A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a ban on imports from Europe.
Answer:
Everything else held constant, a decline in interest rates will cause spending on housing
to
A) fall.
B) remain unchanged.
C) either rise, fall, or remain the same.
D) rise.
Answer:
When interest rates rise in the United States (with the price level fixed), the value of the
dollar ________, domestic goods become ________ expensive, and net exports
________.
A) falls; less; fall
B) falls; more; rise
C) rises; more; fall
D) rises; less; fall
Answer:
Suppose that the European Central Bank conducts a main refinancing sale. Everything
else held constant, this would cause the demand for U.S. assets to ________ and the
U.S. dollar will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy. These lessons include:
A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy.
B) Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero.
C) Avoiding fluctuations in the level of unemployment is an important objective of
monetary policy, thus providing a rationale for interest-rate stability as the primary
long-run goal for monetary policy.
D) Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are not
important elements in various monetary policy transmission mechanisms.
Answer:
Decisions by ________ about their holdings of currency and by ________ about their
holdings of excess reserves affect the money supply.
A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks
Answer:
Banks may borrow from or lend to another bank in the Federal Funds market. A loan of
excess reserves from one bank to another bank is recorded as a(n) ________ for the
borrowing bank and a(n) ________ for the lending bank.
A) asset; asset
B) asset; liability
C) liability; liability
D) liability; asset
Answer:
During the 2007-2009 financial crisis the currency ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.
Answer:
The bond demand curve is ________ sloping, indicating a(n) ________ relationship
between the price and quantity demanded of bonds.
A) downward; inverse
B) downward; direct
C) upward; inverse
D) upward; direct
Answer:
If float is predicted to increase because of bad weather, the manager of the trading desk
at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
Answer:
In the one-period valuation model, the current stock price increases if
A) the expected sales price increases.
B) the expected sales price falls.
C) the required return increases.
D) dividends are cut.
Answer:
Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of
A) interest rates.
B) velocity.
C) income.
D) stock market prices.
Answer:
If the central bank targets a monetary aggregate, it is likely to lose control over the
interest rate because
A) of fluctuations in the demand for reserves.
B) of fluctuations in the consumption function.
C) bond values will tend to remain stable.
D) of fluctuations in the business cycle.
Answer:
A depreciation of the U.S. dollar makes American goods cheaper relative to foreign
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:
Agreements such as the ________ are attempts to standardize international banking
regulations.
A) Basel Accord
B) UN Bank Accord
C) GATT Accord
D) WTO Accord
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:
A bank failure occurs whenever
A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves
to meet its reserve requirements.
B) a bank suffers a large deposit outflow.
C) a bank has to call in a large volume of loans.
D) a bank is not allowed to borrow from the Fed.
Answer:
Property that is pledged to the lender in the event that a borrower cannot make his or
her debt payment is called
A) collateral.
B) points.
C) interest.
D) good faith money.
Answer:
The aggregate demand curve is the total quantity of an economy’s
A) intermediate goods demanded at different inflation rates.
B) intermediate goods demanded at a particular inflation rate.
C) final goods and services demanded at a particular inflation rate.
D) final goods and services demanded at different inflation rates.
Answer:
A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any
other asset is just an open market ________ of these assets, ________ the monetary
base.
A) purchase; raising
B) sale; raising
C) purchase; lowering
D) sale; lowering
Answer:
Banks develop statistical models to calculate their maximum loss over a given time
period. This approach is known as the
A) stress-testing approach.
B) value-at-risk approach.
C) trading-loss approach.
D) doomsday approach.
Answer:
The ________ problem helps to explain why the private production and sale of
information cannot eliminate ________.
A) free-rider; adverse selection
B) free-rider; moral hazard
C) principal-agent; adverse selection
D) principal-agent; moral hazard
Answer:
If the interest rate falls, other things being equal, investment spending will
A) fall.
B) rise.
C) either rise, fall, or remain unchanged.
D) not be affected.
Answer:
In the bond market, the market equilibrium shows the market-clearing ________ and
market-clearing ________.
A) price; deposit
B) interest rate; deposit
C) price; interest rate
D) interest rate; premium
Answer:
The mandate for the monetary policy goals that has been given to the European Central
Bank is an example of a ________ mandate.
A) primary
B) dual
C) secondary
D) hierarchical
Answer:
Suppose that the Federal Reserve conducts an open market sale. Everything else held
constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar
will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
If an economy has aggregate output of $20 trillion, then aggregate income is
A) $10 trillion.
B) $20 trillion.
C) $30 trillion.
D) $40 trillion.
Answer:
If a foreign bank operates a subsidiary bank in the U.S., the subsidiary bank is
A) subject to the same regulations as a U.S. owned bank.
B) only subject to the regulations of the country in which the foreign bank is chartered.
C) restricted to making loans to only foreign citizens in the U.S.
D) restricted to accepting deposits from foreign citizens living in the U.S.
Answer: