The relationship between borrowed reserves (BR), the nonborrowed monetary base
(MBn), and the monetary base (MB) is
A. MB = MBn – BR.
B. BR = MBn – MB.
C. BR = MB – MBn.
D. MB = BR – MBn.
Answer:
Open market operations intended to offset movements in noncontrollable factors (such
as float) that affect reserves and the monetary base are called
A. defensive open market operations.
B. dynamic open market operations.
C. offensive open market operations.
D. reactionary open market operations.
Answer:
Forward contracts are of limited usefulness to financial institutions because
A. of default risk.
B. it is impossible to hedge risk.
C. they are relatively inflexible.
D. of interest-rate risk.
Answer:
Collateral is ________ the lender receives if the borrower does not pay back the loan.
A. a liability
B. an asset
C. a present
D. an offering
Answer:
An option allowing the holder to buy an asset in the future is a
A. put option.
B. call option.
C. swap.
D. forward contract.
Answer:
High unemployment is undesirable because it
A. results in a loss of output.
B. always increases inflation.
C. always increases interest rates.
D. reduces idle resources.
Answer:
The reduction in transactions costs per dollar of investment as the size of transactions
increases is
A. discounting.
B. economies of scale.
C. economies of trade.
D. diversification.
Answer:
The riskiness of an asset is measured by
A. the magnitude of its return.
B. the absolute value of any change in the asset’s price.
C. the standard deviation of its return.
D. risk is impossible to measure.
Answer:
Defining money becomes ________ difficult as the pace of financial innovation
________.
A. less; quickens
B. more; quickens
C. more; slows
D. more; stops
Answer:
Suppose that there is a positive aggregate demand shock and the central bank commits
to an inflation rate target. If the commitment is credible, then
A. the public’s expected inflation will remain unchanged.
B. the short-run aggregate supply curve will not shift.
C. over time inflation will fall back down to the inflation target.
D. all of the above.
E. both A and B.
Answer:
In the long run, a rise in a country’s price level (relative to the foreign price level)
causes its currency to ________, while a fall in the country’s relative price level causes
its currency to ________.
A. appreciate; appreciate
B. appreciate; depreciate
C. depreciate; appreciate
D. depreciate; depreciate
Answer:
An increase in the monetary base that goes into ________ is not multiplied, while an
increase that goes into ________ is multiplied.
a. deposits; currency
b. excess reserves; currency
c. currency; excess reserves
d. currency; deposits
Answer:
Starting in 1974, the conventional M1 money demand function began to
A. severely underpredict the demand for money.
B. severely overpredict the demand for money.
C. predict more precisely the demand for money.
D. do none of the above.
Answer:
To calculate the growth rate of a variable, you will
A. calculate the percentage change from one time period to the next.
B. calculate the difference between the two variables.
C. add the ending value to the beginning value.
D. divide the increase by the number of time periods.
Answer:
Foreign banks may engage in banking activities in the United States by opening all of
the following EXCEPT
A) an agency office of the foreign bank.
B) a subsidiary U.S. bank.
C) a branch of the foreign bank.
D) a McFadden Corporation.
Answer:
If reserves in the banking system increase by $100, then checkable deposits will
increase by $500 in the simple model of deposit creation when the required reserve
ratio is
A. 0.01.
B. 0.10.
C. 0.05.
D. 0.20
Answer:
If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,
which bond would you prefer to have been holding?
A. a bond with one year to maturity
B. a bond with five years to maturity
C. a bond with ten years to maturity
D. a bond with twenty years to maturity
Answer:
A restriction on bank activities that was repealed in 1999 was
A. the prohibition of the payment of interest on checking deposits.
B. restrictions on credit terms.
C. minimum down payments on loans to purchase securities.
D. separation of commercial banking from the securities industries.
Answer:
A call option gives the seller the
A. right to sell the underlying security.
B. obligation to sell the underlying security.
C. right to buy the underlying security.
D. obligation to buy the underlying security.
Answer:
In a closed 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:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, nine million dollars in excess reserves, and faces a required
reserve ratio of ten percent. Given this information, we can say First National Bank has
________ million dollars on deposit with the Federal Reserve.
A. one
B. two
C. eight
D. ten
Answer:
An option that gives the owner the right to sell a financial instrument at the exercise
price within a specified period of time is a
A. call option.
B. put option.
C. American option.
D. European option.
Answer:
A monetary policy strategy that uses a fixed exchange rate regime that ties the value of
a currency to the currency of a large, low inflation country is called ________ targeting.
A) exchange-rate
B) currency
C) monetary
D) inflation
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess ________ of goods which will cause aggregate output to fall.
A. right; supply
B. right; demand
C. left; supply
D. left; demand
Answer:
According to the segmented markets theory of the term structure
A. bonds of one maturity are close substitutes for bonds of other maturities, therefore,
interest rates on bonds of different maturities move together over time.
B. the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
C. investors’ strong preferences for short-term relative to long-term bonds explains why
yield curves typically slope downward.
D. because of the positive term premium, the yield curve will not be observed to be
downward-sloping.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of a tax cut is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Answer:
If an individual redeems a U.S. savings bond for currency
A. M1 stays the same and M2 decreases.
B. M1 increases and M2 increases.
C. M1 increases and M2 stays the same.
D. M1 stays the same and M2 stays the same.
Answer:
The guiding principle for the conduct of monetary policy that held that as long as loans
were being made for “productive” purposes, then providing reserves to the banking
system to make these loans would not be inflationary became known as the
A. free reserves doctrine.
B. Benjamin Strong doctrine.
C. efficient liquidity doctrine.
D. real bills doctrine.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to depreciate, everything else held constant.
A. An increase; increase
B. An increase; decrease
C. A decrease; increase
D. A decrease; decrease
Answer:
If firms have an incentive to hide information from mandatory disclosure because the
information is proprietary, then which of the following remedies is the least intrusive
way to overcome this incentive?
A. leave it to the market
B. separation of functions
C. supervisory oversight
D. socialization of information production
Answer:
Stock market crashes lead us to believe that
A. factors other than market fundamentals have an effect on asset prices.
B. unexploited profit opportunities never exist.
C. crashes are always predictable when market participants behave rationally.
D. bubbles are a natural outcome of an efficient market.
Answer:
Open market purchases raise the ________ thereby raising the ________.
A. money multiplier; money supply
B. money multiplier; monetary base
C. monetary base; money supply
D. monetary base; money multiplier
Answer:
Using the information in situation 20-2, if government increases their spending by $50
and increases net taxes by 50, then equilibrium aggregate output will change by
A. -$100.
B. -$50.
C. $50.
D. $100.
Answer:
Conditions that likely contributed to a credit crunch during the global financial crisis
include
A. capital shortfalls caused in part by falling real estate prices.
B. regulated hikes in bank capital requirements.
C. falling interest rates that raised interest rate risk, causing banks to choose to hold
more capital.
D. increases in reserve requirements.
Answer: