The fundamental principle illustrated by the production of the fishing net in the Crusoe
and Friday example is:
a. the role played by financial intermediaries in economic growth
b. the role of investment in calling forth saving
c. the importance of saving in the economic growth process
d. the importance of specialization and division of labor in the economic growth
process
Answer:
A stimulative monetary policy stance is adopted by the Fed in January of 2005, but is
not felt until May of 2006. This is an example of the
a. recognition lag
b. implementation lag
c. impact lag
d. none of the above
Answer:
The share of GDP expenditures attributable to NX (net exports) is
a. small and therefore a relatively unimportant part of the transmission mechanism of
monetary policy
b. large and therefore a relatively important part of the transmission mechanism of
monetary policy
c. large, but a relatively unimportant part of the transmission mechanism of monetary
policy
d. small, but a relatively important part of the transmission mechanism of monetary
policy
Answer:
Required reserves
a. earn interest and are largely held at the Federal Reserve
b. equal excess reserves plus actual reserves
c. are required by the Fed as a means of ensuring bank solvency
d. are reserves that must be held to meet reserve requirements
Answer:
Monetarists believe that velocity is ____ and argue for the effectiveness of ____ policy.
a. unstable; monetary
b. stable; monetary
c. unstable; fiscal
d. stable; fiscal
Answer:
Tobin’s q theory posits that monetary policy influences investment spending by altering
a. stock prices
b. firms’ market capitalization
c. both of the above
d. neither of the above
Answer:
The purchasing and selling of securities by the Federal Reserve is known as
a. discount policy
b. open market operations
c. reserve policy
d. none of the above
Answer:
It is clear that
a. all demand-side recessions are caused by shocks to consumption
b. all supply-side recessions are caused by input price increases
c. all recessions must originate on the demand side of the economy
d. none of the above is true
Answer:
When the economy experiences a period of recession, the central bank generally
responds by:
a. reducing the money supply
b. reducing available credit and bank lending
c. reducing interest rates
d. all of the above
Answer:
Which of the following types of money demand is likely to fluctuate most sharply with
changes in the economic outlook?
a. pecuniary demand
b. precautionary demand
c. transactions demand
d. speculative demand
Answer:
When expected inflation increases, the demand for loanable funds ____ and the supply
of loanable funds ____.
a. decreases; decreases
b. decreases; increases
c. increases; increases
d. increases; decreases
Answer:
Over the last forty years or so, as a percentage of GDP,
a. federal government spending has increased, while state and local spending have
decreased
b. federal government spending has decreased, while state and local spending have
increased
c. both federal and state and local government spending have decreased
d. none of the above is correct
Answer:
Commercial banks suffered less damage than S&Ls did during the 1980s and early
1990s because
a. banks took similar risks as S&Ls, but were more lucky
b. banks have a longer-term asset structure
c. banks were deregulated more quickly than S&Ls
d. banks have a more diversified asset structure
Answer:
An appreciation of the dollar in foreign exchange markets will cause
a. aggregate supply to decrease
b. aggregate demand to increase
c. aggregate demand to decrease
d. none of the above
Answer:
As a general rule, intermediate targets are ____ controllable than operating targets and
____ strongly linked to ultimate goals of policy.
a. more; more
b. less; less
c. less; more
d. more; less
Answer:
Policy activists believe that
a. the economy is inherently stable
b. the economy has powerful self-correcting mechanisms
c. monetary policy can be used to smooth fluctuations in the business cycle
d. all of the above are true
Answer:
To trigger a multiple expansion of deposits, the Fed should
a. raise the discount rate
b. reduce reserve requirements
c. sell securities
d. do all of the above
Answer:
You are given the following data: aggregate bank reserves = $122 billion, DDO =
$1,200 billion, Cp = $1,200 billion, reserve requirement = 10 percent for all DDO. In
this case, the currency ratio must be ____ and the excess reserve ratio must be ____.
a. 0.5; .00167
b. 0.5; 1.01
c. 1.0; .00167
d. 1.0; 0.10
Answer:
The demand for the monetary base is composed of demand by
a. banks and the Federal Reserve
b. banks and the public
c. banks and the U.S. Treasury
d. the Treasury and the Federal Reserve
Answer:
In the Your Turn feature in the text, the two banks discussed were the High Capital
Bank and the Low Capital Bank. Overall, which bank was considered to be more
prudent?
a. the HC Bank, because it had a lower equity multiplier
b. the HC Bank, because it had a higher capital/total assets ratio
c. the LC Bank, because it had more liquid assets and less liquid liabilities
d. the LC Bank, because it had a higher profit margin
Answer:
The channel by which stock market performance influences real economic activity is
via
a. altering the firm’s cost of capital
b. a wealth effect
c. both of the above
d. neither of the above
Answer:
According to the text, a former member of the Board of Governors estimates that what
portion of the total power of the Federal Reserve System is vested in the twelve Federal
Reserve district banks?
a. 70 percent
b. 45 percent
c. 25 percent
d. 10 percent
Answer:
Examples of active monetary policy rules include
a. the Taylor Rule
b. a nominal GDP targeting rule
c. an inflation targeting rule
d. all of the above
Answer:
Over the past 35 years, the fastest growing financial intermediary has been the
a. private pension fund
b. commercial bank
c. fire and casualty insurance company
d. money market mutual fund
Answer:
Which of the following is a component of consumption spending in the United States?
a. public spending on programs such as welfare
b. spending on consumer durables
c. spending on productive assets for businesses
d. all of the above
Answer:
Steps that Japan has taken in recent years to rebuild its banking industry include
a. passing firewall legislation similar to Glass-Steagall
b. allowing some banks to fail
c. both of the above
d. neither of the above
Answer:
The implementation lag is likely to be longer for ____ policy than for ____ policy.
a. monetary; fiscal
b. fiscal; monetary
c. it is likely to be the same for both fiscal and monetary policy
d. we can reach no conclusion about which type of policy has the longest
implementation lag
Answer:
In 2004, the breakpoint amount of DDO at which the reserve requirement jumps from 3
percent to 10 percent was approximately
a. zero deposits
b. $45 million in deposits
c. $100 million in deposits
d. $400 million in deposits
Answer:
Because of the policy of forbearance in the 1980s
a. technically insolvent S&Ls were quickly shut down
b. accounting standards for the S&L industry were liberalized
c. moral hazard problems were drastically reduced
d. none of the above occurred
Answer:
Of the following possible targets of policy, choose the target variable that is most
important (strongly linked to economic activity).
a. long-term real mortgage rate
b. commercial paper rate
c. monetary base
d. long-term nominal corporate bond rate
Answer:
Which unit of the Federal Reserve System is responsible for establishing the level of
reserve requirements for all banks?
a. the Board of Governors
b. the directors of the Federal Reserve member banks
c. the Federal Open Market Committee
d. none of the above
Answer:
What type of risk is present when one buys a long-term U.S. government bond?
a. default risk
b. market risk
c. both of the above
d. none of the above
Answer: