Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease
Answer:
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will ________ and the domestic
currency will depreciate.
A) purchase; increase
B) purchase; decrease
C) sale; increase
D) sale; decrease
Answer:
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to make any loans but to hold excess reserves instead, then, in the
bank’s final balance sheet
A. the assets at the bank increase by $1 million.
B. the liabilities of the bank decrease by $1 million.
C. reserves increase by $200,000.
D. liabilities increase by $200,000.
Answer:
A difference between inventory investment and fixed investment is that
A. fixed investment is never unplanned.
B. fixed investment is never planned.
C. inventory investment is never unplanned.
D. unplanned inventory investment is always zero.
Answer:
An equal increase in all bond interest rates
A. increases the return to all bond maturities by an equal amount.
B. decreases the return to all bond maturities by an equal amount.
C. has no effect on the returns to bonds.
D. decreases long-term bond returns more than short-term bond returns.
Answer:
Irving Fisher took the view that the institutional features of the economy which affect
velocity change ________ over time so that velocity will be fairly ________ in the
short run.
A. rapidly; erratic
B. rapidly; stable
C. slowly; stable
D. slowly; erratic
Answer:
An increase in which of the following leads to a decline in the monetary base?
a. float
b. discount loans
c. foreign deposits at the Fed
d. SDRs
Answer:
If a security pays $110 next year and $121 the year after that, what is its yield to
maturity if it sells for $200?
A. 9 percent
B. 10 percent
C. 11 percent
D. 12 percent
Answer:
A decrease in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A. increase; appreciate
B. increase; depreciate
C. decrease; appreciate
D. decrease; depreciate
Answer:
During the Great Depression, Tobin’s q
A. rose dramatically, as did real interest rates.
B. fell to unprecedentedly low levels.
C. stayed fairly constant, in contrast to most other economic measures.
D. rose only slightly, in spite of Hoover’s attempts to prop it up.
Answer:
If the money supply is $2 trillion and velocity is 5, then nominal GDP is
A. $1 trillion.
B. $2 trillion.
C. $5 trillion.
D. $10 trillion.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement ________
the demand for reserves, lowering the federal funds interest rate, everything else held
constant.
A. rise; decreases
B. rise; increases
C. decline; increases
D. decline; decreases
Answer:
The legislative lag represents
A. the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B. the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C. the time it takes to pass legislation to implement a particular policy.
D. the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E. the time it takes for the policy actually to have an impact on the economy.
Answer:
Which of the following is NOT an advantage to exchange-rate targeting?
A) It provides a strong nominal anchor to keep inflation under control.
B) It provides an automatic rule for policy to help avoid the time-inconsistency
problem.
C) It is simple and clear so that the public can easily understand it.
D) It increases the accountability of policymakers.
Answer:
Which of the following are TRUE concerning the distinction between interest rates and
returns?
A. The rate of return on a bond will not necessarily equal the interest rate on that bond.
B. The return can be expressed as the difference between the current yield and the rate
of capital gains.
C. The rate of return will be greater than the interest rate when the price of the bond
falls during the holding period.
D. The return can be expressed as the sum of the discount yield and the rate of capital
gains.
Answer:
Under a fixed exchange rate regime, a country that depletes its international reserves in
an attempt to keep its currency from ________ will be forced to ________ its currency.
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue
Answer:
A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to ________, everything else
held constant.
A. increase; appreciate
B. increase; depreciate
C. decrease; appreciate
D. decrease; depreciate
Answer:
Which of the following is NOT a financial institution?
A. a life insurance company
B. a pension fund
C. a credit union
D. a business college
Answer:
Of the three motives for holding money suggested by Keynes, which did he believe to
be the most sensitive to interest rates?
A. the transactions motive
B. the precautionary motive
C. the speculative motive
D. the altruistic motive
Answer:
Securities are ________ for the person who buys them, but are ________ for the
individual or firm that issues them.
A. assets; liabilities
B. liabilities; assets
C. negotiable; nonnegotiable
D. nonnegotiable; negotiable
Answer:
Because ________ are less liquid for the depositor than ________, they earn higher
interest rates.
A. savings accounts; time deposits
B. money market deposit accounts; time deposits
C. money market deposit accounts; savings accounts
D. time deposits; savings accounts
Answer:
Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic
for lunch is a good idea. Last night the weather forecast included a 100% chance of rain
by midday but Barbara did not watch the local news program. Is Barbara’s prediction of
good weather at lunch time rational? Why or why not?
Answer:
The money supply is ________ related to the nonborrowed monetary base, and
________ related to the level of borrowed reserves.
a. positively; negatively
b. negatively; not
c. positively; positively
d. negatively; negatively
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
decrease and the domestic currency to ________, everything else held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer:
The less interest-sensitive is money demand, the
A. more effective is fiscal policy relative to monetary policy.
B. more effective is monetary policy relative to fiscal policy.
C. steeper is the IS curve.
D. flatter is the LM curve.
Answer:
Debt deflation occurs when
A. an economic downturn causes the price level to fall and a deterioration in firms’ net
worth because of the increased burden of indebtedness.
B. rising interest rates worsen adverse selection and moral hazard problems.
C. lenders reduce their lending due to declining stock prices (equity deflation) that
lowers the value of collateral.
D. corporations pay back their loans before the scheduled maturity date.
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:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to
150% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 0.73 to 0.78
b. decrease from 0.73 to 0.61
c. increase from 1.54 to 1.67
d. decrease from 1.67 to 1.54
Answer:
When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking
system
A. increase by $100.
B. increase by more than $100.
C. decrease by $100.
D. decrease by more than $100.
Answer:
Complete Milton Friedman’s famous proposition: “Inflation is always and everywhere a
________ phenomenon.”
A. monetary
B. political
C. policy
D. budgetary
Answer: