Everything else held constant, a monetary expansion is characterized by ________
output and ________ interest rates.
A. rising; rising
B. rising; falling
C. falling; rising
D. falling; falling
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
a. 2.5.
b. 1.67.
c. 2.0.
d. 0.601.
Answer:
Keynes’s model of the demand for money suggests that velocity is ________ related to
________.
A. positively; interest rates
B. negatively; interest rates
C. positively; bond values
D. positively; stock prices
Answer:
Which of the following statements most accurately describes the task of bank asset
management?
A. Banks seek the highest returns possible subject to minimizing risk and making
adequate provisions for liquidity.
B. Banks seek to have the highest liquidity possible subject to earning a positive rate of
return on their operations.
C. Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs supersede the desire for profits.
D. Banks seek to acquire funds in the least costly way.
Answer:
When the Glass-Steagall Act was repealed in 1999, potential conflicts of interest arose
with
A. the development of universal banking.
B. the introduction of more credit-rating agencies.
C. accounting firms developing more comprehensive services.
D. investment analysis in investment banking.
Answer:
Which of the following would NOT be a way to increase the return on equity?
A. Buy back bank stock.
B. Pay higher dividends.
C. Acquire new funds by selling negotiable CDs and increase assets with them.
D. Sell more bank stock.
Answer:
The theory of PPP suggests that if one country’s price level falls relative to another’s, its
currency should
A. depreciate in the long run.
B. appreciate in the long run.
C. appreciate in the short run.
D. depreciate in the short run.
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
money supply is ________ billion.
a. $10,000
b. $4000
c. $1400
d. $10,400
Answer:
According to Tobin’s q theory, when q is ________, firms will not purchase new
investment goods because the market value of firms is ________ relative to the cost of
capital.
A. low; low
B. low; high
C. high; low
D. high; high
Answer:
In the Keynesian cross diagram, a decrease in investment spending because companies
become more pessimistic about investment profitability causes the aggregate demand
function to shift ________ and the equilibrium level of aggregate output to ________,
everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Answer:
The U.S. government can play an important role in establishing the credibility of
anti-inflation policy by
A. demonstrating fiscal responsibility.
B. monitoring the Fed.
C. conducting fiscal policy.
D. all of the above.
Answer:
Of the four effects on interest rates from an increase in the money supply, the one that
works in the opposite direction of the other three is the
A. liquidity effect.
B. income effect.
C. price level effect.
D. expected inflation effect.
Answer:
An option that can only be exercised at maturity is called
A. a swap.
B. a stock option.
C. an European option.
D. an American option.
Answer:
Everything else held constant, if the expected return on RST stock declines from 12 to 9
percent and the expected return on XYZ stock declines from 8 to 7 percent, then the
expected return of holding RST stock ________ relative to XYZ stock and demand for
XYZ stock ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Answer:
During the years 1979 to 1982, the Federal Reserve’s announced policy was monetary
targeting. During this time period the Federal Reserve
A. hit all of their monetary targets.
B. did not hit any of their monetary targets because it is believed that controlling the
money supply was not the intent of the Federal Reserve.
C. did not hit any of their monetary targets because they were unrealistic.
D. hit about half of their monetary targets.
Answer:
The Fed’s discount lending is of three types: ________ is the most common category;
________ is given to a limited number of banks in vacation and agricultural areas;
________ is given to banks that have experienced severe liquidity problems.
A. seasonal credit; secondary credit; primary credit
B. secondary credit; seasonal credit; primary credit
C. primary credit; seasonal credit; secondary credit
D. seasonal credit; primary credit; secondary credit
Answer:
Economists closely follow the current account balance because they believe it can
provide information on the future movement of
A) interest rates.
B) gold flows.
C) exchange rates.
D) special drawing rights.
Answer:
Assuming the economy is starting at the natural rate of output and everything else held
constant, the effect of ________ in aggregate ________ is a rise in both inflation and
output in the short-run, but in the long-run the only effect is a rise in inflation.
A. a decrease; supply
B. a decrease; demand
C. an increase; supply
D. an increase; demand
Answer:
If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and
it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without
altering its balance sheet is
A. $30,000.
B. $25,000.
C. $20,000.
D. $10,000.
Answer:
The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A. depreciate in the long run.
B. appreciate in the long run.
C. depreciate in the short run.
D. appreciate in the short run.
Answer:
According to the expectations theory of the term structure, the interest rate on a
long-term bond will equal the ________ of the short-term interest rates that people
expect to occur over the life of the long-term bond.
A. average
B. sum
C. difference
D. multiple
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 decline in the reserve requirement ________ the
________ curve of reserves and causes the federal funds interest rate to fall, everything
else held constant.
A. decreases; demand
B. increases; demand
C. increases; supply
D. decreases; supply
Answer:
The difference between merchandise exports and imports is called the ________
balance.
A) current account
B) capital account
C) official reserve transactions
D) trade
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess supply of goods which will cause aggregate output to ________.
A. right; fall
B. right; rise
C. left; fall
D. left; rise
Answer:
The problems of raising the level of the inflation target include
A. if the zero-lower-bound problem is rare, then the benefits of a higher inflation target
are not very large.
B. the costs of higher inflation in terms of the distortions it produces in the economy are
high.
C. it is more difficult to stabilize the inflation rate at a higher targeting level.
D. all of the above.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A. inflation will be lower.
B. output will be at its potential.
C. output will be lower.
D. inflation will not change.
E. both B and C.
Answer:
Suppose the economy is producing at the natural rate of output. An increase in
consumer and business confidence will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant.
A. an increase; an increase
B. a decrease; a decrease
C. no change; an increase
D. no change; a decrease
Answer:
The theory that monetary policy conducted on a discretionary, day-by-day basis leads to
poor long-run outcomes is referred to as the
A. adverse selection problem.
B. moral hazard problem.
C. time-inconsistency problem.
D. nominal-anchor problem.
Answer:
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market purchase ________ the ________ of reserves which
causes the federal funds rate to fall, everything else held constant.
A. increases; supply
B. increases; demand
C. decreases; supply
D. decreases; demand
Answer:
If stock prices are expected to climb next year, everything else held constant, the
________ curve for bonds shifts ________ and the interest rate ________.
A. demand; left; rises
B. demand; right; rises
C. demand; left; falls
D. supply; left; rises
Answer:
The fact that an economy always returns to the natural rate level of output is known as
A. the excess demand hypothesis.
B. the price-adjustment mechanism.
C. the self-correcting mechanism.
D. the natural rate of unemployment.
Answer:
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the monetary
base is
a. $300 billion.
b. $600 billion.
c. $333 billion.
d. $667 billion.
Answer:
The time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy is called
A. the data lag.
B. the recognition lag.
C. the legislative lag.
D. the implementation lag.
E. the effectiveness lag.
Answer:
Which of the following statements is CORRECT?
A. If most shocks to the economy are aggregate demand shocks or permanent aggregate
supply shocks, then policy that stabilizes inflation will also stabilize economic activity,
even in the short run.
B. If temporary supply shocks are more common, then a central bank must choose
between stabilizing inflation and stabilizing output in the short run.
C. Stabilizing economic activity in response to a temporary supply shock results in a
larger deviation of inflation from the inflation target rather than a stabilization of
inflation.
D. all of the above.
Answer:
All of the following are nontransaction deposits EXCEPT
A. savings accounts.
B. small-denomination time deposits.
C. checkable deposits.
D. certificates of deposit.
Answer: