An increase in the quantity of money supplied shifts the money supply curve to the
________ and the LM curve to the ________, everything else held constant.
A) right; left
B) right; right
C) left; left
D) left; right
Answer:
Instrument independence is the ability of ________ to set monetary policy ________.
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
Answer:
The difference of rate-sensitive liabilities and rate-sensitive assets is known as the
A) duration.
B) interest-sensitivity index.
C) rate-risk index.
D) gap.
Answer:
Everything else held constant, an increase in the time deposit ratio will result in
________ in the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
Answer:
The M2 monetary aggregate contains everything that is in M1 plus other assets that are
highly ________ (can be turned into cash quickly at very little cost).
A) liquid
B) stable
C) consistent
D) efficient
Answer:
Which of the following is not a source of borrowings for a bank?
A) Federal funds
B) Eurodollars
C) Transaction deposits
D) Discount loans
Answer:
If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is
A) 0.25.
B) 4.
C) 8.
D) 16.
Answer:
The process of indirect finance using financial intermediaries is called
A) direct lending.
B) financial intermediation.
C) resource allocation.
D) financial liquidation.
Answer:
The Basel Accord requires banks to hold as capital an amount that is at least ________
of their risk-weighted assets.
A) 10%
B) 8%
C) 5%
D) 3%
Answer:
Under the Bretton Woods system, the IMF could encourage deficit countries to pursue
contractionary monetary policies that would ________ their currency or eliminate their
balance of payment ________.
A) strengthen; surpluses
B) strengthen; deficits
C) weaken; surpluses
D) weaken; deficits
Answer:
On ________, October 19, 1987, the market experienced its worst one-day drop in its
entire history with the DJIA falling by 22%.
A) “Terrible Tuesday”
B) “Woeful Wednesday”
C) “Freaky Friday”
D) “Black Monday”
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars.
A) 0.75
B) 1
C) 1.33
D) 1.75
Answer:
The demand for Picasso paintings rises (holding everything else equal) when
A) stocks become easier to sell.
B) people expect a boom in real estate prices.
C) Treasury securities become riskier.
D) people expect gold prices to rise.
Answer:
Of the following methods that banks might use to reduce moral hazard problems, the
one not legally permitted in the United States is the
A) requirement that firms keep compensating balances at the banks from which they
obtain their loans.
B) requirement that firms place on their board of directors an officer from the bank.
C) inclusion of restrictive covenants in loan contracts.
D) requirement that individuals provide detailed credit histories to bank loan officers.
Answer:
Which of the following are not traded in a capital market?
A) U.S. government agency securities
B) State and local government bonds
C) Repurchase agreements
D) Corporate bonds
Answer:
The recognition lag is
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:
During a recession, output declines resulting in
A) lower unemployment in the economy.
B) higher unemployment in the economy.
C) no impact on the unemployment in the economy.
D) higher wages for the workers.
Answer:
Lucas argues that when policies change, expectations will change thereby
A) changing the relationships in econometric models.
B) causing the government to abandon its discretionary stance.
C) forcing the Fed to keep its deliberations secret.
D) making it easier to predict the effects of policy changes.
Answer:
The time-inconsistency problem in monetary policy can occur when the central bank
conducts policy
A) using a nominal anchor.
B) using a strict and inflexible rule.
C) on a discretionary, day-by-day basis.
D) using a flexible, discretionary rule.
Answer:
A hyperinflation is
A) a period of extreme inflation generally greater than 50% per month.
B) a period of anxiety caused by rising prices.
C) an increase in output caused by higher prices.
D) impossible today because of tighter regulations.
Answer:
If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have
increased by
A) 180%.
B) 80%.
C) 60%.
D) 50%.
Answer:
Regarding central bank independence,
A) the Fed is more independent than the European Central Bank.
B) the European Central Bank is more independent than the Fed.
C) the trend in industrialized nations has been to reduce central bank independence.
D) the Bank of England has the longest tradition of independence of any central bank in
the world.
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain negative and firms will continue to
________ production.
A) below; lower
B) above; lower
C) below; raise
D) above; raise
Answer:
Which regulatory body charters national banks?
A) The Federal Reserve
B) The FDIC
C) The Comptroller of the Currency
D) The U.S. Treasury
Answer:
FDICIA ________ incentives for banks to hold capital and ________ incentives to take
on excessive risk.
A) increased; decreased
B) increased; increased
C) decreased; decreased
D) decreased; increased
Answer:
Which of the following is not included in the monetary aggregate M2?
A) Currency
B) Savings bonds
C) Traveler’s checks
D) Checking deposits
Answer:
A coupon bond that has no maturity date and no repayment of principal is called a
A) consol.
B) cabinet.
C) Treasury bill.
D) Treasury note.
Answer:
Everything else held constant, an increase in autonomous consumer spending will cause
the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
When the interest rate is above the equilibrium interest rate, there is an excess
________ money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to increase 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 ________ is the final amount that will be paid to the holder of a coupon bond.
A) discount value
B) coupon value
C) face value
D) present value
Answer:
A negative supply shock causes ________ to ________.
A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase
Answer:
Ending the “Great Inflation” era in the 1970’s is an example of
A) inflation targeting.
B) exchange rate targeting.
C) central bank independence.
D) appointment of a more conservative central banker.
E) all of the above.
Answer: