Because the United States was the reserve-currency country under the Bretton Woods
system, it could run large balance of payments ________ without ________ significant
amounts of international reserves.
A) deficits; losing
B) deficits; gaining
C) surpluses; losing
D) surpluses; gaining
Answer:
The interest rate on Baa (medium quality) corporate bonds is ________, on average,
than other interest rates, and the spread between it and other rates became ________ in
the 1970s.
A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger
Answer:
Sustained downward movements in the business cycle are referred to as
A) inflation.
B) recessions.
C) economic recoveries.
D) expansions.
Answer:
When interest rates fall in the United States (with the price level fixed), the value of the
dollar ________, domestic goods become ________ expensive, and net exports
________.
A) falls; less; fall
B) falls; less; rise
C) falls; more; fall
D) rises; less; fall
Answer:
The money market is in equilibrium
A) at any point on the IS curve.
B) at any point on the LM curve.
C) at only one point on the LM curve.
D) only at the intersection of the IS and LM curves.
Answer:
Everything else held constant, when real estate prices are expected to decrease
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.
Answer:
Approaches to establishing central bank credibility include
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:
Empirical evidence shows that the quantity theory of money is a good theory of
inflation
A) in the long run, but not in the short run.
B) in the short run, but not in the longrun.
C) in both the long run and the short run.
D) not in either the long run nor the short run.
Answer:
If the Fed decides to reduce bank reserves, it can
A) purchase government bonds.
B) extend discount loans to banks.
C) sell government bonds.
D) print more currency.
Answer:
Everything else held constant, if the expected return on U.S. Treasury bonds falls from
10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the
expected return of holding GE stock ________ relative to U.S. Treasury bonds and the
demand for GE stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Answer:
Everything else held constant, if a central bank makes a sterilized sale of foreign assets,
then the domestic currency will
A) appreciate.
B) depreciate.
C) either appreciate, depreciate, or remain constant.
D) not be affected.
Answer:
The monetary base minus currency in circulation equals
A) reserves.
B) the borrowed base.
C) the nonborrowed base.
D) discount loans.
Answer:
If reserves in the banking system increase by $100, then checkable deposits will
increase by $667 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01
B) 0.05
C) 0.15
D) 0.2
Answer:
The quantity theory of inflation indicates that if the aggregate output is growing at 3%
per year and the growth rate of money is 5%, then inflation is
A) 2%.
B) 8%.
C) -2%.
D) 6%.
Answer:
The financing of government spending by issuing debt
A) causes both reserves and the monetary base to rise.
B) causes both reserves and the monetary base to decline.
C) causes reserves to rise, but the monetary base to decline.
D) has no net effect on the monetary base.
Answer:
When yield curves are steeply upward sloping,
A) long-term interest rates are above short-term interest rates.
B) short-term interest rates are above long-term interest rates.
C) short-term interest rates are about the same as long-term interest rates.
D) medium-term interest rates are above both short-term and long-term interest rates.
Answer:
Keynes argued that when interest rates were high relative to some normal value, people
would expect bond prices to ________, so the quantity of money demanded would
________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
When the economy is hit by a temporary negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then in
the long run
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will be unchanged.
E) both B and D.
Answer:
When the European System of Central Banks uses long-term refinancing operations, it
is similar to the Federal Reserve using
A) dynamic open market operations.
B) defensive open market operations.
C) discount policy.
D) reserve requirements.
Answer:
Everything else held constant, a shift in tastes in the U.S. towards American goods will
________ net exports in the U.S. and cause the quantity of aggregate output demanded
to ________ in Mexico.
A) decrease; rise
B) decrease; fall
C) increase; rise
D) increase; fall
Answer:
Everything else held constant, an increase in wealth will cause the holdings of
checkable deposits to the holdings of currency to ________ and the currency ratio will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer:
An expansionary monetary policy lowers the real interest rate, causing the domestic
currency to ________, thereby ________ net exports.
A) appreciate; raising
B) appreciate; lowering
C) depreciate; raising
D) depreciate; lowering
Answer:
Suppose a report was released today that showed the Euro-Zone inflation rate is running
above the European Central Bank’s inflation rate target. This leads people to expect that
the European Central Bank will enact contractionary policy in the near future.
Everything else held constant, the release of this report would immediately cause the
demand for U.S. assets to ________ and the U.S. dollar will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
The Fed operating procedures employed between 1979 and 1982 resulted in ________
swings in the federal funds rate and ________ swings in the M1 growth rate.
A) increased; increased
B) increased; decreased
C) decreased; decreased
D) decreased; increased
Answer:
Compared to an economy that uses a medium of exchange, in a barter economy
A) transaction costs are higher.
B) transaction costs are lower.
C) liquidity costs are higher.
D) liquidity costs are lower.
Answer:
When the Treasury bond market becomes less liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
Answer:
Assume that disposable income equals $1000 and the mpc equals 0.6. If total
consumption equal $800, then autonomous consumption is equal to
A) $0.
B) $200.
C) $800.
D) $1000.
Answer:
The Taylor Principle states that central banks raise nominal rates by ________ than any
rise in expected inflation so that real interest rates ________ when there is a rise in
inflation.
A) less; rise
B) more; fall
C) less; fall
D) more; rise
Answer:
Budget deficits are important because deficits
A) cause bank failures.
B) always cause interest rates to fall.
C) can result in higher rates of monetary growth.
D) always cause prices to fall.
Answer:
Everything else held constant, the vertical section of the supply curve of reserves is
lengthened when the
A) discount rate increases.
B) discount rate decreases.
C) federal funds rate rises.
D) federal funds rate falls.
Answer:
Open market purchases ________ reserves and the monetary base thereby ________
the money supply.
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising
Answer:
If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon
payment every year is
A) $37.50.
B) $3.75.
C) $375.00.
D) $13.75
Answer:
Because of the abuses by state banks and the clear need for a central bank to help the
federal government raise funds during the War of 1812, Congress created the
A) Bank of United States in 1812.
B) Bank of North America in 1814.
C) Second Bank of the United States in 1816.
D) Second Bank of North America in 1815.
Answer:
The interest rate that equates the present value of payments received from a debt
instrument with its value today is the
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
Answer:
The federal agencies that examine banks include
A) the Federal Reserve System.
B) the Internal Revenue Service.
C) the SEC.
D) the U.S. Treasury.
Answer: