Wage and price controls were used to restrain inflation during the ____ administration.
a. Eisenhower
b. Nixon
c. Johnson
d. Kennedy
Answer:
In the 1920s, farmers in the United States
a. enjoyed rapidly rising agricultural prices
b. saw farm profits fall but farm values rise
c. contributed to the weakening of the balance sheets of banks that made loans to them
d. did all of the above
Answer:
Keynesians use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. the money supply fell sharply
b. real interest rates were extremely high
c. Treasury bill yields were extremely low
d. none of the above
Answer:
A major problem of the pre-Federal Reserve banking system was that
a. the absence of restraints on bank lending created an inflationary bias
b. in the event of panic, the system could not gain additional reserves
c. the system was too flexible
d. there were no reserve requirements
Answer:
If a nation’s income velocity is 6, then the average citizen holds enough money to
support ____ worth of expenditures.
a. 1/6 of a month’s
b. 1 month’s
c. 2 months’
d. 6 months’
Answer:
Financial innovation ____ the demand for money and ____ velocity.
a. reduces; reduces
b. increases; increases
c. reduces; increases
d. increases; reduces
Answer:
Economists who believe that a nation’s central bank can maintain continuous full
employment and prevent cyclical fluctuations in economic activity are called
a. monetarists
b. new Keynesians
c. policy non-activists
d. none of the above–no economist believes this
Answer:
The primary reason for the collapse of the Bretton Woods system was
a. the desire among participants to conduct their own monetary policy
b. the desire among participants for increased sovereignty
c. highly divergent rates of inflation between member nations
d. lack of confidence in the ability of the U.S. to administer the system
Answer:
The empirical evidence suggests that the Clinton economy (1993-2000) was one of
a. adverse supply shocks
b. adverse demand shocks
c. positive supply shocks
d. positive demand shocks
Answer:
The “Lombard system” with respect to discount rate policy
a. means that the discount rate is set above market yields
b. was adopted by the Fed in 2003
c. treats use of the discount window as a “right” rather than a “privilege”
d. is accurately represented by all of the above statements
Answer:
The Fed’s use of the P-Star model was abandoned because
a. high inflation in the 1990s caused a change in the velocity trend
b. it became more difficult to ascertain the nation’s natural unemployment rate
c. the Fed began placing less priority on price level stability
d. velocity of M2 in the 1990s diverged from its normal level
Answer:
Common stocks (or corporate stocks):
a. were a poor investment over the period 1982-1999
b. represent an IOU on the part of the issuing firm
c. allow the holder to share in the profits of the firm
d. entitle the holder to contractual payments
Answer:
Stocks have outperformed government bonds over every possible
a. 2-year period
b. 5-year period
c. 30-year period
d. all of the above periods
Answer:
The magnitude of the subterranean economy is hinted at by the fact that per capita
holdings of currency in the U.S. now amount to approximately
a. $500
b. $1,000
c. $2,000
d. $3,500
Answer:
Municipal bonds are traded in:
a. over-the-counter markets
b. primary markets
c. equity markets
d. all of the above
Answer:
After creation of the FDIC in 1934,
a. the number of bank failures increased dramatically
b. the number of bank failures remained steady
c. the number of bank failures fell slightly
d. the number of bank failures fell dramatically
Answer:
The term structure of interest rates involves the relationship between:
a. marketability and yield
b. risk and yield
c. tax treatment and yield
d. time to maturity and yield
Answer:
When the money supply rises
a. portfolio liquidity tends to fall
b. portfolio liquidity tends to rise
c. portfolio liquidity is generally unaffected
d. not enough information is given to answer the question
Answer:
Suppose that a bond sells at a premium. Then:
a. the yield to maturity exceeds the current yield
b. the current yield exceeds the coupon rate
c. the coupon rate exceeds the yield to maturity
d. all of the above are true
Answer:
Most of the U.S. banks that failed in the 1920s were located in
a. the east coast
b. the mideast portion of the country
c. the south
d. the upper Great Plains region of the Midwest
Answer:
Suppose the Fed raises interest rates in order to bring the inflation rate down from 8
percent to 4 percent. The high interest rates plunge the economy into a one-year
recession, resulting in a 4 percent reduction in real GDP. The sacrifice ratio for the U.S.
can be calculated as
a. 4
b. 2
c. 8
d. 1.0
Answer:
When a commercial bank purchases a security from a member of the public, which of
the following occurs?
a. Aggregate reserves in the system remain constant.
b. The bank loses reserves.
c. The U.S. money supply increases.
d. All of the above occur.
Answer:
You win a check for $1 million in the lottery. Assuming the reserve requirement is 20
percent, then the impact of your depositing your check in the bank is to
a. increase your bank’s excess reserves by $800,000
b. increase your bank’s required reserves by $200,000
c. increase your bank’s reserves by $1 million
d. cause all of the above
Answer:
Suppose, in a given week, that other assets of the Fed increase $200 million and
Treasury deposits at the Fed increase $500 million. The net effect on the monetary base
is to
a. reduce it by $300 million
b. reduce it by $700 million
c. increase it by $300 million
d. increase it by $700 million
Answer:
Which of the following instruments is issued primarily by commercial banks?
a. federal funds
b. Treasury paper
c. commercial paper
d. negotiable CDs
Answer:
Which of the following is a source of commercial bank funds?
a. securities
b. reserves
c. loans
d. capital
Answer:
A bank manager earns $36,000 per year and spends the money evenly throughout the
year. All of these expenditures are made by credit card, with the outstanding balance on
the credit card paid on each monthly payday. The bank manager’s velocity is
a. 48
b. 24
c. 12
d. infinite
Answer:
Suppose the Fed wishes to increase the money supply (M1) by $10 billion over the next
several weeks. To achieve this, it should
a. sell $10 billion of U.S. government securities
b. buy $10 billion of U.S. government securities
c. sell some fraction of $10 billion of U.S. government securities
d. buy some fraction of $10 billion of U.S. government securities
Answer:
Monetary policy may influence stock prices by influencing
a. the market interest rate
b. the expected payments from stocks
c. both of the above
d. neither of the above
Answer:
The Securities and Exchange Commission (SEC):
a. was created in response to the stock market crash of 1929-1933
b. was created in response to the failure of many savings and loan associations in the
1980s
c. has essentially eliminated fraud in the corporate sector
d. provides insurance for deposits held in commercial banks
Answer: