The Lucas critique is an attack on the usefulness of
A) conventional econometric models as forecasting tools.
B) conventional econometric models as indicators of the potential impacts on the
economy of particular policies.
C) rational expectations models of macroeconomic activity.
D) the relationship between the quantity theory of money and aggregate demand.
Answer:
Collateral is ________ the lender receives if the borrower does not pay back the loan.
A) a liability
B) an asset
C) a present
D) an offering
Answer:
A nominal anchor promotes price stability by
A) outlawing inflation.
B) stabilizing interest rates.
C) keeping inflation expectations low.
D) keeping economic growth low.
Answer:
The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to
maximize
A) the public’s welfare.
B) profits.
C) its own welfare.
D) conflict with the executive and legislative branches of government.
Answer:
The Keynesian demand for real balances can be expressed as
A) Md = f(i,Y).
B) Md/P = f(i).
C) Md/P = f(Y).
D) Md/P = f(i,Y).
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess ________ of goods which will cause aggregate output to rise.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
Answer:
In the model of the money supply process for M2, the relationship between checkable
deposits and the M2 money supply is represented by
A) D = × M2.
B) D = (1 + c + t + mm) × M2.
C) M2 = × D.
D) M2 = .
Answer:
Economies of scale enable financial institutions to
A) reduce transactions costs.
B) avoid the asymmetric information problem.
C) avoid adverse selection problems.
D) reduce moral hazard.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, an increase in the reserve requirement ________
the ________ for reserves and causes the federal funds interest rate to rise, everything
else held constant.
A) decreases; demand
B) increases; demand
C) increases; supply
D) decreases; supply
Answer:
The Fed’s support of the Depository Institutions Deregulation and Monetary Control
Act of 1980 stemmed in part from its
A) concern over declining Fed membership.
B) belief that all banking regulations should be eliminated.
C) belief that interest rate ceilings were too high.
D) belief that depositors had to become more knowledgeable of banking operations.
Answer:
Which of the following instruments are traded in a capital market?
A) Corporate bonds
B) U.S. Treasury bills
C) Negotiable bank CDs
D) Repurchase agreements
Answer:
The share of checkable deposits in total bank liabilities has
A) expanded moderately over time.
B) expanded dramatically over time.
C) shrunk over time.
D) remained virtually unchanged since 1960.
Answer:
Every financial market has the following characteristic:
A) It determines the level of interest rates.
B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.
Answer:
Goal 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 demand for gold increases, other things equal, when
A) the market for silver becomes more liquid.
B) interest rates are expected to rise.
C) interest rates are expected to fall.
D) real estate prices are expected to increase.
Answer:
Everything else held constant, the interest rate on municipal bonds rises relative to the
interest rate on Treasury securities when
A) income tax rates are lowered.
B) income tax rates are raised.
C) municipal bonds become more widely traded.
D) corporate bonds become riskier.
Answer:
Special Drawing Rights (SDRs) are issued to governments by the ________ to settle
international debts and have replaced ________ in international transactions.
A) Federal Reserve System; gold
B) Federal Reserve System; dollars
C) International Monetary Fund; gold
D) International Monetary Fund; dollars
Answer:
An increase in the riskiness of corporate bonds will ________ the price of corporate
bonds and ________ the price of Treasury bonds, everything else held constant.
A) increase; increase
B) reduce; reduce
C) reduce; increase
D) increase; reduce
Answer:
Everything else held constant, an autonomous monetary policy tightening ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
A restriction on bank activities that was repealed in 1999 was
A) the prohibition of the payment of interest on checking deposits.
B) restrictions on credit terms.
C) minimum down payments on loans to purchase securities.
D) separation of commercial banking from the securities industries.
Answer:
In the 1970s, the Fed selected an interest rate as an operating target rather than a reserve
aggregate primarily because it
A) had no interest in targeting a monetary aggregate, as evidenced by its unwillingness
to target a reserve aggregate.
B) was still very concerned with achieving interest rate stability.
C) was committed to targeting free reserves.
D) was committed to the real bills doctrine.
Answer:
A major disruption in financial markets characterized by sharp declines in asset prices
and firm failures is called a
A) financial crisis.
B) fiscal imbalance.
C) free-rider problem.
D) “lemons” problem.
Answer:
In the generalized dividend model, if the expected sales price is in the distant future
A) it does not affect the current stock price.
B) it is more important than dividends in determining the current stock price.
C) it is equally important with dividends in determining the current stock price.
D) it is less important than dividends but still affects the current stock price.
Answer:
If the expected path of 1-year interest rates over the next four years is 5 percent, 4
percent, 2 percent, and 1 percent, then the expectations theory predicts that today’s
interest rate on the four-year bond is
A) 1 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
Answer:
Although ________ currency is lighter than coins made of metals, a disadvantage
arising from modern technology is the ease of ________.
A) paper; transport
B) commodity; counterfeiting
C) fiat; transport
D) paper; counterfeiting
Answer:
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will decrease and the domestic currency
will ________.
A) purchase; appreciate
B) purchase; depreciate
C) sale; appreciate
D) sale; depreciate
Answer:
Financial intermediaries
A) provide a channel for linking those who want to save with those who want to invest.
B) produce nothing of value and are therefore a drain on society’s resources.
C) can hurt the performance of the economy.
D) hold very little of the average American’s wealth.
Answer:
The theory of portfolio choice indicates that factors affecting the demand for money
include
A) income.
B) nominal interest rate.
C) riskiness of money.
D) all the above.
Answer:
The increase in the currency ratio during World War II was due to
A) bank panics.
B) a drop in the rate of interest paid on checking deposits.
C) the spread of ATMs.
D) high taxes and illegal activities.
Answer:
The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to
A) let interest rates increase.
B) let unemployment increase.
C) let inflation accelerate.
D) let exchange rates increase.
Answer:
GDP measured with constant prices is referred to as
A) real GDP.
B) nominal GDP.
C) the GDP deflator.
D) industrial production.
Answer: