An autonomous monetary policy easing reduces real interest rates and raises aggregate
output ________ and the inflation rate rises ________.
A. temporarily; permanently
B. permanently; temporarily
C. permanently; permanently
D. temporarily; temporarily
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
excess reserves-checkable deposit ratio is
a. 0.01.
b. 0.10.
c. 0.001.
d. 0.05.
Answer:
In explaining the evolution of money
A. government regulation is the most important factor.
B. commodity money, because it is valued more highly, tends to drive out paper money.
C. new forms of money evolve to lower transaction costs.
D. paper money is always backed by gold and therefore more desirable than checks.
Answer:
The amount of assets per dollar of equity capital is called the
A. asset ratio.
B. equity ratio.
C. equity multiplier.
D. asset multiplier.
Answer:
When Americans or foreigners expect the return on ________ assets to be high relative
to the return on ________ assets, there is a higher demand for dollar assets and a
correspondingly lower demand for foreign assets.
A. dollar; dollar
B. dollar; foreign
C. foreign; dollar
D. foreign; foreign
Answer:
If the deficit is financed by selling bonds to the ________, the money supply will
________, causing aggregate demand to ________.
A. public; rise; increase
B. public; fall; decrease
C. central bank; rise; increase
D. central bank; fall; decrease
Answer:
If an individual moves money from currency to a demand deposit account
A. M1 decreases and M2 stays the same.
B. M1 stays the same and M2 increases.
C. M1 stays the same and M2 stays the same.
D. M1 increases and M2 stays the same.
Answer:
If expectations are formed adaptively, then people
A. use more information than just past data on a single variable to form their
expectations of that variable.
B. often change their expectations quickly when faced with new information.
C. use only the information from past data on a single variable to form their
expectations of that variable.
D. never change their expectations once they have been made.
Answer:
________ are short-term loans in which Treasury bills serve as collateral.
A. Repurchase agreements
B. Negotiable certificates of deposit
C. Federal funds
D. U.S. government agency securities
Answer:
According to the liquidity premium theory of the term structure
A. because buyers of bonds may prefer bonds of one maturity over another, interest
rates on bonds of different maturities do not move together over time.
B. the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds plus a term premium.
C. because of the positive term premium, the yield curve will not be observed to be
downward sloping.
D. the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
Answer:
The starting point for understanding how exchange rates are determined is a simple idea
called ________, which states: if two countries produce an identical good, the price of
the good should be the same throughout the world no matter which country produces it.
A. Gresham’s law
B. the law of one price
C. purchasing power parity
D. arbitrage
Answer:
A decrease in the foreign interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to ________, everything else held constant.
A. right; appreciate
B. right; depreciate
C. left; appreciate
D. left; depreciate
Answer:
The U-shaped yield curve in the figure above indicates that short-term interest rates are
expected to
A. rise in the near-term and fall later on.
B. fall sharply in the near-term and rise later on.
C. fall moderately in the near-term and rise later on.
D. remain unchanged in the near-term and rise later on.
Answer:
Everything else held constant, a decrease in the cost of production ________ aggregate
________.
A. increases; demand
B. decreases; demand
C. increases; supply
D. decreases; supply
Answer:
Of the sources of external funds for nonfinancial businesses in the United States, stocks
account for approximately ________ of the total.
A. 2%
B. 11%
C. 20%
D. 40%
Answer:
A decrease in the availability of raw materials that increases the price level is called a
________ shock
A. negative demand
B. positive demand
C. negative supply
D. positive supply
Answer:
Which of the following can be described as involving direct finance?
A. A corporation issues new shares of stock.
B. People buy shares in a mutual fund.
C. A pension fund manager buys a short-term corporate security in the secondary
market.
D. An insurance company buys shares of common stock in the over-the-counter
markets.
Answer:
In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship
between M2 and macroeconomic variables.
A. stabilized; less
B. stabilized; more
C. slowed; less
D. slowed; more
Answer:
If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has total reserves of
A. $16,000.
B. $20,000.
C. $26,000.
D. $36,000.
Answer:
The Federal Reserve has had the authority to vary reserve requirements since the
A. 1920s.
B. 1930s.
C. 1940s.
D. 1950s.
Answer:
According to the Lucas critique, if past increases in the short-term interest rate have
always been temporary, then
A. the term-structure relationship using past data will then show only a weak effect of
changes in the short-term interest rate on the long-term rate.
B. the term-structure relationship using past data will show no effect of changes in the
short-term interest rate on the long-term rate.
C. one cannot predict the term-structure relationship as it depends on expectations.
D. the term-structure relationship using past data will nevertheless show a strong effect
of changes in the short-term interest rate on the long-term rate because of a change in
the way expectations are formed.
Answer:
In the market for reserves, when the federal funds rate is above the interest rate paid on
excess reserves, the demand curve for reserves is
A. vertical.
B. horizontal.
C. positively sloped.
D. negatively sloped.
Answer:
positive spending shocks lead to ________ real interest rates ________.
A. higher; in both the short and long runs
B. higher; in the short run but not in the long run
C. lower; in both the short and long runs
D. lower; in the short run but not in the long run
Answer:
In the long run, following a combination of a negative demand shock and a temporary
negative supply shock,
A. both inflation and output return to the original long-run equilibrium values.
B. inflation is permanently increased, while output returns to potential output.
C. output returns to potential output, while inflation may be higher or lower than its
initial value.
D. inflation is permanently reduced, while output returns to potential output.
E. None of the above.
Answer:
In the early stages of the 1980s banking crisis, financial institutions were especially
harmed by
A. declining interest rates from late 1979 until 1981.
B. the severe recession in 1981-82.
C. the disinflation from mid 1980 to early 1983.
D. the increase in energy prices in the early 80s.
Answer:
If you default on your auto loan, your car will be repossessed because it has been
pledged as ________ for the loan.
A. interest
B. collateral
C. dividend
D. commodity
Answer:
An investment bank helps ________ issue securities.
A. a corporation
B. the United States government
C. the SEC
D. foreign governments
Answer:
If people expect nominal interest rates to be lower in the future, the expected return to
bonds ________, and the demand for money ________.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
Answer:
Everything else held constant, when stock prices become less volatile, the demand
curve for bonds shifts to the ________ and the interest rate ________.
A. right; rises
B. right; falls
C. left; falls
D. left; rises
Answer:
Before the South Korean financial crisis, sales by the top five chaebols (family-owned
conglomerates) were
A. nearly 50% of GDP.
B. about 10% of GDP.
C. almost 90% of GDP.
D. nearly 25% of GDP.
Answer:
Which of the following is NOT one of the eight basic puzzles about financial structure?
A. Stocks are the most important source of finance for American businesses.
B. Issuing marketable securities is not the primary way businesses finance their
operations.
C. Indirect finance, which involves the activities of financial intermediaries, is many
times more important than direct finance, in which businesses raise funds directly from
lenders in financial markets.
D. Banks are the most important source of external funds to finance businesses.
Answer:
The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of the fact that
A. paper is more costly to produce than precious metals.
B. precious metals were not generally acceptable.
C. precious metals were difficult to carry and transport.
D. paper money is less accepted than checks.
Answer: