In the United States, banks may be chartered by
a. the federal government
b. state governments
c. both of the above
d. neither of the above
Answer:
Desperate for a double mocha latte from Starbucks, you withdraw $2 from your bank
checking account and promptly proceed to ingest your USRDA of caffeine and
chocolate. The withdrawal of cash, assuming a 10 percent reserve requirement,
a. causes bank required reserves to fall by $1.80
b. causes bank excess reserves to fall by $2.00
c. causes bank excess reserves to fall by $0.20
d. does none of the above
Answer:
The supply-side program of the early 1980s had as one of its principal goals
a. cutting income tax rates to boost consumer expenditures
b. increasing the labor force participation rate
c. shifting the aggregate demand curve rightward
d. doing all of the above
Answer:
In the simple deposit expansion model, assuming a 10 percent reserve requirement and
a $10 million inflow of cash deposited into demand deposits, then
a. the money supply ultimately rises by $100 million
b. the money supply ultimately rises by $90 million
c. bank loans and investments end up increasing $100 million
d. banks initially have excess reserves of $10 million
Answer:
The Great Depression probably resulted from
a. a series of aggregate demand shocks
b. a series of aggregate supply shocks
c. equal combinations of aggregate demand and aggregate supply shocks
d. neither aggregate demand nor aggregate supply shocks, but rather a general decline
in confidence
Answer:
Which of the following is a component of M2?
a. currency and coins
b. money market mutual fund shares
c. demand deposits
d. all of the above
Answer:
A U.S. Treasury bill with 90 days to maturity sells at $995 (face value = $1,000). Its
discount rate is:
a. 2 percent
b. 4 percent
c. 6 percent
d. none of the above
Answer:
While preparing for an evening out a local karaoke bar, you withdraw $80 cash from
your checking account via ATM. When you do so
a. your bank’s excess reserves fall
b. your bank’s required reserves fall
c. your bank’s reserves fall
d. all of the above occur
Answer:
A purchase of $100 of securities from a dealer by the Fed will ultimately result in the
creation of ____ of money if the reserve requirement is 10%, and ____ of money if the
reserve requirement is 20%.
a. $500; $1,000
b. $1,000; $2,000
c. $1,000; $500
d. none of the above
Answer:
Thomas Jefferson’s mistrust of the concentration of federal power embodied in the
Bank of the United States
a. turned out to be completely unfounded
b. was well founded, as the Bank of the United States refused to accept banknotes from
state-chartered banks
c. was well founded, as the Bank of the United States accumulated large sums of
banknotes and presented them for collection all at once
d. both b and c are correct
Answer:
Which of the following increases aggregate bank reserves in the United States?
a. your bank reduces its loans
b. you deposit $500 cash into your savings account
c. your bank grants new loans
d. none of the above
Answer:
The number of savings and loan associations in the United States during the past 30
years has:
a. decreased from 4,000 to around 2,000
b. decreased from 6,000 to around 1,200
c. increased from 2,000 to around 3,500
d. increased from 400 to around 1,200
Answer:
Federal bank deposit insurance was ineffective in staving off negative effects from the
1929 stock market crash because
a. it did not exist at the time
b. it relied too much on the payoff, rather than the more effective “purchase and
assumption,” method
c. funds ran out too quickly to have a major effect
d. none of the above is true
Answer:
In segmented markets theory:
a. Treasury debt management is a possible tool of economic policy influencing the yield
curve
b. corporate management decisions strongly influence the shape of the yield curve
c. a relatively steep yield curve implies that firms and the government are
predominantly issuing long-term debt
d. all of the above
Answer:
In the simple Keynesian framework, investment expenditures are always profitable
a. when the expected rate of return is less than the market rate of interest
b. when the expected rate of inflation equals the market rate of interest
c. both of the above are correct
d. neither of the above is correct
Answer:
In the Cambridge cash balance equation, k represents
a. the currency ratio
b. the fraction of GDP that people wish to hold as money
c. the velocity of money
d. none of the above
Answer:
Suppose Japanese entrepreneurs develop a highly attractive new line of tennis shoes.
Other things being equal:
a. the Japanese yen will appreciate
b. the Japanese yen will depreciate
c. the dollar will appreciate
d. none of the above will occur
Answer:
A bank needs a more liquid asset structure if
a. it has a high ratio of capital to total assets
b. it has a large ratio of negotiable CDs to savings deposits
c. its time deposit/demand deposit ratio is high
d. any of the above is true
Answer:
The Glass-Steagall Act
a. outlawed bank holding companies
b. restricted interstate bank branching
c. separated commercial and investment banking
d. authorized NOW and MMDA accounts
Answer:
If the liquidity premium theory of term structure is correct, then:
a. only the Treasury will be able to affect the slope of the yield curve
b. only the Fed will be able to affect the slope of the yield curve
c. the Treasury and the Fed will not be able to change the slope of the yield curve
d. the Treasury and the Fed may be able to change the slope of the yield curve
Answer:
When Continental Illinois Bank was bailed out in 1984 in part by a large loan from the
Federal Reserve, this action tended to cause
a. an increase in B; no change in R
b. an increase in R; no change in B
c. an increase in R and B
d. a decrease in R and B
Answer:
The influence the Fed maintains over the multiplier stems from its control over
a. k
b. re
c. rr
d. the Fed has no influence over the multiplier
Answer:
The ratio of the money supply to the monetary base is known as
a. bank reserves
b. the money supply multiplier
c. the reserve ratio
d. velocity of money
Answer:
Which of the following should tend to reduce the velocity of M1?
a. increased economic stability and confidence
b. increased use of credit cards
c. higher interest rates
d. none of the above
Answer:
If a country sees its currency depreciate steadily over long periods of time, it is a safe
bet that
a. that country has lower-than-average interest rates
b. that country sells highly-desired products in world markets
c. that country has higher-than-average productivity growth
d. that country has higher-than-average inflation
Answer:
As a general rule, most inflation-targeting nations choose a target than is
a. less than 0 percent
b. 0 percent
c. low, but greater than 0 percent
d. none of the above
Answer:
Arguments against inflation targeting include
a. inflation targeting makes the central bank too transparent
b. inflation targeting is hindered by difficulties in forecasting inflation
c. inflation targeting has no effect on output
d. all of the above
Answer:
The ____ separated commercial and investment banking.
a. Riegle-Neal Act
b. Gramm-Leach-Bliley Act
c. Glass-Steagall Act
d. Wagner Act
Answer:
Suppose the Fed buys securities in the open market. Then
a. the monetary aggregates fall, securities prices fall, and yields rise
b. the monetary aggregates fall, securities prices rise, and yields fall
c. the monetary aggregates rise, securities prices rise, and yields fall
d. the monetary aggregates rise, securities prices fall, and yields rise
Answer:
You are comparing the BAA bond yield and the government bond yield for a class
project. Without warning, the nation’s economy experiences unusually strong economic
expansion. You would expect the demand for the BAA bond to ____ relative to the
demand for the government bond, driving ____ the risk premium.
a. increase; up
b. increase; down
c. decrease; up
d. decrease; down
Answer:
Central banks throughout the world
a. are a relatively new invention, having existed for only about the last 100 years
b. have existed for about the last 300 years
c. have existed from the earliest history of civilized nations
d. none of the above
Answer:
The economist who pioneered the equation of exchange was
a. Milton Friedman
b. Irving Fisher
c. A.C. Pigou
d. John Maynard Keynes
Answer:
During its first five years of existence (1999-2004), in describing the exchange rate
behavior of the euro against the U.S. dollar, it is correct to state that:
a. the euro depreciated throughout the period
b. the euro appreciated throughout the period
c. the euro depreciated in the first half of the period and appreciated in the second half
d. the euro appreciated in the first half of the period and depreciated in the second half
Answer:
Assume that the income elasticity of demand for money is 1.1. In this case, an increase
in income works to
a. reduce money demand and reduce velocity
b. reduce money demand and increase velocity
c. increase money demand and increase velocity
d. increase money demand and reduce velocity
Answer: