Factors that influenced planned investment spending include
A. real interest rates.
B. financial frictions.
C. emotional waves of optimism and pessimism.
D. all of the above.
E. A and C.
Answer:
The M2 monetary aggregate contains everything that is in M1 plus other assets that are
highly ________ (can be turned into cash quickly at very little cost).
A. liquid
B. stable
C. consistent
D. efficient
Answer:
A capital ________ can promote financial instability in an emerging-market country
because it is what forces a country to ________ its currency.
A) inflow; devalue
B) inflow; revalue
C) outflow; devalue
D) outflow; revalue
Answer:
The difference between money and income is that
A. money is a flow and income is a stock.
B. money is a stock and income is a flow.
C. there is no differencemoney and income are both stocks.
D. there is no differencemoney and income are both flows.
Answer:
Collateral requirements lessen the consequences of ________ because the collateral
reduces the lender’s losses in the case of a loan default and it reduces ________ because
the borrower has more to lose from a default.
A. adverse selection; moral hazard
B. moral hazard; adverse selection
C. adverse selection; diversification
D. diversification; moral hazard
Answer:
The efficient markets hypothesis indicates that investors
A. can use the advice of technical analysts to outperform the market.
B. do better on average if they adopt a “buy and hold” strategy.
C. let too many unexploited profit opportunities go by if they adopt a “buy and hold”
strategy.
D. do better if they purchase loaded mutual funds.
Answer:
In the simple deposit expansion model, an expansion in checkable deposits of $1,000
when the required reserve ratio is equal to 10 percent implies that the Fed
A. sold $1,000 in government bonds.
B. sold $100 in government bonds.
C. purchased $1000 in government bonds.
D. purchased $100 in government bonds.
Answer:
Which of the following are NOT assets on the Fed’s balance sheet?
a. securities
b. discount loans
c. cash items in the process of collection
d. deferred availability cash items
Answer:
Under Alan Greenspan and Ben Bernanke, the Federal Reserve was successful in
pursuing a ________ policy.
A) preemptive
B) inflation targeting
C) exchange rate targeting
D) monetary targeting
Answer:
During the 2007-2009 financial crisis the currency ratio
a. increased sharply.
b. decreased sharply.
c. increased slightly.
d. decreased slightly.
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess supply of money which will cause the interest rate to ________.
A. right; fall
B. right; rise
C. left; fall
D. left; rise
Answer:
The problem of adverse selection helps to explain
A. why firms are more likely to obtain funds from banks and other financial
intermediaries, rather than from securities markets.
B. why collateral is an important feature of consumer, but not business, debt contracts.
C. why direct finance is more important than indirect finance as a source of business
finance.
D. why lenders refuse loans to individuals with high net worth.
Answer:
A decrease in unplanned inventory investment for the entire economy equals the excess
of
A. output over aggregate supply.
B. output over aggregate demand.
C. aggregate supply over output.
D. aggregate demand over output.
Answer:
If the government finances its spending by issuing debt to the public, the monetary base
will ________ and the money supply will ________.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. not change; not change
Answer:
Monetarists’ preference for reduced-form models is based on their belief that
A. reverse causation is a problem.
B. structural models may understate money’s effect on economic activity.
C. money supply changes are always endogenous.
D. monetary policy affects only investment spending.
Answer:
Everything else held constant, an autonomous monetary policy tightening ________
aggregate ________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
The seller of an option has the ________ to buy or sell the underlying asset while the
purchaser of an option has the ________ to buy or sell the asset.
A. obligation; right
B. right; obligation
C. obligation; obligation
D. right; right
Answer:
The Fed was committed to keeping interest rates low to assist Treasury financing of
budget deficits
A. only during World War I.
B. during the Great Depression.
C. during World War I and World War II.
D. throughout the entire existence of the Fed.
Answer:
Banks have attempted to maintain adequate profit levels by
A) making fewer riskier loans, such as commercial real estate loans.
B) pursuing new off-balance-sheet activities.
C) increasing reserve deposits at the Fed.
D) decreasing capital accounts.
Answer:
The disruption to financial markets starting in August 2007 that caused both consumer
and business spending to fall
A) shifted the aggregate demand curve to the right.
B) shifted the aggregate demand curve to the left.
C) shifted the aggregate supply curve to the right.
D) shifted the aggregate supply curve to the left.
Answer:
Under the European System of Central Banks, the Executive Board is similar in
structure to the ________ of the Federal Reserve System.
A. Board of Governors
B. Federal Open Market Committee
C. Federal Reserve Banks
D. Federal Advisory Council
Answer:
If reserves in the banking system increase by $100, then checkable deposits will
increase by $2,000 in the simple model of deposit creation when the required reserve
ratio is
A. 0.01.
B. 0.05.
C. 0.10.
D. 0.20.
Answer:
In the United States, the government agency requiring that firms that sell securities in
public markets adhere to standard accounting principles and disclose information about
their sales, assets, and earnings is the
A. Federal Communications Commission.
B. Federal Trade Commission.
C. Securities and Exchange Commission.
D. Federal Reserve System.
Answer:
Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the
A. monetary base.
B. money supply.
C. federal funds interest rate.
D. exchange rate.
Answer:
Recent research indicates that inflation performance (low inflation) has been found to
be best in countries with
A. the most independent central banks.
B. political control of monetary policy.
C. money financing of budget deficits.
D. a policy of always keeping interest rates low.
Answer:
If a financial institution has 50% of its portfolio in a bond with a five-year duration and
50% of its portfolio in a bond with a seven-year duration, what is the duration of the
portfolio?
A. 12 years
B. 7 years
C. 6 years
D. 5 years
Answer:
Only ________ can issue monoline insurance policies.
A. life insurance companies
B. insurance companies that issue multiple types of insurance
C. property insurance companies
D. insurance companies that specialize in credit insurance alone
Answer:
A decrease in the quantity of money supplied shifts the money supply curve to the
________, and the equilibrium interest rate ________, everything else held constant.
A. right; falls
B. right; rises
C. left; falls
D. left; rises
Answer:
An important factor in producing the global financial crisis was
A. lax consumer protection regulation.
B. onerous rules placed on mortgage originators.
C. weak incentives for mortgage brokers to use complicated mortgage products.
D. strong incentives for the mortgage brokers to verify income information.
Answer:
Using the information in Situation 20-2, if taxes increase by $10, then the equilibrium
aggregate output will change by
A. -$90.
B. -$10.
C. $10.
D. $90.
Answer:
When the interest rate is above the equilibrium interest rate, there is an excess
________ money and the interest rate will ________.
A. demand for; rise
B. demand for; fall
C. supply of; fall
D. supply of; rise
Answer:
Approaches to establishing central bank credibility include
A. continued success at keeping inflation under control.
B. inflation targeting.
C. exchange rate targeting.
D. all of the above.
Answer: