The basic trend of long-term bond yields in the U.S. was one of:
a. decline from 1950 to 1980 and increase since then
b. increase from 1950 to 1960, decline from 1960 to 1980, and increase since 1980
c. increase from 1960 to 1980 and decline since then
d. increase from 1950 to 1960 and decline since then
Answer:
Suppose that actual inflation turns out to be higher than had been expected. Then
a. the real interest rate will be higher than the nominal rate
b. the ex post real rate will turn out to be negative
c. the ex post real rate will be higher than the ex ante real rate
d. the ex ante real rate will be higher than the ex post real rate
Answer:
If your income rises by 4 percent per year, approximately how long will it take to
double using the “rule of 72?”
a. 25 years
b. 18 years
c. 8 years
d. none of the above
Answer:
The DJIA (Dow Jones Industrial Average):
a. includes only industrial corporations
b. includes the same 30 companies every year
c. is an unweighted stock market index
d. includes both very large and very small companies
Answer:
The present value formula indicates that:
a. yields and bond prices are directly or positively related
b. yields and expected annual payments are inversely related
c. yields and bond prices are inversely related
d. expected annual payments and present value are inversely related
Answer:
Long-term bonds
a. entail more market risk than short-term bonds
b. entail more default risk than short-term bonds
c. entail less market risk than short-term bonds
d. entail less default risk than short-term bonds
Answer:
Data exhibited in the text indicate that:
a. short-term yields are more stable than long-term yields
b. short-term security prices are more volatile than long-term security prices
c. short-term yields exhibit more variation than long-term yields
d. short-term security yields and prices exhibit the same volatility as long-term security
yields and prices
Answer:
Voting members of the Federal Open Market Committee include the following:
a. the 12 members of the Board of Governors and the 7 Federal Reserve district bank
presidents
b. the 7 members of the Board of Governors and the 12 Federal Reserve district bank
presidents
c. the 7 members of the Board of Governors and 5 of the 12 Federal Reserve district
bank presidents
d. none of the above
Answer:
Suppose that in a given week the Fed’s portfolio of securities increases by $400, float
decreases by $600, and foreign deposits at the Fed fall by $800. The impact of these
changes will cause the base to
a. fall by $1,000
b. rise by $200
c. rise by $600
d. rise by $1,800
Answer:
The fact that potential real GDP tends to increase over time can be explained by
increases in
a. the labor force
b. labor productivity
c. both of the above
d. neither of the above
Answer:
The rapid growth coupled with declining inflation of the Clinton era (1993 – 2000) can
be attributed to
a. increases in aggregate demand
b. increases in aggregate supply
c. decreases in aggregate demand
d. decreases in aggregate supply
Answer:
Keynesians believe that in the short run
a. prices and wages are free to fluctuate in both directions with economic conditions
b. both nominal and real interest rates are influenced by changes in the money supply
c. both of the above are correct
d. neither of the above is correct
Answer:
If YN is the natural or full-employment output level and YE1 is a nation’s equilibrium
level of output, a recessionary gap exists when
a. YE1 > YN
b. YE1 < YN
c. YE1 = YN
d. None of the above is correct.
Answer:
Today, commercial banks are absolutely prohibited from
a. managing mutual funds
b. offering brokerage services
c. underwriting securities
d. doing none of the above–all are permissible
Answer:
Which of the following terms are not matched correctly?
a. reserve requirement policy–tool of monetary policy
b. bank reserves–short-range objective
c. money market yields–intermediate-range objectives
d. all of the above are matched correctly
Answer:
During the last 75 years of Fed policy (on average),
a. the money supply has grown equally during both recessions and expansions
b. the money supply has grown more slowly in recessions than in expansions
c. the money supply has grown more slowly in expansions than in recessions
d. there is no consistent pattern of money growth
Answer:
If money is an inferior good, increases in income will ____ the demand for money and
____ velocity.
a. reduce; reduce
b. increase; increase
c. reduce; increase
d. increase; reduce
Answer:
In general, the experience of the U.S. indicates that movements in interest rates are
____, and movements of risk premiums are ____.
a. countercyclical; countercyclical
b. countercyclical; procyclical
c. procyclical; procyclical
d. procyclical; countercyclical
Answer:
Suppose, in a given week, that Treasury expenditures are running below proceeds from
taxes and issuance of debt. To maintain monetary conditions constant
a. the Treasury should build up its account at the Treasury
b. the Treasury should build up its tax and loan accounts
c. the Fed should sell securities in the open market
d. all of the above should occur
Answer:
When a bank customer deposits $500 cash into her checking account, the direct effect is
that
a. the money supply is unchanged
b. the money supply rises by $500
c. the money supply falls by $500
d. none of the above occurs
Answer:
Which of the following accounts in part for the escalation of bank failures in the late
1980s?
a. bad loans to LDCs, agriculture, and the energy sector
b. financial innovations
c. moral hazard problems
d. all of the above
Answer:
An increase in a nation’s price level can be caused by a(n) ____ in aggregate demand or
a(n) ____ in aggregate supply.
a. decrease; decrease
b. increase; increase
c. decrease; increase
d. increase; decrease
Answer:
As a general rule, operating targets emphasize the property of ____, and intermediate
targets emphasize the property of ____.
a. controllability; measurability
b. importance; controllability
c. measurability; importance
d. measurability; controllability
Answer:
If the market interest rate is 20 percent, what is the value of a security that pays you
$1200 the first year, $1440 the second year, and $1728 the third year, with no additional
payments after the third year?
a. $1000
b. $2432
c. $3000
d. $4120
Answer:
In which period of time was the risk premium (corporate bonds versus U.S. government
bonds) the highest?
a. the 1930s
b. the 1950s
c. the 1960s
d. the 1990s
Answer:
Suppose that the reserve requirement applicable to demand deposits is 20 percent and
the banking system has $200 million of excess reserves. At most, the system can
expand the supply of money by
a. $1,000 million
b. $200 million
c. $160 million
d. $40 million
Answer:
Today, the number of central banks throughout the world
a. is less than 20
b. is more than 300
c. is about 150
d. none of the above
Answer:
According to the text, which of the following countries had the lowest money growth
rate and lowest inflation rate in the past 20 years?
a. Venezuela
b. Mexico
c. the United States
d. Korea
Answer:
Keynesians use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. excess reserves were plentiful after mid-1932
b. short-term yields fell to extremely low levels
c. the New York Fed reduced its discount rate eight times
d. all of the above
Answer:
Keynesians prefer that the Fed employ which of the following variables as its
intermediate monetary policy target?
a. M2
b. the monetary base
c. net free reserves
d. real short-term interest rates
Answer: