A temporary supply shock that raises prices will cause the real interest rate to
A. rise in both the short and long runs.
B. rise in the short run but not in the long run.
C. fall in both the short and long runs.
D. fall in the short run but not in the long run.
Answer:
Everything else held constant, an increase in the time deposit ratio will mean ________
in the M2 money multiplier and ________ in the M2 money supply.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease
Answer:
When the interest rate on a bond is ________ the equilibrium interest rate, in the bond
market there is excess ________ and the interest rate will ________.
A. above; demand; rise
B. above; demand; fall
C. below; supply; fall
D. above; supply; rise
Answer:
The ratio that relates the change in the money supply to a given change in the monetary
base is called the
A. money multiplier.
B. required reserve ratio.
C. deposit ratio.
D. discount rate.
Answer:
An increase in the liquidity of corporate bonds will ________ the price of corporate
bonds and ________ the yield of Treasury bonds, everything else held constant.
A. increase; increase
B. reduce; reduce
C. increase; reduce
D. reduce; increase
Answer:
When output is below potential and the policy rate has hit the floor of zero, if
policymakers do nothing, output will ________ and inflation will ________.
A. rise; fall
B. fall; fall
C. fall; rise
D. rise; rise
Answer:
To an economist, ________ is anything that is generally accepted in payment for goods
and services or in the repayment of debt.
A. wealth
B. income
C. money
D. credit
Answer:
A ________ in market interest rates relative to the discount rate will cause discount
borrowing to_______.
a. fall; increase
b. rise; decrease
c. rise; increase
d. fall; remain unchanged
Answer:
The most common type of discount lending, ________ credit loans, are intended to help
healthy banks with short-term liquidity problems that often result from temporary
deposit outflows.
A. secondary
B. primary
C. temporary
D. seasonal
Answer:
Everything else held constant, in the market for reserves, when the demand for federal
funds intersects the reserve supply curve on the vertical section, increasing the discount
rate
A. increases the federal funds rate.
B. lowers the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect on the federal funds rate.
Answer:
Most U.S. financial crises have started during periods of ________ either after the start
of a recession, a stock market crash, or the failure of a major financial institution.
A. high uncertainty
B. low interest rates
C. low asset prices
D. high financial regulation
Answer:
Which of the following instruments are traded in a capital market?
A. U.S. Government agency securities
B. negotiable bank CDs
C. repurchase agreements
D. U.S. Treasury bills
Answer:
Countries with surpluses in their balance of payments frequently do not want to see
their currencies ________ because it makes their goods ________ expensive abroad.
A) appreciate; less
B) appreciate; more
C) depreciate; less
D) depreciate; more
Answer:
Commercial and farm mortgages, in which property is pledged as collateral, account for
A. one-quarter of borrowing by nonfinancial businesses.
B. one-half of borrowing by nonfinancial businesses.
C. one-twentieth of borrowing by nonfinancial businesses.
D. two-thirds of borrowing by nonfinancial businesses.
Answer:
In the Baumol-Tobin analysis of the demand for money, either an increase in ________
or an increase in ________ increases money demand.
A. income; interest rates
B. brokerage fees; interest rates
C. interest rates; the price level
D. brokerage fees; income
Answer:
Although the subprime mortgage market problem began in the United States, the first
indication of the seriousness of the crisis began in
A. Europe.
B. Australia.
C. China.
D. South America.
Answer:
The account that shows international transactions involving financial transactions
(stocks, bonds, bank loans, etc.) is called the
A) trade balance.
B) current account.
C) balance of payments.
D) capital account.
Answer:
When a budget deficit occurs in the United States, the U.S. Treasury finances this
deficit by
A. borrowing.
B. imposing a moratorium of new government spending.
C. increasing the tax rate.
D. printing more dollars.
Answer:
The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying
and selling bonds will cause the demand for money to ________ and the demand for
bonds to ________.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
Answer:
An increase 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:
Which of the following is NOT a reason financial regulation and supervision is difficult
in real life?
A. Financial institutions have strong incentives to avoid existing regulations.
B. Unintended consequences may happen if details in the regulations are not precise.
C. Regulated firms lobby politicians to lean on regulators to ease the rules.
D. Financial institutions are not required to follow the rules.
Answer:
Hong Kong chooses to have ________ and ________ and therefore, cannot have an
independent monetary policy at the same time.
A) capital control; a fixed exchange rate
B) free capital mobility; a fixed exchange rate
C) free capital mobility; a flexible exchange rate
D) capital control; a flexible exchange rate
Answer:
When the Fed purchases artwork to decorate the conference room at the Federal
Reserve Bank of Kansas City
a. reserves rise, but the monetary base falls.
b. reserves fall.
c. currency in circulation falls.
d. the monetary base rises.
Answer:
Keynes reasoned that consumer expenditure is most closely related to
A. the level of interest rates.
B. the price level.
C. disposable income.
D. the marginal tax rate.
Answer:
Using the information contained in Situation 20-1, if planned investment decreases by
$100, the equilibrium aggregate output will change by
A. -$1,000.
B. $-100.
C. $100.
D. $1,000.
Answer:
There are two ways in which the Fed can provide additional reserves to the banking
system: it can ________ government bonds or it can ________ discount loans to
commercial banks.
A. sell; extend
B. sell; call in
C. purchase; extend
D. purchase; call in
Answer:
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created an
Office of Credit Ratings at the SEC with its own staff and the authority to fine
credit-rating agencies and to deregister an agency if it produces bad ratings. This is an
example of which remedy of conflicts of interest?
A. regulate for transparency
B. supervisory oversight
C. leave it to the market
D. socialization of information production
Answer:
The monetary policy strategy that results in the loss of an independent monetary policy
is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
The delivery of financial services electronically is called
A. e-business.
B. e-commerce.
C. e-finance.
D. e-possible.
Answer:
An increase in government spending causes the equilibrium level of aggregate output to
________ at any given interest rate and shifts the ________ curve to the ________,
everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Answer:
By looking at aggregate demand via its component parts, we can conclude that the
aggregate demand curve is downward sloping because
A. a lower inflation rate causes the real interest rate to fall, and stimulates planned
investment spending.
B. a lower inflation rate causes the real interest rate to rise, and stimulates planned
investment spending.
C. a higher inflation rate causes the real interest rate to fall, and stimulates planned
investment spending.
D. a higher inflation rate causes the real interest rate to rise, and stimulates planned
investment spending.
Answer:
According to the liquidity premium theory of the term structure, a slightly upward
sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Answer:
If the Fed wants to permanently lower interest rates, then it should raise the rate of
money growth if
A. there is fast adjustment of expected inflation.
B. there is slow adjustment of expected inflation.
C. the liquidity effect is smaller than the expected inflation effect.
D. the liquidity effect is larger than the other effects.
Answer:
Banks earn profits from off-balance sheet loan sales
A. by foreclosing on delinquent accounts.
B. by selling the loans at discounted prices.
C. by selling existing loans for more than the original loan amount.
D. by calling-in loans before the maturity date.
Answer:
If workers demand and receive higher real wages (a successful wage push), the cost of
production ________ and the short-run aggregate supply curve shifts ________.
A. rises; leftward
B. rises; rightward
C. falls; leftward
D. falls; rightward
Answer: