Everything else held constant, a decrease in the required reserve ratio on checkable
deposits will mean
a. a decrease in the money supply.
b. an increase in the money supply.
c. a decrease in checkable deposits.
d. an increase in discount loans.
Answer:
International policy coordination refers to
A. central banks in major nations acting without regard to the global consequences of
their policies.
B. central banks in major nations pursuing only domestic objectives.
C. central banks adopting policies in pursuit of joint objectives.
D. central banks all adopting identical policies.
Answer:
When yield curves are flat
A. long-term interest rates are above short-term interest rates.
B. short-term interest rates are above long-term interest rates.
C. short-term interest rates are about the same as long-term interest rates.
D. medium-term interest rates are above both short-term and long-term interest rates.
Answer:
Banks earn profits by selling ________ with attractive combinations of liquidity, risk,
and return, and using the proceeds to buy ________ with a different set of
characteristics.
A. loans; deposits
B. securities; deposits
C. liabilities; assets
D. assets; liabilities
Answer:
Compared to checks, paper currency and coins have the major drawbacks that they
A. are easily stolen.
B. are hard to counterfeit.
C. are not the most liquid assets.
D. must be backed by gold.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, raising the discount rate from 5% to 6%
A. lowers the federal funds rate.
B. raises the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect on the federal funds rate.
Answer:
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$900 next year?
A. 5 percent
B. 10 percent
C. -5 percent
D. -10 percent
Answer:
Of the four factors that influence asset demand, which factor will cause the demand for
all assets to increase when it increases, everything else held constant?
A) wealth
B) expected returns
C) risk
D) liquidity
Answer:
In the bond market, the market equilibrium shows the market-clearing ________ and
market-clearing ________.
A. price; deposit
B. interest rate; deposit
C. price; interest rate
D. interest rate; premium
Answer:
The classical economists’ conclusion that nominal income is determined by movements
in the money supply rested on their belief that ________ could be treated as ________
in the short run.
A. velocity; constant
B. velocity; variable
C. money; constant
D. money; variable
Answer:
Assume that the following are the predicted inflation rates in these countries for the
year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil.
According to the purchasing power parity and everything else held constant, which of
the following would we expect to happen?
A. The Brazilian real will depreciate against the U.S. dollar.
B. The Mexican peso will depreciate against the Brazilian real.
C. The Canadian dollar will depreciate against the Mexican peso.
D. The U.S. dollar will depreciate against the Canadian dollar.
Answer:
An autonomous decrease in money demand, other things equal, shifts the ________
curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Answer:
The interest rate thought to have the most important impact on aggregate demand is the
A. short-term interest rate.
B. T-bill rate.
C. rate on 90-day CDs.
D. long-term interest rate.
Answer:
A negative supply shock causes ________ to ________.
A. aggregate demand; increase
B. aggregate demand; decrease
C. short-run aggregate supply; decrease
D. short-run aggregate supply; increase
Answer:
Under the Sarbanes-Oxley Act of 2002, the provision that gives more funding to the
SEC is an example of
A. regulate for transparency.
B. supervisory oversight.
C. separation of functions.
D. socialization of information production.
Answer:
The new Consumer Financial Protection Bureau is an independent agency but is funded
and housed within
A. the Treasury Department.
B. the Federal Reserve.
C. the SEC.
D. the IRS.
Answer:
High-powered money minus currency in circulation equals
A. reserves.
B. the borrowed base.
C. the nonborrowed base.
D. discount loans.
Answer:
Under a fixed exchange rate regime, if a central bank must intervene to purchase the
domestic currency by selling foreign assets, then, like an open market sale, this action
________ the monetary base and the money supply, causing the interest rate on
domestic assets to ________.
A) increases; rise
B) increases; fall
C) reduces; rise
D) reduces; fall
Answer:
Since the abandonment of the Bretton Woods system, balance of payments
considerations have become ________ important, and exchange rate considerations
________ important in the conduct of monetary policy.
A) more; less
B) more; more
C) less; less
D) less; more
Answer:
If the expected return on bonds increases, all else equal, the demand for bonds
increases, the price of bonds ________, and the interest rate ________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
Answer:
Everything else constant, a stronger dollar will mean that
A. vacationing in England becomes more expensive.
B. vacationing in England becomes less expensive.
C. French cheese becomes more expensive.
D. Japanese cars become more expensive.
Answer:
When the effects of the global financial crisis started to spread more quickly throughout
the rest of the world, the U.S. dollar ________ because demand for U.S. assets
________.
A. appreciated; increased
B. depreciated; increased
C. appreciated; decreased
D. depreciated; decreased
Answer:
If the economy is on the LM curve, but is to the right of the IS curve, then the
________ market is in equilibrium, but aggregate ________ exceeds aggregate
________.
A. goods; output; demand
B. goods; demand; output
C. money; output; demand
D. money; demand; output
Answer:
If the Brazilian demand for American exports rises at the same time that U.S.
productivity rises relative to Brazilian productivity, then, in the long run, ________,
everything else held constant.
A. the Brazilian real will appreciate relative to the U.S. dollar
B. the Brazilian real will depreciate relative to the U.S. dollar
C. the Brazilian real will either appreciate, depreciate, or remain constant relative to the
U.S. dollar
D. there is no effect on the Brazilian real relative to the U.S. dollar
Answer:
Which of the following statements about central bank structure and independence is
TRUE?
A. In recent years, with the exception of the Bank of England and the Bank of Japan,
most countries have reduced the independence of their central banks, subjecting them to
greater democratic control.
B. Before the Bank of England was granted greater independence, the Federal Reserve
was the most independent of the world’s central banks.
C. Both theory and experience suggest that more independent central banks produce
better monetary policy.
D. While the European Central Bank is independent, it is not as independent as the
Federal Reserve.
Answer:
An important feature of money market mutual fund shares is
A. deposit insurance.
B. the ability to write checks against shareholdings.
C. the ability to borrow against shareholdings.
D. claims on shares of corporate stock.
Answer:
Solutions to the moral hazard problem include
A) low net worth.
B) monitoring and enforcement of restrictive covenants.
C) greater reliance on equity contracts and less on debt contracts.
D) greater reliance on debt contracts than financial intermediaries.
Answer:
The three players in the money supply process include
A. banks, depositors, and the U.S. Treasury.
B. banks, depositors, and borrowers.
C. banks, depositors, and the central bank.
D. banks, borrowers, and the central bank.
Answer:
If investors expect interest rates to fall significantly in the future, the yield curve will be
inverted. This means that the yield curve has a ________ slope.
A. steep upward
B. slight upward
C. flat
D. downward
Answer:
If the prices would have been much higher ten years ago for the items the average
consumer purchased last month, then one can likely conclude that
A. the aggregate price level has declined during this ten-year period.
B. the average inflation rate for this ten-year period has been positive.
C. the average rate of money growth for this ten-year period has been positive.
D. the aggregate price level has risen during this ten-year period.
Answer:
What is the present value of $500.00 to be paid in two years if the interest rate is 5
percent?
A. $453.51
B. $500.00
C. $476.25
D. $550.00
Answer:
Although reserve requirements and the discount rate are not actually set by the
________, decisions concerning these policy tools are effectively made there.
A. Federal Reserve Bank of New York
B. Board of Governors
C. Federal Open Market Committee
D. Federal Reserve Banks
Answer:
If you sold a short contract on financial futures you hope interest rates
A. rise.
B. fall.
C. are stable.
D. fluctuate.
Answer:
Targeting interest rates can be procyclical because
A. an increase in income increases interest rates, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income.
B. an increase in interest rates increases income, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income.
C. an increase in the monetary base increases the money supply, causing the Fed to buy
bonds, increasing the monetary base and money supply, leading to further increases in
income.
D. an increase in income increases the monetary base and money supply, causing the
Fed to buy bonds to increase interest rates and income.
Answer:
There are two types of open market operations: ________ open market operations are
intended to change the level of reserves and the monetary base, and ________ open
market operations are intended to offset movements in other factors that affect the
monetary base.
A. defensive; dynamic
B. defensive; static
C. dynamic; defensive
D. dynamic; static
Answer: