Assume Bank A chooses to hold no excess reserves and receives a new deposit of
$4,000. If the reserve requirement is 10 percent, how much can the bank loan out?
a. $3,600
b. $4,000
c. $36,000
d. $40,000
Answer:
The loss function represents the loss to society from
a. deviation of inflation from its desired rate
b. deviation of output from its desired level
c. both of the above
d. neither of the above
Answer:
If we are in a high-inflation environment and the Fed chairman announces a crackdown
on inflation, we will probably soon see a ____ yield curve.
a. flat
b. ascending
c. descending
d. all of the above are equally probable
Answer:
After cleaning under your couch cushions, you deposit the newly-found $100 in change
in your checking account. This action, assuming a 10 percent reserve requirement,
a. causes bank excess reserves to rise by $10
b. causes bank required reserves to rise by $90
c. causes bank reserves to rise by $100
d. does all of the above
Answer:
Rank the following assets as effective hedges against inflation (best hedge to worst
hedge) over the long period since 1926: government bonds, Treasury bills, and money.
a. Treasury bills, government bonds, and money
b. money, government bonds, and Treasury bills
c. government bonds, Treasury bills, and money
d. government bonds, money, and Treasury bills
Answer:
Credit cards:
a. are a highly efficient means of payment
b. are used excessively and inefficiently in the United States
c. are included in the M2 measure of money
d. are much more popular in Europe than in the U.S. as a means of payment
Answer:
If the interest rate-money demand relationship is steep,
a. fiscal policy will be a relatively powerful stabilization tool
b. monetary policy will be an extremely powerful stabilization tool
c. monetary policy will be a relatively weak stabilization tool
d. none of the above is correct
Answer:
Which of the following is a use for commercial bank funds?
a. securities
b. reserves
c. loans
d. all of the above
Answer:
The New York Stock Exchange is an example of:
a. an organized market
b. an over-the-counter market
c. a debt market
d. a money market
Answer:
Exchange-traded funds (ETFs) are mutual funds that track
a. the price of gold
b. various stock indices
c. movements in interest rates
d. the Fed’s portfolio of securities
Answer:
Assuming a 10% reserve requirement, when a bank customer deposits $500 in her
checking account
a. bank excess reserves rise by $450
b. bank required reserves rise by $50
c. bank reserves rise by $500
d. all of the above occur
Answer:
According to the text, the weighted reserve requirement ratio (rr) is ____ than it was in
the 1980s.
a. higher
b. lower
c. at roughly the same level
d. not enough information is given to answer the question
Answer:
The Fed’s use of the P-Star model was predicated on the assumption that
a. velocity of M1 is not constant, but cycles up and down around a fixed level
b. velocity of M2 is not constant, but cycles up and down around a fixed level
c. velocity of M1 is constant
d. velocity of M2 is constant
Answer:
If a commercial bank buys securities from dealers
a. M increases, while R and B remain unchanged
b. M and B increase, while R remains unchanged
c. R and B increase, while M remains unchanged
d. R, B, and M all increase
Answer:
If a bond yields 12 percent and the public is generally expecting 5 percent inflation
indefinitely, an investor in a 30 percent marginal income tax bracket can earn an
after-tax real return of:
a. 7 percent
b. 5 percent
c. minus 1.4 percent
d. 3.4 percent
Answer:
A shift in the composition of bank deposits from large banks to small banks will cause
the required reserve ratio to ____ and the multiplier to ____.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
Answer:
Financial intermediaries do which of the following?
a. issue primary claims and buy primary claims
b. issue primary claims and buy secondary claims
c. issue secondary claims and buy primary claims
d. issue secondary claims and buy secondary claims
Answer:
Exceptionally large discoveries of oil in the Nevada desert would be likely to cause
America’s price level to ____ and real output to ____.
a. increase; increase
b. decrease; decrease
c. decrease; increase
d. increase; decrease
Answer:
Assuming a 10 percent reserve requirement, a deposit of $4,000 cash in a local bank
will
a. ultimately cause the money supply to expand by $36,000
b. ultimately cause bank loans and securities holdings to expand by $36,000
c. initially cause aggregate bank excess reserves to increase by $3,600
d. do all of the above
Answer:
The level of the exchange rate is of importance to a nation because its level determines
in part
a. the price of foreign-produced goods to be sold domestically
b. the price of domestically produced goods to be sold abroad
c. the price that domestic citizens pay for foreign assets
d. all of the above
Answer:
Assuming a 10 percent reserve requirement, a deposit of $3,000 cash in a local bank
will ultimately
a. increase aggregate bank total reserves by $3,000
b. increase aggregate bank loans and securities holdings by $27,000
c. cause aggregate bank required reserves to rise by $3,000
d. do all of the above
Answer:
Which of the following institutions does not issue checkable deposits?
a. money market mutual funds
b. credit unions
c. commercial banks
d. all of the above issue checkable deposits
Answer:
Consider the CAMELS system. Which of the following is correct?
a. C stands for “current account”
b. A stands for “asset quality.”
c. E stands for “equity.”
d. S stands for ‘solvency.”
Answer:
The bulk of the Federal Reserve’s annual earnings
a. are used to finance its ongoing operations
b. are split among its owners
c. are given back to the Treasury
d. are kept by Fed Governors as part of their profit-sharing program
Answer:
One problem with abolishing deposit insurance might be that
a. moral hazard problems would increase
b. the likelihood of bank runs would increase
c. both of the above would occur
d. none of the above would occur
Answer:
Suppose that a nation’s economy is characterized by many aggregate supply shocks and
few aggregate demand shocks. In this case, adoption of an inflation target will
a. have no effect on the stability of output
b. increase the instability in output
c. reduce the instability in output
d. not enough information is given to answer the question
Answer:
An increase in income taxes, ceteris paribus,
a. shifts the AS leftward, increasing both prices and output
b. shifts the AS rightward, decreasing prices and increasing output
c. shifts the AD leftward, reducing prices and reducing equilibrium output
d. shifts the AD rightward, increasing prices and reducing equilibrium output
Answer:
One problem with a barter economy is that:
a. one must remember a large number of exchange rates
b. the purchase of one good necessitates the sale of another
c. the time devoted to the exchange of goods and services could exceed time spent to
produce them
d. all of the above are true
Answer:
If the Fed adopts a 4 percent constant money growth rule, and the economy experiences
a sudden 6 percent increase in velocity,
a. nominal GDP will rise by 2 percent
b. a recession is likely
c. rapid inflation is likely
d. all of the above are likely
Answer:
The Federal Deposit Insurance Corporation
a. was a product of the Glass-Steagall Act
b. supervises some FDIC-insured state banks, but not FDIC-insured national banks
c. was created primarily to prevent runs on the banking system
d. all of the above
Answer:
A nation’s equilibrium price level will unambiguously be increased by
a. a reduction in aggregate demand and an increase in aggregate supply
b. a reduction in aggregate demand and a reduction in aggregate supply
c. an increase in aggregate demand and an increase in aggregate supply
d. an increase in aggregate demand and a reduction in aggregate supply
Answer:
Monetarists believe that, in the early 1930s,
a. the Fed was capable of reducing real interest rates
b. the link between B and M1 was never broken
c. monetary policy was highly restrictive
d. all of the above were true
Answer:
Which of the following helps to explain why a nation’s aggregate demand curve is
negatively sloped (downward sloping)?
a. the income effect
b. the substitution effect
c. the wealth effect
d. all of the above
Answer: