A decline in the money supply shifts the LM curve to the left, causing the interest rate
to ________ and output to ________, everything else held constant.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Answer:
An example of the ________ problem would be if Brian borrowed money from Sean in
order to purchase a used car and instead took a trip to Atlantic City using those funds.
A) moral hazard
B) adverse selection
C) costly state verification
D) agency
Answer:
________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
Answer:
Which of the following is a true statement concerning bank holding companies?
A) Bank holding companies own few large banks.
B) Bank holding companies have experienced dramatic growth in the past three
decades.
C) The McFadden Act has prevented bank holding companies from establishing branch
banks.
D) Bank holding companies can own only banks.
Answer:
Traders working for banks are subject to the
A) principal-agent problem.
B) free-rider problem.
C) double-jeopardy problem.
D) exchange-risk problem.
Answer:
The spread between interest rates on low quality corporate bonds and U.S. government
bonds
A) widened significantly during the Great Depression.
B) narrowed significantly during the Great Depression.
C) narrowed moderately during the Great Depression.
D) did not change during the Great Depression.
Answer:
An inverted yield curve
A) slopes up.
B) is flat.
C) slopes down.
D) has a U shape.
Answer:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes
the aggregate demand function to shift ________ and the equilibrium level of aggregate
output to ________, everything else held constant.
A) up; rise
B) up; fall
C) down; rise
D) down; fall
Answer:
The other checkable deposits component of the M1 measure reported by the Federal
Reserve includes
A) negotiable time deposits.
B) money market mutual fund shares.
C) automatic transfer from savings accounts.
D) money market deposit accounts.
Answer:
The total collection of pieces of property that serve to store value is a person’s
A) wealth.
B) income.
C) money.
D) credit.
Answer:
The efficient markets hypothesis suggests that if an unexploited profit opportunity
arises in an efficient market,
A) it will tend to go unnoticed for some time.
B) it will be quickly eliminated.
C) financial analysts are your best source of this information.
D) prices will reflect the unexploited profit opportunity.
Answer:
Because it provides some indication of what is happening to U.S. claims on foreign
wealth and the demand for imports and exports, the ________ is closely followed by
economists wanting information on the future movement of exchange rates.
A) trade balance
B) capital account
C) current account balance
D) statistical discrepancy
Answer:
The Argentine banking crisis of 2001 resulted from Argentina’s banks being required to
A) purchase large amounts of government debt.
B) pay back the value of failed loans.
C) make risky real estate loans.
D) make loans to only state-owned businesses.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of an expansionary monetary policy is to
A) increase real output and the interest rate.
B) not change either real output or the interest rate.
C) increase real output and leave the interest rate unchanged.
D) increase the interest rate and leave real output unchanged.
Answer:
Which of the following is least likely to lead to inflationary monetary policy?
A) Rising unemployment
B) Expanding federal budget deficits
C) Declining oil prices
D) Conflict in the Middle East
Answer:
Information plays an important role in asset pricing because it allows the buyer to more
accurately judge
A) liquidity.
B) risk.
C) capital.
D) policy.
Answer:
Everything else held constant, aggregate demand increases when
A) net exports decrease.
B) taxes increase.
C) planned investment spending increases.
D) the money supply decreases.
Answer:
If the Fed injects reserves into the banking system and they are held as excess reserves,
then the money supply
A) increases by only the initial increase in reserves.
B) increases by only one-half the initial increase in reserves.
C) increases by a multiple of the initial increase in reserves.
D) does not change.
Answer:
In the Baumol-Tobin analysis of transactions demand, scale economies imply that an
increase in real income increases the quantity of money demanded ________, while an
increase in the price level increases the quantity of money demanded ________.
A) proportionately; less than proportionately
B) more than proportionately; proportionately
C) less than proportionately; proportionately
D) proportionately; more than proportionately
Answer:
The simple deposit multiplier can be expressed as the ratio of the
A) change in reserves in the banking system divided by the change in deposits.
B) change in deposits divided by the change in reserves in the banking system.
C) required reserve ratio divided by the change in reserves in the banking system.
D) change in deposits divided by the required reserve ratio.
Answer:
All else the same, if a bank’s liabilities are more sensitive to interest rate fluctuations
than are its assets, then ________ in interest rates will ________ bank profits.
A) an increase; increase
B) an increase; reduce
C) a decline; reduce
D) a decline; not affect
Answer:
________ in the foreign interest rate causes the demand for domestic assets to decrease
and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer:
In actual practice, short-term interest rates and long-term interest rates usually move
together; this is the major shortcoming of the
A) segmented markets theory.
B) expectations theory.
C) liquidity premium theory.
D) separable markets theory.
Answer:
According to the law of one price, if the price of Colombian coffee is 100 Colombian
pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then
the exchange rate between the Colombian peso and the Brazilian real is:
A) 40 pesos per real.
B) 100 pesos per real.
C) 25 pesos per real.
D) 4 pesos per real.
Answer:
Since the passage of the International Banking Act of 1978, the competitive advantage
enjoyed by foreign banks in the U.S. has been
A) reduced.
B) mildly expanded.
C) completely eliminated.
D) greatly expanded.
Answer:
A lower level of income causes the demand for money to ________ and the interest rate
to ________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
Answer:
The Fed accidentally discovered open market operations when
A) it came to the rescue of failing banks in the early 1930s, and found that its purchases
of bank loans injected reserves into the banking system.
B) it purchased securities for income following the 1920-1921 recession.
C) it attempted to slow inflation in 1919 by selling securities and found that its sales
drained reserves from the banking system.
D) it reinterpreted a key provision of the Federal Reserve Act.
Answer:
Everything else held constant, a decrease in the value of the dollar relative to all foreign
currencies means that the price of foreign goods purchased by Americans
A) increases
B) decreases.
C) remains unchanged.
D) either increases, decreases, or remains unchanged.
Answer:
The interest rate falls when either the demand for bonds ________ or the supply of
bonds ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer:
When an investment bank ________ securities, it guarantees a price for a corporation’s
securities and then sells them to the public.
A) underwrites
B) undertakes
C) overwrites
D) overtakes
Answer:
Economists consider the ________ to be the most accurate measure of interest rates.
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to shift to
the left and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer: