1) If aggregate output is below the natural rate level, activists of policies would
recommend that the government
A) do nothing
B) try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right
C) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right
D) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left
2) The most common definition that monetary policymakers use for price stability is
A) low and stable deflation
B) an inflation rate of zero percent
C) high and stable inflation
D) low and stable inflation
3) The most common type of interest-rate swap is
A) the plain vanilla swap
B) the basic swap
C) the ordinary swap
D) the notional swap
4) Keynes assumed that money has ________ rate of return.
A) a positive
B) a negative
C) a zero
D) an increasing
5) Assuming initially that rr = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes
the M1 money multiplier to ________, everything else held constant.
A) increase from 2.33 to 2.55
B) decrease from 2.55 to 2.33
C) increase from 1.67 to 1.82
D) decrease from 1.82 to 1.67
6) Under the European System of Central Banks, the National Central Banks have the
same role as the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
7) When stock prices fall
A) an individual’s wealth is not affected nor is their willingness to spend
B) a business firm will be more likely to sell stock to finance investment spending
C) an individual’s wealth may decrease but their willingness to spend is not affected
D) an individual’s wealth may decrease and their willingness to spend may decrease
8) Recent Japanese experience has been characterized by tight monetary policy, as
indicated by
A) falling interest rates
B) short-term interest rates near zero
C) falling asset prices
D) low real interest rates
9) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, nine million dollars in excess reserves, and faces a required
reserve ratio of ten percent. Given this information, we can say First National Bank has
________ million dollars on deposit with the Federal Reserve.
A) one
B) two
C) eight
D) ten
10) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and
the bank chooses not to hold any excess reserves but makes loans instead, then, in the
bank’s final balance sheet,
A) the assets at the bank increase by $800,000
B) the liabilities of the bank increase by $1,000,000
C) the liabilities of the bank increase by $800,000
D) reserves increase by $160,000
11) Which policy measure requires investment banks to sever the links between
research and securities underwriting?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
12) A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000
when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent,
the bank’s excess reserves will be
A) -$5,000
B) -$1,000
C) $1,000
D) $5,000
13) When yield curves are steeply upward sloping,
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
14) Everything else held constant, an increase in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
15) The currency component includes paper money and coins held in
A) bank vaults
B) ATMs
C) the hands of the nonbank public
D) the central bank
16) Because ________ are less liquid for the depositor than ________, they earn higher
interest rates.
A) money market deposit accounts; time deposits
B) checkable deposits; passbook savings
C) passbook savings; checkable deposits
D) passbook savings; time deposits
17) When secondary market buyers and sellers of securities meet in one central location
to conduct trades the market is called a(n)
A) exchange
B) over-the-counter market
C) common market
D) barter market
18) Because inflation in Germany after World War I sometimes exceeded 1,000 % per
month, one can conclude that the German economy suffered from
A) deflation
B) disinflation
C) hyperinflation
D) superdeflation
19) Bonds that are sold in a foreign country and are denominated in the country’s
currency in which they are sold are known as
A) foreign bonds
B) Eurobonds
C) equity bonds
D) country bonds
20) Higher tariffs and quotas cause a country’s currency to ________ in the ________
run, everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
21) ________ quantity theory of money suggests that the demand for money is purely a
function of income, and interest rates have no effect on the demand for money.
A) Keynes’s
B) Fisher’s
C) Friedman’s
D) Tobin’s
22) Studies of the major developed countries show that when businesses go looking for
funds to finance their activities they usually obtain these funds from
A) government agencies
B) equities markets
C) financial intermediaries
D) bond markets
23) Which of the following $1,000 face-value securities has the highest yield to
maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,000
D) A 12 percent coupon bond selling for $1,100
24) The growth of the subprime mortgage market led to
A) increased demand for houses and helped fuel the boom in housing prices
B) a decline in the housing industry because of higher default risk
C) a decrease in home ownership as investors chose other assets over housing
D) decreased demand for houses as the less credit-worthy borrowers could not obtain
residential mortgages
25) When the interest rate is above the equilibrium interest rate, there is an excess
________ money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
26) The theory of portfolio choice indicates that factors affecting the demand for money
include
A) income
B) nominal interest rate
C) liquidity of other assets
D) all the above
27) According to the household liquidity effect, an expansionary monetary policy
causes a ________ in the value of households’ financial assets, causing consumer
durable expenditure to ________.
A) decline; rise
B) rise; rise
C) rise; fall
D) decline; fall
28) Each governor on the Board of Governors can serve
A) only one nonrenewable fourteen-year term
B) one full nonrenewable fourteen-year term plus part of another term
C) only one nonrenewable eight-year term
D) one full nonrenewable eight-year term plus part of another term
29) Evidence from the United States and other foreign countries indicates that
A) there is a strong positive association between inflation and growth rate of money
over long periods of time
B) there is little support for the assertion that “inflation is always and everywhere a
monetary phenomenon”
C) countries with low monetary growth rates tend to experience higher rates of
inflation, all else being constant
D) money growth is clearly unrelated to inflation
30) You read a story in the newspaper announcing the proposed merger of Dell
Computer and Gateway. The merger is expected to greatly increase Gateway’s
profitability. If you decide to invest in Gateway stock, you can expect to earn
A) above average returns since you will share in the higher profits
B) above average returns since your stock price will definitely appreciate as higher
profits are earned
C) below average returns since computer makers have low profit rates
D) a normal return since stock prices adjust to reflect expected changes in profitability
almost immediately
31) Suppose the Bank of China permanently decreases its purchases of U.S.
government bonds and, instead, holds more dollars on deposit at the Federal Reserve.
Everything else held constant, a open market ________ would be the appropriate
monetary policy action for the Fed to take to offset the expected ________ in the
monetary base in the United States.
A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase