His analysis started with the recognition that the total quantity demanded of an
economy’s output was the sum of four types of spending: consumer expenditure,
planned investment spending, government spending, and net exports.
A. John Maynard Keynes
B. Sir John Hicks
C. Milton Friedman
D. Paul A. Samuelson
Answer:
Everything else held constant, if a central bank makes an unsterilized sale of foreign
assets, then the domestic money supply will ________ and the domestic currency will
________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
The theory of purchasing power parity states that exchange rates between any two
currencies will adjust to reflect changes in
A. the trade balances of the two countries.
B. the current account balances of the two countries.
C. fiscal policies of the two countries.
D. the price levels of the two countries.
Answer:
Because prices are slow to move in the short-run, when the Federal Reserve lowers the
federal funds rate
A. nominal interest rates rise.
B. real interest rates fall.
C. inflation falls.
D. real interest rates rise.
Answer:
The stock market is
A. where interest rates are determined.
B. the most widely followed financial market in the United States.
C. where foreign exchange rates are determined.
D. the market where most borrowers get their funds.
Answer:
If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and
if the reserve requirement is 10 percent, then the bank has actual reserves of
A. $14,000.
B. $19,000.
C. $24,000.
D. $29,000.
Answer:
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.
Answer:
Keynes’s motivation in developing the aggregate output determination model stemmed
from his concern with explaining
A. the hyperinflations of the 1920s.
B. why the Great Depression occurred.
C. the high unemployment in Great Britain before World War I.
D. the high unemployment in Great Britain after World War II.
Answer:
Despite an expansionary monetary policy, an economy experiences a recession.
Everything else held constant, the recession could occur in spite of the rightward shift
of the LM curve if
A. consumer confidence decreases sharply.
B. there is an investment boom.
C. the money supply increases.
D. taxes are cut.
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:
In the Keynesian framework, as long as output is below the equilibrium level,
unplanned inventory investment will remain negative, firms will continue to ________
production, and output will continue to ________.
A. lower; fall
B. lower; rise
C. raise; fall
D. raise; rise
Answer:
Banks develop statistical models to calculate their maximum loss over a given time
period. This approach is known as the
A. stress-testing approach.
B. value-at-risk approach.
C. trading-loss approach.
D. doomsday approach.
Answer:
If the economy is characterized by a stable IS curve and an unstable LM curve, then
________ target produces ________ fluctuations in aggregate output.
A. an interest rate; larger
B. a money supply; smaller
C. a money supply; larger
D. an exchange rate; smaller
Answer:
Aggregate output is increased by a decrease in
A. autonomous consumption.
B. government spending.
C. planned investment.
D. net taxes.
Answer:
Futures contracts are regularly traded on the
A. Chicago Board of Trade.
B. New York Stock Exchange.
C. American Stock Exchange.
D. Chicago Board of Options Exchange.
Answer:
A credible nominal anchor
A. can help overcome the time-inconsistency problem by providing an expected
constraint on discretionary policy.
B. can help to anchor inflation expectations, which leads to smaller fluctuations in
inflation.
C. is required for a policy rule.
D. all of the above.
E. both A and B.
Answer:
In the open-economy ISLM model, net export is specified as a function of and
exchange arte is specified as a function of .
A. output; output.
B. money supply; interest rate.
C. exchange rate; interest rate.
D. exchange rate; money demand.
Answer:
The volume of loans that the Fed makes to banks is affected by the Fed’s setting of the
interest rate on these loans, called the
a. federal funds rate.
b. prime rate.
c. discount rate.
d. interbank rate.
Answer:
Which of the following are primary concerns of the bank manager?
A. maintaining sufficient reserves to minimize the cost to the bank of deposit outflows
B. extending loans to borrowers who will pay low interest rates, but who are poor credit
risks
C. acquiring funds at a relatively high cost, so that profitable lending opportunities can
be realized
D. maintaining high levels of capital and thus maximizing the returns to the owners
Answer:
If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per
dollar, then the franc depreciates from ________ U.S. dollars per franc to ________
U.S. dollars per franc.
A. 0.80; 67
B. 0.67; 80
C. 0.50; 33
D. 0.33; 50
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, one million dollars in required 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
Answer:
A plot of the interest rates on default-free government bonds with different terms to
maturity is called
A. a risk-structure curve.
B. a default-free curve.
C. a yield curve.
D. an interest-rate curve.
Answer:
Which is the most important category of Fed assets?
a. securities
b. discount loans
c. gold and SDR certificates
d. cash items in the process of collection
Answer:
A $100 deposit into my checking account at My Bank increases my checkable deposits
by $100, and the bank’s ________ by $100.
A. reserves
B. loans
C. capital
D. securities
Answer:
The Basel Accord, an international agreement, requires banks to hold capital based on
A. risk-weighted assets.
B. the total value of assets.
C. liabilities.
D. deposits.
Answer:
In a bank panic, the source of contagion is the
A. free-rider problem.
B. too-big-to-fail problem.
C. transactions cost problem.
D. asymmetric information problem.
Answer:
If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike
price of 110, and at the expiration date the price is 114, your ________ is ________.
A. profit; $4000
B. loss; $4000
C. profit; $3000
D. loss; $3000
Answer:
If you buy a put option on Treasury futures at 115, and at expiration the market price is
110, the ________ will ________ exercised.
A. call; be
B. put; be
C. call; not be
D. put; not be
Answer:
If the Fed expects currency holdings to rise, it conducts open market ________ to offset
the expected ________ in reserves.
A. purchases; increase
B. purchases; decrease
C. sales; increase
D. sales; decrease
Answer:
From before the financial crisis began in September of 2007 to when the crisis was over
at the end of 2009, amount of Federal Reserve assets rose, leading to
A. a huge increase in the monetary base.
B. a huge expansion of the money supply.
C. an economic expansion.
D. a high inflation.
Answer:
High-powered money minus reserves equals
A. reserves.
B. currency in circulation.
C. the monetary base.
D. the nonborrowed base.
Answer: