The long-run neutrality of money refers to the fact that in the long run, monetary policy
A. changes only real output.
B. changes only the real interest rate.
C. changes both real output and the real interest rate.
D. has no effect on either real output or the real interest rate.
Answer:
Banks are important to the study of money and the economy because they
A. channel funds from investors to savers.
B. have been a source of rapid financial innovation.
C. are the only important financial institution in the U.S. economy.
D. create inflation.
Answer:
If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Manuel the Mexican the expected rate of return on euro-denominated assets is
A. 11 percent.
B. 13 percent.
C. 17 percent.
D. 19 percent.
Answer:
Which of the following items are NOT counted in U.S. GDP?
A. your purchase of a new Ford Mustang
B. your purchase of new tires for your old car
C. GM’s purchase of tires for new cars
D. a foreign consumer’s purchase of a new Ford Mustang
Answer:
In emerging market countries, the deterioration in bank’s balance sheets has more
________ effects on lending and economic activity than in advanced countries.
A. negative
B. positive
C. affirming
D. advancing
Answer:
Equity instruments are traded in the ________ market.
A. money
B. bond
C. capital
D. commodities
Answer:
A business cycle expansion increases income, causing money demand to ________ and
interest rates to ________, everything else held constant.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
Monetary policy authorities can affect real interest rates
A. in the short run, but not in the long run.
B. in the long run, but not in the short run.
C. permanently.
D. both in the long run and the short run.
Answer:
________ assist in the initial sale of securities in the primary market; ________ assist
in the trading of securities in the secondary markets.
A. Investment banks; mutual funds
B. Commercial banks; mutual funds
C. Investment banks; securities brokers and dealers
D. Commercial banks; securities brokers and dealers
Answer:
A serious consequence of a financial crisis is
A. a contraction in economic activity.
B. an increase in asset prices.
C. financial engineering.
D. financial globalization.
Answer:
Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then
its central bank’s attempt to keep its currency from ________ will result in a ________
of international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
Answer:
Total Reserves minus vault cash equals
A. bank deposits with the Fed.
B. excess reserves.
C. required reserves.
D. currency in circulation.
Answer:
Researchers at the Federal Reserve found that M2 money demand functions performed
________ in the 1980s, with M2 velocity moving ________ with the opportunity cost
of holding M2.
A. poorly; erratically
B. poorly; closely
C. well; erratically
D. well; closely
Answer:
Comparing Tobin’s model of the speculative demand for money with Keynesian
speculative demand
A. both models imply that individuals hold only money or only bonds.
B. the Keynesian model implies individuals diversify their asset holdings, while the
Tobin model predicts that individuals hold only money or only bonds.
C. the Tobin model implies individuals diversify their asset holdings, while the
Keynesian model predicts that individuals hold only money or only bonds.
D. both models imply that individuals diversify their asset holdings.
Answer:
Suppose the Federal Reserve releases a policy statement today which leads people to
believe that the Fed will be enacting expansionary monetary policy in the near future.
Everything else held constant, the release of this statement would immediately cause
the demand for U.S. assets to ________ and the U.S. dollar to ________.
A. increase; appreciate
B. decrease; appreciate
C. increase; depreciate
D. decrease; depreciate
Answer:
As default risk decreases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant.
A. increases; less
B. increases; more
C. decreases; less
D. decreases; more
Answer:
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the short
run and ________ in inflation in the short run.
A. an increase; an increase
B. a decrease; a decrease
C. a decrease; an increase
D. no change; no change
Answer:
In the generalized dividend model, the current stock price is the sum of
A. the actual value of the future dividend stream.
B. the present value of the future dividend stream.
C. the present value of the future dividend stream plus the actual future sales price.
D. the present value of the future sales price.
Answer:
In the Keynesian cross diagram, an increase in investment spending because companies
become more optimistic about investment profitability 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:
Keynes believed that changes in autonomous spending were dominated by changes in
A. consumer expenditure.
B. autonomous consumer expenditure.
C. investment spending.
D. taxes.
E. none of the above.
Answer:
Corporate bonds are not as liquid as government bonds because
A. fewer corporate bonds for any one corporation are traded, making them more costly
to sell.
B. the corporate bond rating must be calculated each time they are traded.
C. corporate bonds are not callable.
D. corporate bonds cannot be resold.
Answer:
Economies of scale enable financial institutions to
A. reduce transactions costs.
B. avoid the asymmetric information problem.
C. avoid adverse selection problems.
D. reduce moral hazard.
Answer:
The monetary base minus reserves equals
A. currency in circulation.
B. the borrowed base.
C. the nonborrowed base.
D. discount loans.
Answer:
Evidence suggests that credit-rating agencies ________ exploited conflicts of interest
because ________.
A. have not; it would cause their ratings to lose credibility and thus have a lower value
in the marketplace
B. have not; they would have an increase in profits in the long-run
C. have; it would cause their ratings to lose credibility and thus have a lower value in
the marketplace
D. have; they would have an increase in profits in the long-run
Answer:
The Federal Reserve Act of 1913 required all ________ banks to become members of
the Federal Reserve System, while ________ banks could choose to become members
of the system.
A. state; national
B. state; municipal
C. national; state
D. national; municipal
Answer:
A temporary negative supply shock ________ real interest rates and ________ output in
the short run, thereby its effect on stock prices is ________.
A. raises; lowers; negative
B. raises; raises; ambiguous
C. lowers; raises; negative
D. lowers; raises; positive
Answer:
Suppose the economy is producing at the natural rate of output. An open market
purchase of bonds by the Fed will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant.
A. an increase; an increase
B. a decrease; a decrease
C. no change; an increase
D. no change; a decrease
Answer:
If bad credit risks are the ones who most actively seek loans and, therefore, receive
them from financial intermediaries, then financial intermediaries face the problem of
A. moral hazard.
B. adverse selection.
C. free-riding.
D. costly state verification.
Answer:
If there is an excess demand for money, individuals ________ bonds, causing interest
rates to ________.
A. sell; rise
B. sell; fall
C. buy; rise
D. buy; fall
Answer:
Which of the following is NOT a goal of financial regulation?
A. ensuring the soundness of the financial system
B. reducing moral hazard
C. reducing adverse selection
D. ensuring that investors never suffer losses
Answer:
Everything else held constant, a decrease in the currency ratio will mean ________ in
the M1 money multiplier and ________ in the M2 money multiplier.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease
Answer:
When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A. the liabilities of the First National Bank decrease by $10.
B. the reserves of the First National Bank increase by $10.
C. the liabilities of Citibank decrease by $10.
D. the assets of Citibank decrease by $10.
Answer:
The U.S. banking system is considered to be a dual system because
A. banks offer both checking and savings accounts.
B. it actually includes both banks and thrift institutions.
C. it is regulated by both state and federal governments.
D. it was established before the Civil War, requiring separate regulatory bodies for the
North and South.
Answer:
The discount rate refers to the interest rate on
A. primary credit.
B. secondary credit.
C. seasonal credit.
D. federal funds.
Answer:
A bank’s commitment to provide a firm with loans up to pre-specified limit at an
interest rate that is tied to a market interest rate is called
A. an adjustable gap loan.
B. an adjustable portfolio loan.
C. loan commitment.
D. pre-credit loan line.
Answer: