All of the following are examples of coupon bonds except
A) Corporate bonds.
B) U.S. Treasury bills.
C) U.S. Treasury notes.
D) U.S. Treasury bonds.
Answer:
When a member of the nonbank public deposits currency into her bank account,
A) both the monetary base and bank reserves fall.
B) both the monetary base and bank reserves rise.
C) the monetary base falls, but bank reserves remain unchanged.
D) bank reserves rise, but the monetary base remains unchanged.
Answer:
Economists believe that countries recently suffering hyperinflation have experienced
A) reduced growth.
B) increased growth.
C) reduced prices.
D) lower interest rates.
Answer:
In recent years the interest paid on checkable and time deposits has accounted for
around ________ of total bank operating expenses, while the costs involved in
servicing accounts have been approximately ________ of operating expenses.
A) 45 percent; 55 percent
B) 55 percent; 4 percent
C) 25 percent; 50 percent
D) 50 percent; 30 percent
Answer:
If the Taylor Principle is not followed and nominal interest rates are increased by less
than the increase in the inflation rate, then real interest rates will ________ and
monetary policy will be too ________.
A) rise; tight
B) rise; loose
C) fall; tight
D) fall; loose
Answer:
The time and money spent in carrying out financial transactions are called
A) economies of scale.
B) financial intermediation.
C) liquidity services.
D) transaction costs.
Answer:
When the economy is hit by a negative demand shock and the central bank does not
respond by changing the autonomous component of monetary policy, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will not change.
E) both A and B.
Answer:
The Fed does not tightly control the monetary base because it does not completely
control
A) open market purchases.
B) open market sales.
C) borrowed reserves.
D) the discount rate.
Answer:
Both France and the United Kingdom successfully used exchange-rate targeting to
lower inflation in the late 1980s and early 1990s by tying the value of their currencies
to the
A) U.S. dollar.
B) German mark.
C) Swiss franc.
D) Euro.
Answer:
The primary indicator of the Fed’s stance on monetary policy is
A) the discount rate.
B) the federal funds rate.
C) the growth rate of the monetary base.
D) the growth rate of M2.
Answer:
________ are the most important monetary policy tool because they are the primary
determinant of changes in the ________, the main source of fluctuations in the money
supply.
A) Open market operations; monetary base
B) Open market operations; money multiplier
C) Changes in reserve requirements; monetary base
D) Changes in reserve requirements; money multiplier
Answer:
When one party to a transaction has incentives to engage in activities detrimental to the
other party, there exists a problem of
A) moral hazard.
B) split incentives.
C) ex ante shirking.
D) pre-contractual opportunism.
Answer:
Total reserves minus bank deposits with the Fed equals
A) vault cash.
B) excess reserves.
C) required reserves.
D) currency in circulation.
Answer:
A disadvantage of virtual banks (clicks) is that
A) their hours are more limited than physical banks.
B) they are less convenient than physical banks.
C) they are more costly to operate than physical banks.
D) customers worry about the security of on-line transactions.
Answer:
A debt contract is incentive compatible
A) if the borrower has the incentive to behave in the way that the lender expects and
desires, since doing otherwise jeopardizes the borrower’s net worth in the business.
B) if the borrower’s net worth is sufficiently low so that the lender’s risk of moral
hazard is significantly reduced.
C) if the debt contract is treated like an equity.
D) if the lender has the incentive to behave in the way that the borrower expects and
desires.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
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:
When it comes to choosing an policy instrument, both the ________ rate and ________
aggregates are measured accurately and are available daily with almost no delay.
A) three-month T-bill; monetary
B) three-month T-bill; reserve
C) federal funds; monetary
D) federal funds; reserve
Answer:
Keynes argued that the transactions component of the demand for money was primarily
determined by the level of people’s ________, which he believed were proportional to
________.
A) transactions; income
B) transactions; age
C) incomes; wealth
D) incomes; age
Answer:
In the market for reserves, when the federal funds rate is above the interest rate paid on
excess reserves, the demand curve for reserves is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
Answer:
In the one-period valuation model, the value of a share of stock today depends upon
A) the present value of both the dividends and the expected sales price.
B) only the present value of the future dividends.
C) the actual value of the dividends and expected sales price received in one year.
D) the future value of dividends and the actual sales price.
Answer:
When a new depositor opens a checking account at the First National Bank, the bank’s
assets ________ and its liabilities ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer:
The quantity of reserves supplied equals
A) nonborrowed reserves minus borrowed reserves.
B) nonborrowed reserves plus borrowed reserves.
C) required reserves plus borrowed reserves.
D) total reserves minus required reserves.
Answer:
Hong Kong chooses to have ________ and ________ and therefore, cannot have an
independent monetary policy at the same time.
A) capital control, a fixed exchange rate
B) free capital mobility, a fixed exchange rate
C) free capital mobility, a flexible exchange rate
D) capital control, a flexible exchange rate
Answer:
If the central bank pursues a monetary policy that is more expansionary than what firms
and people expect, then the central bank must be trying to
A) boost output in the short run.
B) constrain output in the short run.
C) constrain prices.
D) boost prices in the short run.
Answer:
A bank failure is less likely to occur when
A) a bank holds less U.S. government securities.
B) a bank suffers large deposit outflows.
C) a bank holds fewer excess reserves.
D) a bank has more bank capital.
Answer:
Financing government spending by selling bonds to the public, which pays for the
bonds with currency,
A) leads to a permanent decline in the monetary base.
B) leads to a permanent increase in the monetary base.
C) leads to a temporary increase in the monetary base.
D) has no net effect on the monetary base.
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to raise
production.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
Answer:
Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in c to 50% causes the
M1 money multiplier to ________, everything else held constant.
A) increase from 2.5 to 2.8
B) decrease from 2.8 to 2.5
C) increase from 2.33 to 2.8
D) decrease from 2.8 to 2.33
Answer:
In a barter economy the number of prices in an economy with N goods is
A) [N(N – 1)]/2.
B) N(N/2).
C) 2N.
D) N(N/2) – 1.
Answer:
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.
Answer:
If the aggregate price level adjusts slowly over time, then an expansionary monetary
policy lowers
A) only the short-term nominal interest rate.
B) only the short-term real interest rate.
C) both the short-term nominal and real interest rates.
D) the short-term nominal, the short-term real, and the long-term real interest rates.
Answer:
If actual output is less than equilibrium output, firms will ________ output to keep from
________ inventories.
A) increase; accumulating
B) increase; depleting
C) decrease; depleting
D) decrease; accumulating
Answer:
In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of
return; thus,
A) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall.
B) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise.
C) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall.
D) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise.
Answer:
Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market mutual fund shares (retail)
Answer: