If you have a very low tolerance for risk, which of the following bonds would you be
least likely to hold in your portfolio?
A) a U.S. Treasury bond
B) a municipal bond
C) a corporate bond with a rating of Aaa
D) a corporate bond with a rating of Baa
Answer:
Keynes was especially concerned with explaining the
A) recession of 1920-21.
B) low levels of output and employment during the Great Depression.
C) strong economic growth of the 1920s.
D) high unemployment in Great Britain during the 1920s.
Answer:
Dennis notices that jackets are on sale for $99. In this case money is functioning as a
A) medium of exchange.
B) unit of account.
C) store of value.
D) payments-system ruler.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate
equals the discount rate, lowering the discount rate
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect of the federal funds rate.
Answer:
Factors that decrease the demand for bonds include
A) an increase in the volatility of stock prices.
B) a decrease in the expected returns on stocks.
C) a decrease in the inflation rate.
D) a decrease in the riskiness of stocks.
Answer:
When economists say that money promotes ________, they mean that money
encourages specialization and the division of labor.
A) bargaining
B) contracting
C) efficiency
D) greed
Answer:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes
the aggregate demand function to shift down, the equilibrium level of aggregate output
to ________, and the IS curve to shift to the ________, everything else held constant.
A) rise; left
B) rise; right
C) fall; left
D) fall; right
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________, firms will continue to lower
production, and output will continue to fall.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
Answer:
A decline in autonomous planned investment spending causes the equilibrium level of
aggregate output to ________ and shifts the ________ curve to the ________,
everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
Answer:
Although the dominance of ________ over ________ is clear in all countries, the
relative importance of bond versus stock markets differs widely.
A) financial intermediaries; securities markets
B) financial intermediaries; government agencies
C) government agencies; financial intermediaries
D) government agencies; securities markets
Answer:
Everything else held constant, an increase in autonomous planned investment spending
will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
Referring to the Economic Stimulus Act of 2008, the expansionary effect of the
government stimulus was overwhelmed by the continuing deterioration in credit market
conditions. Everything else held constant and using the ISLM model, the net effect
would cause the ________ curve to ________ and output will ________.
A) IS; shift left; decrease
B) IS; shift right; increase
C) LM; shift right; increase
D) LM shift left; decrease
Answer:
The term structure of interest rates is
A) the relationship among interest rates of different bonds with the same maturity.
B) the structure of how interest rates move over time.
C) the relationship among the term to maturity of different bonds.
D) the relationship among interest rates on bonds with different maturities.
Answer:
In the Keynesian framework, as long as output is above the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to
________ production.
A) negative; lower
B) negative; raise
C) positive; lower
D) positive; raise
Answer:
When the price level ________, the demand curve for money shifts to the ________
and the interest rate ________, everything else held constant.
A) falls; left; falls
B) rises; right; falls
C) falls; left; rises
D) rises; right; rises
Answer:
Automated teller machines
A) are more costly to use than human tellers, so banks discourage their use by charging
more for use of ATMs.
B) cost about the same to use as human tellers in banks, so banks discourage their use
by charging more for use of ATMs.
C) cost less than human tellers, so banks may encourage their use by charging less for
using ATMs.
D) cost nothing to use, so banks provide their services free of charge.
Answer:
In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship
between M2 and macroeconomic variables.
A) stabilized; less
B) stabilized; more
C) slowed; less
D) slowed; more
Answer:
An increase in the monetary base that goes into ________ is not multiplied, while an
increase that goes into ________ is multiplied.
A) deposits; currency
B) excess reserves; currency
C) currency; excess reserves
D) currency; deposits
Answer:
If a central bank does not want to allow the domestic currency to appreciate, it will
________ international reserves by selling its currency, thereby ________ the monetary
base and increasing the risk of higher inflation.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
Answer:
When the price of a bond is above the equilibrium price, there is an excess ________
bonds and price will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
Answer:
________ in the foreign interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to appreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
Answer:
Although restrictive covenants can potentially reduce moral hazard, a problem with
restrictive covenants is that
A) borrowers may find loopholes that make the covenants ineffective.
B) they are inexpensive to monitor and enforce.
C) too many resources may be devoted to monitoring and enforcing them, as
debtholders duplicate others’ monitoring and enforcement efforts.
D) they reduce the value of the debt contract.
Answer:
Unemployment resulting from a mismatch of workers’ skills and job requirements is
called
A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess ________ of money which will cause the interest rate to rise.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
Answer:
Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank.
B) You borrow $2500 from a friend.
C) You buy shares of common stock in the secondary market.
D) You buy shares in a mutual fund.
Answer:
International policy coordination refers to
A) central banks in major nations acting without regard to the global consequences of
their policies.
B) central banks in major nations pursuing only domestic objectives.
C) central banks adopting policies in pursuit of joint objectives.
D) central banks all adopting identical policies.
Answer:
High net worth helps to diminish the problem of moral hazard problem by
A) requiring the state to verify the debt contract.
B) collateralizing the debt contract.
C) making the debt contract incentive compatible.
D) giving the debt contract characteristics of equity contracts.
Answer:
The recent Enron and Tyco scandals are an example of
A) the free-rider problem.
B) the adverse selection problem.
C) the principal-agent problem.
D) the “lemons problem.”
Answer:
Of money’s three functions, the one that distinguishes money from other assets is its
function as a
A) store of value.
B) unit of account.
C) standard of deferred payment.
D) medium of exchange.
Answer:
The analysis of how asymmetric information problems affect economic behavior is
called ________ theory.
A) uneven
B) parallel
C) principal
D) agency
Answer:
Changes in stock prices
A) do not affect people’s wealth and their willingness to spend.
B) affect firms’ decisions to sell stock to finance investment spending.
C) occur in regular patterns.
D) are unimportant to decision makers.
Answer:
Open market purchases raise the ________ thereby raising the ________.
A) money multiplier; money supply
B) money multiplier; monetary base
C) monetary base; money supply
D) monetary base; money multiplier
Answer:
Exchange-rate targeting allows a central bank to ________, thus this will ________ the
probability of policy developing a time-inconsistency problem.
A) be governed by a policy rule; decrease
B) follow discretionary policy; decrease
C) be governed by a policy rule; increase
D) follow discretionary policy; increase
Answer:
Which of the following long-term bonds has the highest interest rate?
A) Corporate Baa bonds
B) U.S. Treasury bonds
C) Corporate Aaa bonds
D) Municipal bonds
Answer:
Although it has a population about half that of the United States, Japan has
A) many more banks.
B) about 25 percent of the number of banks.
C) more than 5000 commercial banks.
D) fewer than 100 commercial banks.
Answer: