Recognizing the distinction between borrowed reserves and the nonborrowed monetary
base, the money supply model is specified as
A) M = m × (MBn – BR).
B) M = m × (MBn + BR).
C) M = m + (MBn – BR).
D) M = m – (MBn + BR).
Answer:
In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $500 in government bonds.
B) sold $50 in government bonds.
C) purchased $50 in government bonds.
D) purchased $500 in government bonds.
Answer:
In the long-run ISLM model and with everything else held constant, as long as the level
of output ________ the natural rate level, the price level will continue to ________,
shifting the LM curve to the ________, until finally output is back at the natural rate
level.
A) exceeds; rise; right
B) exceeds; fall; left
C) remains below; fall; right
D) remains below; rise; left
Answer:
Everything else held constant, a decrease 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:
The price of a barrel of oil doubled between 2007 and the middle of To make matters
worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the
following is true of the United Kingdom’s experience?
A) The increase in the price of oil immediately shifted the AS curve to the left.
B) The financial crisis did not take hold right away so the AD curve did not
immediately shift.
C) Eventually, the Lehman Brothers bankruptcy caused a negative demand shock
leading to a further fall in output and an increase in the unemployment rate.
D) All of the above.
E) None of the above.
Answer:
Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
If peanuts serve as a medium of exchange, a unit of account, and a store of value, then
peanuts are
A) bank deposits.
B) reserves.
C) money.
D) loanable funds.
Answer:
A policy in which the money supply is kept growing at a constant rate regardless of the
state of the economy is
A) a Taylor rule.
B) a discretionary policy.
C) a policy rule advocated by monetarists.
D) advocated by activists.
Answer:
Introduction of checks into the payments system reduced the costs of exchanging goods
and services. Another advantage of checks is that
A) they provide convenient receipts for purchases.
B) they can never be stolen.
C) they are more widely accepted than currency.
D) the funds from a deposited check are available for use immediately.
Answer:
Agency problems in the subprime mortgage market included all of the following except
A) homeowners could refinance their houses with larger loans when their homes
appreciated in value.
B) mortgage originators had little incentives to make sure that the mortgage is a good
credit risk.
C) underwriters of mortgage-backed securities had weak incentives to make sure that
the holders of the securities would be paid back.
D) the evaluators of securities, the credit rating agencies, were subject to conflicts of
interest.
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to depreciate, everything else
held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Answer:
Everything else held constant, an increase in interest rates on student loans
A) increases the cost of a college education.
B) reduces the cost of a college education.
C) has no effect on educational costs.
D) increases costs for students with no loans.
Answer:
Everything else held constant, if income tax rates were lowered, then
A) the interest rate on municipal bonds would fall.
B) the interest rate on Treasury bonds would rise.
C) the interest rate on municipal bonds would rise.
D) the price of Treasury bonds would fall.
Answer:
Who has regulatory responsibility when a bank operates branches in many countries?
A) It is not always clear.
B) The WTO.
C) The U.S. Federal Reserve System.
D) The first country to submit an application.
Answer:
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 in required reserves.
A) one
B) two
C) eight
D) ten
Answer:
A smart card is the equivalent of
A) cash.
B) savings bonds.
C) savings deposits.
D) certificates of deposit.
Answer:
The agreement to provide a standardized commodity to a buyer on a specific date at a
specific future price is
A) a put option.
B) a call option.
C) a futures contract.
D) a mortgage-backed security.
Answer:
If the price level doubles, the value of money
A) doubles.
B) more than doubles, due to scale economies.
C) rises but does not double, due to diminishing returns.
D) falls by 50 percent.
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:
The Federal Reserve will engage in a repurchase agreement when it wants to ________
reserves ________ in the banking system.
A) increase; permanently
B) increase; temporarily
C) decrease; temporarily
D) decrease; permanently
Answer:
A financial market in which only short-term debt instruments are traded is called the
________ market.
A) bond
B) money
C) capital
D) stock
Answer:
The Keynesian theory of money demand predicts that people will increase their money
holdings if they believe that
A) interest rates are about to fall.
B) bond prices are about to rise.
C) expected inflation is about to fall.
D) bond prices are about to fall.
Answer:
You would be more willing to buy AT&T bonds (holding everything else constant) if
A) the brokerage commissions on bond sales become cheaper.
B) interest rates are expected to rise.
C) your wealth has decreased.
D) you expect diamonds to appreciate in value.
Answer:
With direct finance, funds are channeled through the financial market from the
________ directly to the ________.
A) savers, spenders
B) spenders, investors
C) borrowers, savers
D) investors, savers
Answer:
Under the Bretton Woods system, the United States was designated as the
A) reserve-currency country.
B) fixed-rate country.
C) par-standard country.
D) dollar-standard country.
Answer:
Under the current managed float exchange rate regime, countries with balance of
payments deficits frequently do not want to see their currencies depreciate because it
makes ________ goods more expensive for ________ consumers and can stimulate
inflation.
A) foreign; foreign
B) foreign; domestic
C) domestic; foreign
D) domestic; domestic
Answer:
An important function of secondary markets is to
A) make it easier to sell financial instruments to raise funds.
B) raise funds for corporations through the sale of securities.
C) make it easier for governments to raise taxes.
D) create a market for newly constructed houses.
Answer:
Everything else held constant, when the inflation rate is expected to rise, interest rates
will ________; this result has been termed the ________.
A) fall; Keynes effect
B) fall; Fisher effect
C) rise; Keynes effect
D) rise; Fisher effect
Answer:
The less interest-sensitive is money demand, the
A) more effective is fiscal policy relative to monetary policy.
B) more effective is monetary policy relative to fiscal policy.
C) steeper is the IS curve.
D) flatter is the LM curve.
Answer:
The number and availability of discount brokers has grown rapidly since the mid-1970s.
The efficient markets hypothesis predicts that people who use discount brokers
A) will likely earn lower returns than those who use full-service brokers.
B) will likely earn about the same as those who use full-service brokers, but will net
more after brokerage commissions.
C) are going against evidence suggesting that full-service brokers can help outperform
the market.
D) are likely to outperform the market by a wide margin.
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; 0.67
B) 0.67; 0.80
C) 0.50; 0.33
D) 0.33; 0.50
Answer:
In the United States, loans from ________ are far ________ important for corporate
finance than are securities markets.
A) government agencies; more
B) government agencies; less
C) financial intermediaries; more
D) financial intermediaries; less
Answer:
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when
the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $200 in government bonds.
B) sold $500 in government bonds.
C) purchased $200 in government bonds.
D) purchased $500 in government bonds.
Answer:
From the standpoint of ________, specialization in lending is surprising but makes
perfect sense when one considers the ________ problem.
A) moral hazard; diversification
B) diversification; moral hazard
C) adverse selection; diversification
D) diversification; adverse selection
Answer: