If net exports decrease by 250 and the mpc is 0.75, equilibrium aggregate output
A. increases by 1000.
B. increases by 750.
C. decreases by 750.
D. decreases by 1000.
Answer:
The nominal interest rate minus the expected rate of inflation
A. defines the real interest rate.
B. is a less accurate measure of the incentives to borrow and lend than is the nominal
interest rate.
C. is a less accurate indicator of the tightness of credit market conditions than is the
nominal interest rate.
D. defines the discount rate.
Answer:
The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of
A. government regulations designed to improve the efficiency of the payments system.
B. government regulations designed to promote the safety of the payments system.
C. innovations that reduced the costs of exchanging goods and services.
D. competition among firms to make it easier for customers to purchase their products.
Answer:
Potential weaknesses of nominal GDP targeting include
A. it requires accurate estimates of potential GDP growth, which are not easy to
achieve.
B. it implies that the central bank will respond to slowdowns in the real economy even
if inflation is not falling.
C. real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
D. it focuses not only on controlling inflation but also explicitly on stabilizing real
GDP.
Answer:
One reason China has been able to grow so rapidly even though its financial
development is still in its early stages is
A) the high savings rate of around 40%.
B) the shift of labor to the agricultural sector.
C) the stringent enforcement of financial contracts.
D) the ease of obtaining high-quality information about creditors.
Answer:
Compared to an electronic payments system, a payments system based on checks has
the major drawback that
A. checks are less costly to process.
B. checks take longer to process, meaning that it may take several days before the
depositor can get her cash.
C. fraud may be more difficult to commit when paper receipts are eliminated.
D. legal liability is more clearly defined.
Answer:
A decrease in the riskiness of corporate bonds will ________ the yield on corporate
bonds and ________ the yield on Treasury securities, everything else held constant.
A. increase; increase
B. decrease; decrease
C. increase; decrease
D. decrease; increase
Answer:
Lower tariffs and quotas cause a country’s currency to ________ in the ________ run,
everything else held constant.
A. depreciate; short
B. appreciate; short
C. depreciate; long
D. appreciate; long
Answer:
Everything else held constant, an increase in the required 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:
The currency component includes paper money and coins held in
A. bank vaults.
B. ATMs.
C. the hands of the nonbank public.
D. the central bank.
Answer:
In the figure above, a factor that could cause the demand for bonds to decrease (shift to
the left) is
A. an increase in the expected return on bonds relative to other assets.
B. a decrease in the expected return on bonds relative to other assets.
C. an increase in wealth.
D. a reduction in the riskiness of bonds relative to other assets.
Answer:
Reputational rents refer to
A. the profit earned by a firm when it captures economies of scope.
B. the costs associated with building credibility of a firm.
C. the profit earned solely based on the credibility of a firm.
D. the costs associated with the firm’s achievement of economies of scale.
Answer:
When banks involved in trading activities attempt to outguess markets, they are
A. forecasting.
B. diversifying.
C. speculating.
D. engaging in riskless arbitrage.
Answer:
If a forecast is made using all available information, then economists say that the
expectation formation is
A. rational.
B. irrational.
C. adaptive.
D. reasonable.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
5%, lowering the discount rate from 5% to 4%
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:
Interest income minus interest expenses divided by assets is a measure of bank
performance known as the
A. operating income.
B. net interest margin.
C. return on assets.
D. return on equity.
Answer:
If the economy suffers a permanent negative supply shock because there is an increase
in regulations that permanently reduce the level of potential output, then
A. potential output falls.
B. the long-run aggregate supply curve shifts leftward.
C. the short-run aggregate supply curve shifts upward.
D. all of the above.
Answer:
Approaches to establishing central bank credibility include
A. inflation targeting.
B. nominal GDP targeting.
C. central bank independence.
D. appointment of a more conservative central banker.
E. all of the above.
Answer:
In order to reduce the ________ problem in loan markets, bankers collect information
from prospective borrowers to screen out the bad credit risks from the good ones.
A. moral hazard
B. adverse selection
C. moral suasion
D. adverse lending
Answer:
The federal agency that ensures that potential security purchasers are well informed is
the
A. FCC.
B. FTC.
C. NRC.
D. SEC.
Answer:
________ examines whether one variable has an effect on another by simply looking
directly at the relationship between the two variables.
A. Reduced-form evidence
B. Organizational-model evidence
C. Direct-model evidence
D. Structural-model evidence
Answer:
When the federal funds rate equals the discount rate
A. the supply curve of reserves is vertical.
B. the supply curve of reserves is horizontal.
C. the demand curve for reserves is vertical.
D. the demand curve for reserves is horizontal.
Answer:
________ and ________ may provide an explanation for stock market bubbles.
A. Overconfidence; social contagion
B. Underconfidence; social contagion
C. Overconfidence; social isolationism
D. Underconfidence; social isolationism
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:
Under a fixed exchange rate regime, if the domestic currency is initially overvalued,
that is, below par, the central bank must intervene to purchase the ________ currency
by selling ________ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
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:
The monetarist-Keynesian debate on the importance of monetary policy is unresolved
because monetarists and Keynesians focus on two different types of evidence that
generate conflicting conclusions. Monetarists tend to focus on
A. structural-model evidence, while Keynesians focus on reduced-form evidence.
B. reduced-form evidence, while Keynesians focus on structural-model evidence.
C. reduced-form evidence, while Keynesians focus on direct-model evidence.
D. structural-model evidence, while Keynesians focus on direct-model evidence.
Answer:
The Fed can exert more precise control over ________ than it can over ________.
a. high-powered money; reserves
b. high-powered money; the monetary base
c. the monetary base; high-powered money
d. reserves; high-powered money
Answer:
When the economy suffers a temporary negative supply shock, the central bank’s
autonomous monetary policy to keep inflation at the target inflation rate leads to
A. more stable economic activities.
B. a large deviation of output from its potential.
C. divine coincidence.
D. both B and C.
Answer:
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to hold any excess reserves but makes loans instead, then, in the
bank’s final balance sheet
A. the assets at the bank increase by $800,000.
B. the liabilities of the bank increase by $1,000,000.
C. the liabilities of the bank increase by $800,000.
D. reserves increase by $160,000.
Answer:
Keynes argued that the precautionary component of the demand for money was
primarily determined by the level of people’s ________, which he believed were
proportional to ________.
A. incomes; wealth
B. incomes; age
C. transactions; income
D. transactions; age
Answer:
The time it takes for policy makers to obtain data indicating what is happening in the
economy is called
A. the data lag.
B. the recognition lag.
C. the legislative lag.
D. the implementation lag.
E. the effectiveness lag.
Answer:
Provisions in loan contracts that prohibit borrowers from engaging in specified risky
activities are called
A. proscription bonds.
B. restrictive covenants.
C. due-on-sale clauses.
D. liens.
Answer: