1) With an interest rate of 6 percent, the present value of $100 next year is
approximately
A) $106
B) $100
C) $94
D) $92
2) The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to
maximize
A) the public’s welfare
B) profits
C) its own welfare
D) conflict with the executive and legislative branches of government
3) When the Federal Reserve sells a government bond to a bank, reserves in the banking
system ________ and the monetary base ________, everything else held constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
4) The trend in recent years is that more and more governments
A) have been granting greater independence to their central banks
B) have been reducing the independence of their central banks to make them more
accountable for poor economic performance
C) have mandated that their central banks focus on controlling inflation
D) have required their central banks to cooperate more with their Ministers of Finance
5) The ________ of the term structure of interest rates states that the interest rate on a
long-term bond will equal the average of short-term interest rates that individuals
expect to occur over the life of the long-term bond, and investors have no preference for
short-term bonds relative to long-term bonds.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
6) During the bank panics of the Great Depression the excess reserve ratio
A) increased sharply
B) decreased sharply
C) increased slightly
D) decreased slightly
7) The three largest Federal Reserve banks (New York, Chicago, and San Francisco)
combined hold more than ________ percent of the assets of the Federal Reserve
System.
A) 25
B) 33
C) 50
D) 67
8) Everything else held constant, when output is ________ the natural rate level, wages
will begin to ________, increasing short-run aggregate supply.
A) above; fall
B) above; rise
C) below; fall
D) below; rise
9) The existence of lags prevents the instantaneous adjustment of the economy to
policies changing aggregate demand, thereby strengthening the case for
A) supply-side policy
B) nonactivists
C) activists
D) demand-management policy
10) Although the FDIC was created to prevent bank failures, its existence encourages
banks to
A) take too much risk
B) hold too much capital
C) open too many branches
D) buy too much stock
11) If the dollar depreciates relative to the Swiss franc
A) Swiss chocolate will become cheaper in the United States
B) American computers will become more expensive in Switzerland
C) Swiss chocolate will become more expensive in the United States
D) Swiss computers will become cheaper in the United States
12) If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 5.0
B) 2.5
C) 4.0
D) 10.0
13) Goal independence is the ability of ________ to set monetary policy ________.
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
14) Critics of the current system of Fed independence contend that
A) the current system is undemocratic
B) voters have too much say about monetary policy
C) the president has too much control over monetary policy on a day-to-day basis
D) the Board of Governors is held responsible for policy missteps
15) Although the Fed professed employment of ________ targeting during the 1970s,
its behavior suggests that it emphasized ________ targeting.
A) free-reserve; interest-rate
B) interest-rate; monetary aggregate
C) monetary aggregate; interest-rate
D) free reserve; monetary aggregate
16) 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
17) Keynes’s theory of the demand for money is consistent with ________ movements
in ________.
A) countercyclical; velocity
B) procyclical; velocity
C) countercyclical; expectations
D) procyclical; expectations
18) Debt contracts
A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic
intervals
B) have a higher cost of state verification than equity contracts
C) are used less frequently to raise capital than are equity contracts
D) never result in a loss for the lender
19) 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
20) The effectiveness lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy
C) the time it takes to pass legislation to implement a particular policy
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy
E) the time it takes for the policy actually to have an impact on the economy
21) Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve
B) measures of the wealth of individuals
C) never redefined since “money” never changes
D) reported by the Treasury Department annually
22) When comparing the banking crisis in the United States to the crises in Latin
America, cost to the taxpayers of the government bailouts was
A) higher in Latin American than in the United States
B) higher in the United States than in Latin America
C) about the same in both Latin America and the United States
D) positive in Latin America but negative in the United States
23) Currently, Fannie Mae and Freddie Mac are
A) privately owned government-sponsored enterprises
B) privately owned enterprises with no government sponsorship
C) government agencies
D) government departments
24) A swap that involves the exchange of a set of payments in one currency for a set of
payments in another currency is
A) an interest-rate swap
B) a currency swap
C) a swaptions
D) an international swap
25) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment
every year is
A) $650
B) $1,300
C) $130
D) $13
26) ________ in the domestic interest rate causes the demand for domestic assets to
shift to the ________ and the domestic currency to depreciate, everything else held
constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
27) The government corporation that insures pension benefits is
A) Fannie Mae
B) Ginnie Mae
C) Penny Benny
D) Sallie Mae
28) When Americans or foreigners expect the return on ________ assets to be high
relative to the return on ________ assets, there is a ________ demand for dollar assets,
everything else held constant.
A) dollar; foreign; constant
B) dollar; foreign; higher
C) foreign; dollar; higher
D) foreign; dollar; constant
29) According to the liquidity premium theory of the term structure
A) because buyers of bonds may prefer bonds of one maturity over another, interest
rates on bonds of different maturities do not move together over time
B) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds plus a term premium
C) because of the positive term premium, the yield curve will not be observed to be
downward sloping
D) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond
30)
The figure above illustrates the effect of an increased rate of money supply growth at
time period T0. From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
B) liquidity effect is larger than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
C) liquidity effect is larger than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation
31) The mandate for the monetary policy goals that has been given to the Federal
Reserve System is an example of a ________ mandate.
A) primary
B) dual
C) secondary
D) hierarchical
32) The goal for high employment should be a level of unemployment at which the
demand for labor equals the supply of labor. Economists call this level of
unemployment the
A) frictional level of unemployment
B) structural level of unemployment
C) natural rate level of unemployment
D) Keynesian rate level of unemployment
33) There are two types of open market operations: ________ open market operations
are intended to change the level of reserves and the monetary base, and ________ open
market operations are intended to offset movements in other factors that affect the
monetary base.
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static
34) In the model of the money supply process, the bank’s role in influencing the money
supply process is represented by
A) the excess reserve
B) both the excess reserve and the market interest rate
C) the currency ratio
D) only borrowed reserves