A nation running a persistent balance of payments surplus while part of a fixed
exchange rate system would be required to __________ international reserves in an
effort to prevent its currency from __________.
A) amass; appreciating
B) amass; depreciating
C) pay out; appreciating
D) pay out; depreciating
Modern portfolio analysis assumes that individuals
A) are risk-averse.
B) attempt to maximize liquidity.
C) attempt to maximize returns regardless of risk.
D) never take risks.
Using the pure expectations theory of term structure, a negatively sloped yield curve
indicates that investors expect
A) falling short term interest rates.
B) rising short term interest rates.
C) falling long term interest rates.
D) rising long term interest rates.
In the 1980s, banks lost many of their __________ borrowers, because these borrowers
were able to sell their commercial paper to __________.
A) small; savings-and-loan associations
B) small; money market mutual funds
C) large; savings-and-loan associations
D) large; money market mutual funds
Suppose that for several periods the aggregate demand and supply curves have been
intersecting at the same point, and at full employment. The central bank increases
money growth as a result of an unannounced policy change. Under the assumption of
adaptive expectations the likely short-run result is __________ output and __________
price level.
A) rising; a rising
B) rising; an unchanged
C) unchanged; a rising
D) unchanged; an unchanged
Fiscal policy is most effective when
A) the LM curve is vertical.
B) the LM curve is horizontal.
C) the LM curve is positively sloped.
D) the LM curve is negatively sloped.
Buddy Bolly just received his annual bank statement. One year ago, Buddy deposited
$10,000 in a savings account. Today, his balance is $10,509.45. Buddy’s savings
account interest is compounded quarterly. Buddy received an annualized interest rate of
__________ percent.
A) 6
B) 5
C) 4
D) 3
Since 1960 U.S. banks have __________ the proportion of their total lending which is
done overseas.
A) reduced to near zero
B) scaled back
C) held nearly constant
D) increased
The Board of Governors appoint __________ directors for each Federal Reserve Bank
and the member banks elect __________ for the Federal Reserve Bank in their district.
A) three; three
B) three; six
C) six; three
D) six; six
If the economy is at full employment, anything that causes the level of income to
change will cause fluctuations in the __________ that will shift the __________ curve
and thus help stabilize economic activity
A) price level; IS
B) price level; LM
C) interest rate; IS
D) interest rate; LM
The __________ market liquidity is, the __________ the bid-asked spread will be.
A) higher; wider
B) lower; narrower
C) higher; narrower
D) None of the above.
Which of the following is false? Critics of the ISLM framework have stated that
A) there is no linkage between flow and stock concepts.
B) the interest rate is the only mechanism through which monetary policy operates.
C) money is not a substitute for physical assets.
D) velocity is assumed to be constant.
Suppose that IS and LM intersect at full-employment output. A rightward shift of LM
will be followed by a __________ price level that shifts LM to the __________ in a
return to full employment.
A) rising; right
B) rising; left
C) falling; right
D) falling; left
The natural rate of interest is a __________ rate that __________ inflationary
expectations.
A) nominal; includes
B) nominal; excludes
C) real; includes
D) real; excludes
Mutual funds that offer shares that are redeemable are referred to as
A) open-end.
B) closed-end.
C) negotiable.
D) nonnegotiable.
If reserves are __________ because of a temporary __________ in the Treasury’s
balance at the Fed, open market __________ may be used to offset such influences.
A) falling; decline; sales
B) rising; increase; sales
C) rising; decline; sales
D) rising; decline; purchases
Venture capital funds invest in the equity of
A) start-up companies.
B) IPOs.
C) hedge funds.
D) convertible debt.
When comparing the velocity of M2 (V2), with the velocity of M1 (V1), the evidence
suggests that V2 has been __________ and V1 has been __________ over time.
A) relatively predictable; relatively predictable
B) relatively predictable; relatively unpredictable
C) relatively unpredictable; relatively predictable
D) relatively unpredictable; relatively unpredictable
The Chairman of the Federal Open Market Committee is also
A) Chairman of the Federal Deposit Insurance Corporation.
B) Chairman of the Federal Reserve Board of Governors.
C) Comptroller of the Currency.
D) President of the New York Federal Reserve Bank.
In the Keynesian model, which of the following will cause a reduction in interest rates?
A) An increase in money demand
B) An increase in money supply
C) An increase in saving
D) A decline in saving
When the economy is in the liquidity trap, the
A) LM curve is horizontal.
B) LM curve is vertical.
C) IS curve is horizontal.
D) IS curve is vertical.
The various signaling techniques __________ completely overcome the moral hazard
problem in the case of the small borrower, so that small business loans are generally
__________-term.
A) can; long
B) can; short
C) cannot; long
D) cannot; short
Recently, new discount window lending procedures set a penalty rate that is normally
__________ short-term market interest rates.
A) just below
B) above
C) approximately equal to
D) None of the above.
If investment has a low sensitivity to the interest rate, the IS curve is rather
__________, so that monetary policy has a __________ effect on GDP.
A) flat; strong
B) flat; weak
C) steep; strong
D) steep; weak
One effect of a shrinking economy is
A) an increase in the discount rate.
B) a decrease in the discount rate.
C) an increase in the federal funds rate.
D) a decrease in the federal funds rate.