An autonomous easing of monetary policy
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Off-balance-sheet activities
A) generate fee income with no increase in risk.
B) increase bank risk but do not increase income.
C) generate fee income but increase a bank’s risk.
D) generate fee income and reduce risk.
If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2
years would experience a decrease in its net worth of
A) 0.9 percent of its assets.
B) 0.9 percent of its liabilities.
C) 1.8 percent of its liabilities.
D) 1.8 percent of its assets.
Lessons that economists and policy makers have learned from the recent global
financial crisis include
A) Developments in the financial sector have a far greater impact on economic activity
than was earlier realized.
B) The zero lower bound on interest rates can be a serious problem.
C) The cost of cleaning up after a financial crisis is very high.
D) Price and output stability do not ensure financial stability.
E) All of the above.
Conflicts of interest may arise within the credit rating agencies because
A) the investors pay the credit agencies for ratings.
B) the issuers of debt securities pay the credit agencies for ratings.
C) the credit rating agencies provide auditing services to issuers of debt securities.
D) the credit rating agencies are involved in offering credit counseling to investors.
According to Tobin’s q theory, ________ policy can affect ________ spending through
its effect on the prices of common stock.
A) fiscal; consumption
B) fiscal; investment
C) monetary; consumption
D) monetary; investment
As information technology improves, the lending role of financial institutions such as
banks should
A) increase somewhat.
B) decrease.
C) stay the same.
D) increase significantly.
The Fed was committed to keeping interest rates low to assist Treasury financing of
budget deficits
A) only during World War I.
B) during the Great Depression.
C) during World War I and World War II.
D) throughout the entire existence of the Fed.
Keynes mentioned two factors that influenced planned investment spending
A) interest rates and disposable income.
B) interest rates and business expectations about the future.
C) disposable income and business expectations about the future.
D) interest rates and business expectations about inflation.
The view that velocity is constant in the short run transforms the equation of exchange
into the quantity theory of money. According to the quantity theory of money, when the
money supply doubles
A) velocity falls by 50 percent.
B) velocity doubles.
C) nominal incomes falls by 50 percent.
D) nominal income doubles.
Everything else held constant, an increase in net taxes 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
An expectation may fail to be rational if
A) relevant information was not available at the time the forecast is made.
B) relevant information is available but ignored at the time the forecast is made.
C) information changes after the forecast is made.
D) information was available to insiders only.
Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets
include
A) failure of the Mexican oil monopoly.
B) the ratification of the North American Free Trade Agreement.
C) increased uncertainty from political shocks.
D) decline in interest rates.
Suppose the economy is producing at the natural rate of output. An increase in
consumer and business confidence will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Early Keynesians felt that ________ policy was ________, so they stressed the
importance of ________ policy.
A) fiscal; ineffective; monetary
B) monetary; ineffective; fiscal
C) monetary; potent; monetary
D) fiscal; too potent; monetary
The delivery of financial services electronically is called
A) e-business.
B) e-commerce.
C) e-finance.
D) e-possible.
The preferred habitat theory of the term structure is closely related to the
A) expectations theory of the term structure.
B) segmented markets theory of the term structure.
C) liquidity premium theory of the term structure.
D) the inverted yield curve theory of the term structure.
Moral hazard is an important concern of insurance arrangements because the existence
of insurance
A) provides increased incentives for risk taking.
B) is a hindrance to efficient risk taking.
C) causes the private cost of the insured activity to increase.
D) creates an adverse selection problem but no moral hazard problem.
Today 1 euro can be purchased for $1.10. This is the
A) spot exchange rate.
B) forward exchange rate.
C) fixed exchange rate.
D) financial exchange rate.
________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to appreciate, everything else
held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Long-term customer relationships ________ the cost of information collection and
make it easier to ________ credit risks.
A) reduce; screen
B) increase; screen
C) reduce; increase
D) increase; increase
Conflicts of interest are a type of ________ problem that can happen when an
institution provides multiple services.
A) adverse selection
B) free-riding
C) discounting
D) moral hazard
The exchange rate is
A) the price of one currency relative to gold.
B) the value of a currency relative to inflation.
C) the change in the value of money over time.
D) the price of one currency relative to another.
When I purchase a corporate ________, I am lending the corporation funds for a
specific time. When I purchase a corporation’s ________, I become an owner in the
corporation.
A) bond; stock
B) stock; bond
C) stock; debt security
D) bond; debt security
A fall in inventories is synonymous with ________ investment.
A) negative fixed
B) positive fixed
C) positive inventory
D) negative inventory
Assume that autonomous consumption equals $200 and disposable income equals
$1000. If total consumption equal $800, then the mpc equals
A) 0.2.
B) 0.6.
C) 0.8.
D) 1.0.
A disadvantage of ________made from precious metals is that it is very heavy and hard
to transport from one place to another.
A) commodity money
B) fiat money
C) electronic money
D) paper money
In an open economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net
exports.
D) consumer expenditure, planned investment spending, government spending, and net
exports.
If the economy is on the IS curve, but is to the right of the LM curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Open market purchases ________ reserves and the monetary base thereby ________
the money supply.
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising
A nominal variable, such as the inflation rate or the money supply, which ties down the
price level to achieve price stability is called ________ anchor.
A) a nominal
B) a real
C) an operating
D) an intermediate
Mean reversion refers to the fact that
A) small firms have higher than average returns.
B) stocks that have had low returns in the past are more likely to do well in the future.
C) stock returns are high during the month of January.
D) stock prices fluctuate more than is justified by fundamentals.
If the economy is characterized by a stable IS curve and an unstable LM curve, then
________ target produces ________ fluctuations in aggregate output.
A) an interest rate; larger
B) a money supply; smaller
C) a money supply; larger
D) an exchange rate; smaller