When the interest rate rises
A) planned investment falls.
B) planned investment rises.
C) planned investment will be unaffected.
D) equilibrium income increases.
In the liquidity trap, the money demand curve
A) is horizontal.
B) is vertical.
C) is negatively sloped.
D) is positively sloped.
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
The major provisions of the Competitive Equality Banking Act of 1987 include
A) expanding the responsibilities of the FDIC, which is now the sole administrator of
the federal deposit insurance system.
B) the establishment of the Resolution Trust Corporation to manage and resolve
insolvent thrifts placed in conservatorship or receivership.
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory
forbearance.
D) prompt corrective action when a bank gets in trouble.
To convert a nominal GDP to a real GDP, you would use
A) the PCE deflator.
B) the CPI measure.
C) the GDP deflator.
D) the PPI measure.
In one sense ________ appears surprising since it means that the bank is not ________
its portfolio of loans and thus is exposing itself to more risk.
A) specialization in lending; diversifying
B) specialization in lending; rationing
C) credit rationing; diversifying
D) screening; rationing
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $2 million in reserves, then it will not have enough reserves to support a
deposit outflow of
A) $1.2 million.
B) $1.1 million.
C) $1 million.
D) $900,000.
An autonomous monetary policy easing temporarily ________ real interest rates and
________ aggregate output in the short run, but in the long run real interest rates and
aggregate output return to the equilibrium levels.
A) reduces; raises
B) reduces; lowers
C) increases; lowers
D) increases; raises
The Keynesian framework indicates that government can play an important role in
determining aggregate output by
A) changing the level of government spending or taxes.
B) raising consumer confidence.
C) raising investor confidence.
D) changing the money supply and interest rates.
A financial crisis is
A) not possible in the modern financial environment.
B) a major disruption in the financial markets.
C) a feature of developing economies only.
D) typically followed by an economic boom.
Everything else held constant, a decrease in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
If firms and households form their expectations about inflation by looking at past
inflation, this form of expectations formation is known as ________ expectations.
A) adaptive
B) forward-looking
C) rational
D) perfect
In May 1991, the FDIC announced that it would sell the government’s final 26% stake
in Continental Illinois, ending government ownership of the bank that it had rescued in
1984. The FDIC took control of the bank, rather than liquidate it, because it believed
that Continental Illinois
A) was a good investment opportunity for the government.
B) could be the Chicago branch of a new governmentally-owned interstate banking
system.
C) was too big to fail.
D) would become the center of the new midwest region central bank system.
Before the South Korean financial crisis, sales by the top five chaebols (family-owned
conglomerates) were
A) nearly 50% of GDP.
B) about 10% of GDP.
C) almost 90% of GDP.
D) nearly 25% of GDP.
If the expected path of 1-year interest rates over the next five years is 1 percent, 2
percent, 3 percent, 4 percent, and 5 percent, the expectations theory predicts that the
bond with the highest interest rate today is the one with a maturity of
A) two years.
B) three years.
C) four years.
D) five years.
Suppose a person cashes his payroll check and holds all the funds in the form of
currency. Everything else held constant, total reserves in the banking system ________
and the monetary base ________.
A) remain unchanged; increases
B) decrease; increases
C) decrease; remains unchanged
D) decrease; decreases
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
Which of the following is not a conflict of interest in accounting firms?
A) The firm provides consulting as well as rating creditworthiness.
B) Auditors may be pressured to skew their opinions so the client will stay with the
firm.
C) Auditors may be reluctant to criticize advice put into place by nonaudit personnel of
the firm.
D) Auditors release an overly favorable audit in order to solicit business.
Government regulations require publicly traded firms to provide information, reducing
A) transactions costs.
B) the need for diversification.
C) the adverse selection problem.
D) economies of scale.
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate and
________ in the inflation in the long run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes
the aggregate demand function to shift ________, the equilibrium level of aggregate
output to fall, and the IS curve to shift to the ________, everything else held constant.
A) up; left
B) up; right
C) down; left
D) down; right
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.
The ________ suggests that the most important factor affecting the demand for
domestic and foreign assets is the expected return on domestic assets relative to foreign
assets.
A) theory of portfolio choice
B) law of one price
C) interest parity condition
D) theory of foreign capital mobility
If the deficit is financed by selling bonds to the ________, the money supply will
________, increasing aggregate demand, and leading to a rise in the price level.
A) public; rise
B) public; fall
C) central bank; rise
D) central bank; fall
Which of the followings is a duty of the Board of Governors of the Federal Reserve
System?
A) setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B) setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C) regulating credit with the approval of the president under the Credit Control Act of
1969
D) All governors advise the president of the United States on economic policy.
The Federal Home Loan Bank Board and the FSLIC, both of which failed in their
regulatory tasks, were abolished by the
A) Competitive Equality Banking Act of 1987.
B) Financial Institutions Reform, Recovery and Enforcement Act of 1989.
C) Office of Thrift Supervision.
D) Office of the Comptroller of the Currency.
Which of the following is an example of an intermediate-term debt?
A) a fifteen-year mortgage
B) a sixty-month car loan
C) a six-month loan from a finance company
D) a thirty-year U.S. Treasury bond
In the market for reserves, when the federal funds interest rate is below the discount
rate, the supply curve of reserves is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
All bonds that will not be held to maturity have interest rate risk which occurs because
of the change in the price of the bond as a result of
A) interest-rate changes.
B) changes in the coupon rate.
C) default of the borrower.
D) changes in the asset’s maturity date.
Stockholders are residual claimants, meaning that they
A) have the first priority claim on all of a company’s assets.
B) are liable for all of a company’s debts.
C) will never share in a company’s profits.
D) receive the remaining cash flow after all other claims are paid.
Everything else held constant, in the market for reserves, when the federal funds rate
equals the interest rate paid on excess reserves, raising the interest rate paid on excess
reserves
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect of the federal funds rate.
The current supervisory practice toward risk management
A) focuses on the quality of a bank’s balance sheet.
B) determines whether capital requirements have been met.
C) evaluates the soundness of a bank’s risk-management process.
D) focuses on eliminating all risk.
Budgets deficits can be a concern because they might
A) ultimately lead to higher inflation.
B) lead to lower interest rates.
C) lead to a slower rate of money growth.
D) lead to higher bond prices.
The simple deposit multiplier can be expressed as the ratio of the
A) change in reserves in the banking system divided by the change in deposits.
B) change in deposits divided by the change in reserves in the banking system.
C) required reserve ratio divided by the change in reserves in the banking system.
D) change in deposits divided by the required reserve ratio.
If the economy is on the IS curve, but is to the left of the LM curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
