Which theory of the term structure is usually criticized for underestimating the
substitutability of different maturities of securities?
A) The expectations theory
B) The supply and demand approach
C) The liquidity premium theory
D) The preferred habitat approach
A change in the discount rate is likely to occur
A) after a change in the Treasury bill rate.
B) after a change in the Treasury bond rate.
C) before a change in the federal funds rate.
D) before a change in the inflation rate.
Reserve requirements on bank deposits are set by
A) the SEC.
B) the Federal Reserve board of governors.
C) the Federal Reserve district banks.
D) Congress.
For state member banks, the “primary” federal regulator is the
A) Federal Reserve.
B) FDIC.
C) House Banking Committee.
D) Comptroller of the Currency.
Assume that the ratio of excess reserves to demand deposits is 0, and the ratio of
currency to demand deposits is .2. If the reserve requirement on demand deposits is .3
and there is no reserve requirement on savings accounts, the M1 multiplier is
A) 5.5.
B) 4.
C) 2.5.
D) 2.4.
A bank creates money
A) never since it only lends out money it owns.
B) when it makes loans.
C) when it prints bank notes.
D) when it pays out reserves.
Which of the following is not generally discussed at a ‘special case” of IS-LM analysis?
A) Horizontal IS
B) Vertical IS
C) Horizontal LM
D) Vertical LM
According to supply-siders the main consequence of reducing tax rates is
A) increases aggregate demand and the price level.
B) increases in aggregate supply.
C) increases in aggregate supply and the price level.
D) making the aggregate supply curve upward-sloping.
Using the cash balance version of the quantity theory with k = .2, an increase in the
money supply of $100 billion leads to an increase in GDP of
A) $500 billion.
B) $100 billion.
C) $50 billion.
D) $20 billion.
An example of direct finance would be when
A) a person purchases a certificate of deposit from a bank.
B) a person buys a life insurance policy.
C) a person buys 100 shares of stock from a corporation.
D) a bank makes a loan to a customer.
Repos and reverse repos are
A) permanent injections or deletions of reserves.
B) always dynamic policy tools.
C) temporary injections or deletions of reserves.
D) sometimes defense, but most often dynamic policy tools.
An inflation forecast developed in a Keynesian framework is likely to focus on
A) Federal Reserve policy.
B) international gold movements.
C) household and business spending decisions.
D) the velocity of money.
When comparing the velocity of M2 (V2), with the velocity of M1 (V1), the evidence
shows that V2 has been __________ and V1 has been __________ over time.
A) relatively stable; relatively stable
B) relatively stable; relatively unstable
C) relatively unstable; relatively stable
D) relatively unstable; relatively unstable
Monetarists view the use of monetary policy to fine-tune the economy as
A) unnecessary because the private sector is inherently stable.
B) always inflationary.
C) less predictable than fiscal policy.
D) impossible because the Fed does not have the tools to control the money supply.
Over the past seventy-five years, power within the Federal Reserve has shifted from
A) the Federal Reserve Banks to the Board of Governors in Washington.
B) the Board of Governors to the Federal Reserve Bank of New York.
C) domestic Federal Reserve banks to foreign Federal Reserve banks.
D) the Federal Reserve Bank of New York to the Federal Reserve Bank of Dallas.
When the Federal Reserve buys $200 worth of government securities, the money supply
A) rises by $200.
B) rises by more than $200.
C) falls by $200.
D) falls by more than $200.
Interest rates have fallen since the early 1980s because the
A) federal deficit has declined.
B) federal deficit has increased.
C) inflation rate has declined.
D) inflation rate has increased.
“If the money supply rises by $1 billion, GDP will rise until it alone increases the
quantity of money demanded by $1 billion.” This describes the situation when
A) an IS curve shifts against a horizontal LM curve.
B) an IS curve shifts against a vertical LM curve.
C) a vertical LM curve shifts against an IS curve.
D) a horizontal LM curve shifts against an IS curve.
The general perception in the early 1980s was the S&Ls were not in serious trouble,
partly because S&Ls were insured by the
A) Securities and Exchange Commission (SEC).
B) U.S. Treasury.
C) Federal Deposit Insurance Corporation.
D) Federal Savings and Loan Insurance Corporation (FSLIC).