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
To lower interest rates on residential mortgages to stimulate the housing market, the Fed
extended its open market operations to purchase
A) mortgage-backed securities.
B) commercial papers.
C) long-term Treasuries.
D) Treasury bills and Treasury notes.
Banks develop statistical models to calculate their maximum loss over a given time
period. This approach is known as the
A) stress-testing approach.
B) value-at-risk approach.
C) trading-loss approach.
D) doomsday approach.
Because of the presence of asymmetric information problems in credit markets, an
expansionary monetary policy causes a ________ in net worth, which ________ the
adverse selection problem, thereby ________ increased lending to finance investment
spending.
A) decline; increases; encouraging
B) rise; increases; discouraging
C) rise; reduces; encouraging
D) decline; reduces; discouraging
Arguments for discretionary policies include
A) policy rules can be too rigid because they cannot foresee every contingency.
B) the time-inconsistency problem can lead to poor economic outcomes.
C) discretionary policies pursue overly expansionary monetary policies to boost
employment in the short run but generate higher inflation in the long run.
D) all of the above.
An assumption in the model of the money supply process is that the desired levels of
currency and excess reserves
A) are given as constants.
B) grow proportionally with checkable deposits.
C) grow proportionally with high-powered money.
D) grow proportionally over time.
A contract that requires the investor to buy securities on a future date is called a
A) short contract.
B) long contract.
C) hedge.
D) cross.
The velocity of money is defined as
A) real GDP divided by the money supply.
B) nominal GDP divided by the money supply.
C) real GDP times the money supply.
D) nominal GDP times the money supply.
Everything else held constant, changes in the interest rate affect planned investment
spending and hence the equilibrium level of output, but this change in investment
spending
A) merely causes a movement along the IS curve and not a shift.
B) is crowded out by higher taxes.
C) is crowded out by higher government spending.
D) is crowded out by lower consumer expenditures.
The FOMC finally moved to ________ on January 25, 2012, when it issued its
“Statement on Long-Run
Goals and Monetary Policy Strategy.”
A) inflation targeting
B) zero inflation policy
C) “just do it” policy
D) monetary targeting
After 2003, The Federal Reserve usually keeps the discount rate
A) above the target federal funds rate.
B) equal to the target federal funds rate.
C) below the target federal funds rate.
D) equal to zero.
________ assist in the initial sale of securities in the primary market; ________ assist
in the trading of securities in the secondary markets.
A) Investment banks; mutual funds
B) Commercial banks; mutual funds
C) Investment banks; securities brokers and dealers
D) Commercial banks; securities brokers and dealers
Under the current managed float exchange rate regime, countries with ________ in
their balance of payments frequently do not want to see their currencies ________
because it makes their goods more expensive abroad and foreign goods cheaper in their
countries.
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
Loans made to consumers by finance companies are typically
A) only for the purchase of cars or boats.
B) at interest rates below those charged by banks for the same type of loan.
C) at interest rates above those charged by banks for the same type of loan.
D) not made for less than $10,000.
When the financial institution is hedging interest-rate risk on its overall portfolio, then
the hedge is a
A) macro hedge.
B) micro hedge.
C) cross hedge.
D) futures hedge.
The price of a consol equals the coupon payment
A) times the interest rate.
B) plus the interest rate.
C) minus the interest rate.
D) divided by the interest rate.
Everything else held constant, if a central bank makes a sterilized purchase of foreign
assets, then the domestic currency will
A) appreciate.
B) depreciate.
C) either appreciate, depreciate, or remain constant.
D) not be affected.
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
If the government finances its spending by issuing debt to the public, the monetary base
will ________ and the money supply will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) not change; not change
A short contract requires that the investor
A) sell securities in the future.
B) buy securities in the future.
C) hedge in the future.
D) close out his position in the future.
In the figure above, a factor that could cause the demand for bonds to decrease (shift to
the left) is
A) an increase in the expected return on bonds relative to other assets.
B) a decrease in the expected return on bonds relative to other assets.
C) an increase in wealth.
D) a reduction in the riskiness of bonds relative to other assets.
The Fed prefers that ________ so that ________.
A) banks borrow reserves from each other; banks can monitor each other for credit risk
B) banks borrow reserves from each other; the Fed can monitor banks for credit risk
C) banks borrow reserves from the Fed; banks can monitor each other for credit risk
D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk
An autonomous monetary policy easing reduces real interest rates and raises aggregate
output ________ and the inflation rate rises ________.
A) temporarily; permanently
B) permanently; temporarily
C) permanently; permanently
D) temporarily; temporarily
Mortgage-backed securities are similar to ________ but the interest and principal
payments are backed by the individual mortgages within the security.
A) bonds
B) stock
C) repurchase agreements
D) negotiable CDs
The theory of portfolio choice suggests that the most important factor affecting the
demand for domestic and foreign assets is the ________ on these assets relative to one
another.
A) interest rate
B) risk
C) expected return
D) liquidity
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.
A decrease in the brokerage commissions in the housing market from 6% to 5% of the
sales price will shift the ________ curve for bonds to the ________, everything else
held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Each Fed bank president attends FOMC meetings; although only ________ Fed bank
presidents vote on policy, all ________ provide input.
A) three; ten
B) five; ten
C) three; twelve
D) five; twelve
In the long-run ISLM model and with everything else held constant, the long-run effect
of an expansionary monetary policy is to
A) increase real output and the interest rate.
B) not change either real output or the interest rate.
C) increase real output and leave the interest rate unchanged.
D) increase the interest rate and leave real output unchanged.
An increase in the expected rate of inflation will ________ the expected return on
bonds relative to the that on ________ assets, everything else held constant.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $16,000.
B) $20,000.
C) $26,000.
D) $36,000.
If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is
A) 0.25.
B) 4.
C) 8.
D) 16.
The upward slope of the MP curve indicates that
A) the central bank lowers real interest rates when inflation rises.
B) the central bank raises real interest rates when inflation falls.
C) the central bank raises nominal interest rates when inflation rises.
D) the central bank raises real interest rates when inflation rises.