If actual output is denoted yand potential output is denoted y*, the output gap is
a. [(y − y*)/ y*] × 100.
b. [(y − y*)/ y] × 100.
c. [(y* − y)/ y*] × 100.
d. [(y* − y)/ y] × 100.
Answer:
Suppose the money demand function is MD= P× [(0.25 × Y) − (100 × i)], where Yis
expressed in billions of dollars and iis expressed in percentage points. If P= 2, Y=
5,000, and i= 5, then the real quantity of money demanded equals
a.750.
b. 1,000.
c. 1,500.
d. 2,000.
Answer:
Suppose the federal funds rate is 6 percent. If the output gap increases by 2 percentage
points and the weight on output gap is 0.6, by how much should the federal funds rate
increase according to the Taylor rule if all other variables remain unchanged?
a. It should increase by 0.4 percentage points.
b. It should increase by 0.6 percentage points.
c. It should increase by 2 percentage points.
d. It should increase by 1.2 percentage points.
Answer:
If the potential output of an economy is worth $440 billion and the actual output during
a particular year was $435
billion, the output gap is
a. -1.14 percent
b. 2.2 percent
c. -5 percent
d. 1.1 percent
Answer:
Suppose an economy is producing an output above its full-employment level. To return
the economy to long-run equilibrium, a(n) monetary policy can be used, which would
cause the price level to .
a. expansionary; increase
b. expansionary; decline
c. contractionary; decline
d. contractionary; increase
Answer:
If your after-tax realized real interest rate was 2 percent over the past year and you
owned a one-year bond that paid 8 percent interest, what was the inflation rate if you
faced a tax rate of 15 percent?
a. 4.8 percent
b. 5.1 percent
c. 5.4 percent
d. 6.0 percent
Answer:
Suppose the economy is thought to be 5 percent below potential (i.e., the output gap is
−5 percent), when potential output grows 3 percent per year. Suppose the Fed is
following the Taylor rule, with an inflation rate of 6 percent over the past year. The
equilibrium real fed funds rate is 3 percent and the weights on the output gap and
inflation gap are 0.5 each. The inflation target is 1 percent. What should the federal
funds rate be?
a. 4 percent
b. 6 percent
c. 8 percent
d. 9 percent
Answer:
Sarah, a customer of a bank, transfers $10,000 from her checking account to her
money-market deposit account.
Which of the following changes will be reflected in Sarah’s bank’s balance sheet?
a. Reserves decrease by $10,000.
b. Transactions deposits increase by $10,000.
c. Nontransactions deposits decrease by $10,000.
d. Borrowings increase by $10,000.
Answer:
A banking market with six banks of equal size would have an HHI approximately equal
to
a. 278.
b. 556.
c. 1,111.
d. 1,667.
Answer:
In the CAPM, the risk to a stock’s return that is not attributable to the fluctuations in the
overall stock market is referred to as
a. idiosyncratic risk.
b. explicit risk.
c. systematic risk.
d. market risk.
Answer:
If only one good is traded between two countries and the price of the good is the same
in both countries when expressed in units of the same currency, then
a. people have rational expectations.
b. both countries have the same monetary policy.
c. there is interest-rate parity.
d. the law of one price holds.
Answer:
When the Fed engages in an overnight repo
a. a bank agrees to hold a certain amount of clearing balances at the Fed.
b. a secondary government securities dealer agrees to buy a security from the Fed one
day and sell it back the next day.
c. a primary government securities dealer agrees to sell a security to the Fed one day
and buy it back the next day.
d. The Fed repossesses property that a bank owns as punishment for the bank’s failure
to pay off a discount loan.
Answer:
An equation that sums the squared output gap to the squared inflation gap, with a
weight that determines the tradeoff between them is referred to as the
a. Fed’s objective function.
b. cost of disinflation.
c. Sharpe ratio.
d. Phillips equation.
Answer:
Suppose the quantity demanded for a security is BD= 150 − 1b, and the quantity
supplied of the security is BS= 50 + 1b, where bis the price of the security in dollars.
The equilibrium price of the security is
a. $50.
b. $125.
c. $250.
d. $500.
Answer:
Suppose the M1 multiplier is currently 95 and the M2 multiplier is currently 03. If
people decide to decrease the ratio of nontransaction accounts they hold relative to the
amount of their transactions accounts, the M1 multiplier will and the M2 multiplier will
.
a. not change; decrease
b. increase; also increase
c. decrease; also decrease
d. increase; not change
Answer:
A rise in the price level in an economy
a. shifts its long-run aggregate supply curve to the right.
b. shifts its long-run aggregate supply curve to the left.
c. does not have any effect on its long-run aggregate supply.
d. does not have any effect on its aggregate demand.
Answer:
Answer the questions below.
a.Suppose the Federal Reserve raises the federal funds rate in the United States but
people believe that the inflation rate will rise by more than the Fed raised the federal
funds rate.What do you expect to happen to the exchange rate? Explain why.
b.As the exchange rate changes in the direction you determined in part a, what happens
to the prices of imports and exports in the United States and in other countries? Explain.
c. What happens to net exports in the United States and in other countries that trade
with theUnited States in the short run? In the long run? Explain.
Answer:
The balance on the current account plus the balance on the capital and financial account
equals
a.0
b. 1 .
c. -1.
d.100
Answer:
Which of the following statements is true?
a. Over the last fifty years, the risk spread between Aaa bonds and Baa bonds always
remained positive except in
b. The risk spread between Aaa bonds and Baa bonds became negative only in the
mid-1960s.
c. For most of the last twenty years, the risk bread between Aaa bonds and Baa bonds
remained negative.
d. Over the last fifty years, the risk spread between Aaa bonds and Baa bonds never
became negative
Answer:
Which of the following is true of dividends?
a. The amount of dividends paid to stock owners depends on the company’s
performance.
b. The timing of dividend payments is the same across all companies.
c. Dividends are tax-free payments from insurance companies.
d. Dividends are tax-free social security payments.
Answer:
Investment in foreign countries that occurs by installing capital goods and using them to
produce output is referred to as
a. directed capital.
b. direct investment.
c. capital investiture.
d. portfolio investment.
Answer:
The main object of FOMC voting is to set the target
a. inflation rate.
b. federal funds rate.
c. unemployment rate.
d. foreign exchange rate.
Answer:
Before 2008, an increase in reserve requirements by the Fed
a. would increase the money multiplier.
b. would increase money supply.
c. would decrease the money multiplier.
d. would decrese the amount of reserves held by banks.
Answer:
A money-growth rule that does not respond to the state of the economy is a rule.
a. lagging
b. leading
c. nonactivist
d. activist
Answer:
A contract that promises to pay a given amount of money to the owner of a security at
specific dates in the future is known as
a. a debt security.
b. an equity security.
c. stock.
d. an option.
Answer:
An economy has 100 households. The forty rich households each have incomes of
$50,000 in period 1 and $75,000 in period The sixty poor households each have
incomes of $20,000 in period 1 and $25,000 in period Assume that the price of the good
is $1 in both periods. Also assume that the households borrow from each other. Suppose
that each household decides that its consumption in period 1 will equal 50 percent of
the present value of its income from both periods. The equilibrium real interest rate is
about
a. 20 percent.
b. 30 percent.
c. 40 percent.
d. 50 percent.
Answer:
Aggregate demand tells us
a. the amount of goods and services being purchased in an economy.
b. the amount of goods and services being produced in an economy.
c. the total demand for labor in an economy.
d. the total demand for capital in an economy.
Answer:
In a two-period model, a household has an income of $20,000 in period one and an
income of $25,000 in period two.
The household faces an interest rate of 50 percent. What is the present value of the
household’s income if the income in period one increases to $30,000?
a. $39,000
b. $46,666.66
c. $40,555.65
d. $50,000
Answer:
In the one-period present-value equation, P=F/(1 + i), the term iis known as
a. future value.
b. present value.
c. the rate of discount.
d. the discount factor.
Answer:
When you buy something one day and pay for it later, the repayment you make is
denoted in terms of money. In this case, money is serving the role of a
a. medium of exchange.
b. unit of account.
c. store of value.
d. standard of deferred payment.
Answer:
Research by Stock and Watson on the cause of the increased stability of output growth
in the long boom suggests that the main cause of the stability
a. was improved monetary policy.
b. was efficient financial markets.
c. was unknown.
d. was better inventory management by firms.
Answer:
Earning interest on past interest is referred to as
a. present value.
b. super interest.
c. compounding.
d. discounting.
Answer:
Which of the following is an assumption of the aggregate demand-aggregate supply
model?
a. Capital stock cannot be varied in the short run.
b. An economy is always at full-employment level in the short run.
c. Producers are reluctant to change prices of their products even in the long run.
d. Long-run aggregate supply curve slopes upward.
Answer:
A bank can reduce the impact of a default risk by
a. having assets with the same time to maturity.
b. making risky loans at low interest rates.
c. making safe loans at high interest rates.
d. diversifying its portfolio.
Answer: