U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a
lower purchase price than the amount you receive at maturity.
A) premium
B) collateral
C) default
D) discount
If American college students decide that drinking Mexican-brewed beer helps one get
noticed, net exports will tend to fall, causing aggregate demand to ________ and the
________ curve to shift to the left, everything else held constant.
A) fall; LM
B) fall; IS
C) rise; LM
D) rise; IS
The LM curve will be vertical and fiscal policy ineffective when
A) the demand for money is unaffected by changes in the interest rate.
B) the demand for money is unaffected by changes in income.
C) investment is unaffected by changes in the interest rate.
D) investment is unaffected by changes in income.
An important characteristic of the modern payments system has been the rapidly
increasing use of
A) checks and decreasing use of currency.
B) electronic fund transfers.
C) commodity monies.
D) fiat money.
When the policy rate hits its lower bound and inflation keeps falling, this portion of the
Monetary Policy curve is
A) downward sloping.
B) upward sloping.
C) flat.
D) undetermined.
If brokerage commissions on bond sales decrease, then, other things equal, the demand
for bonds will ________ and the demand for real estate will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
When the central bank allows the purchase or sale of domestic currency to have an
effect on the monetary base, it is called
A) an unsterilized foreign exchange intervention.
B) a sterilized foreign exchange intervention.
C) an exchange rate feedback rule.
D) a money neutral foreign exchange intervention.
Which of the following statements comparing the European System of Central Banks
and the Federal Reserve System is TRUE?
A) The budgets of the Federal Reserve Banks are controlled by the Board of Governors,
while the National Central Banks control their own budgets and the budget of the
European Central Bank.
B) The European Central Bank has similar power over the National Central Banks
when compared to the level of power the Board of Governors has over the Federal
Reserve Banks.
C) Just like the Federal Reserve System, monetary operations are centralized in the
European System of Central Banks with the European Central Bank.
D) The European Central Bank’s involvement in supervision and regulation of financial
institutions is comparable to the Board of Governors’ involvement.
During World War II, whenever interest rates would rise and the price of bonds would
begin to fall, the Fed would
A) lower reserve requirements.
B) raise reserve requirements.
C) make open market purchases of government securities.
D) make open market sales of government securities.
If an individual moves money from a small-denomination time deposit to a demand
deposit account
A) M1 increases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
The theory of portfolio choice indicates that factors affecting the demand for money
include
A) income.
B) nominal interest rate.
C) riskiness of money.
D) all the above.
The type of monetary policy that is used in Canada, New Zealand, and the United
Kingdom is
A) monetary targeting.
B) inflation targeting.
C) targeting with an implicit nominal anchor.
D) interest-rate targeting.
If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from
year 1 to year 2 is
A) 20%.
B) 10%.
C) 11%.
D) 120%.
Credit cards date back to
A) prior to the second World War.
B) just after the second World War.
C) the early 1950s.
D) the late 1950s.
In the simple model of multiple deposit creation in which banks do not hold excess
reserves, the increase in checkable deposits equals the product of the change in reserves
and the
A) reciprocal of the excess reserve ratio.
B) simple deposit expansion multiplier.
C) reciprocal of the simple deposit multiplier.
D) discount rate.
Argentina’s financial crisis was due to
A) poor supervision of the banking system.
B) a lending boom prior to the crisis.
C) fiscal imbalances.
D) lack of expertise in screening and monitoring borrowers at banking institutions.
A stockholder’s ownership of a company’s stock gives her the right to
A) vote and be the primary claimant of all cash flows.
B) vote and be the residual claimant of all cash flows.
C) manage and assume responsibility for all liabilities.
D) vote and assume responsibility for all liabilities.
The yield to maturity for a discount bond is ________ related to the current bond price.
A) negatively
B) positively
C) not
D) directly
Which regulatory body charters national banks?
A) the Federal Reserve
B) the FDIC
C) the Comptroller of the Currency
D) the U.S. Treasury
If the Fed expects currency holdings to fall, it conducts open market ________ to offset
the expected ________ in reserves.
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease
Approaches to establishing central bank credibility include
A) inflation targeting.
B) exchange rate targeting.
C) central bank independence.
D) appointment of a more conservative central banker.
E) all of the above.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an increase in the required reserve ratio to 15%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.55 to 2.8
B) decrease from 2.8 to 2.55
C) increase from 1.82 to 2
D) decrease from 2 to 1.82
Experts predict that the future structure of the U.S. banking industry will have
A) an increased number of banks.
B) as few as ten banks.
C) several thousand banks.
D) a few hundred banks.
There is ________ for any bond whose time to maturity matches the holding period.
A) no interest-rate risk
B) a large interest-rate risk
C) rate-of-return risk
D) yield-to-maturity risk
The agency that restricts insider trading is the
A) Federal Reserve System.
B) Securities and Exchange Commission.
C) Office of the Comptroller of the Currency.
D) Federal Deposit Insurance Corporation.
Currency circulated by banks that could be redeemed for gold was called
A) junk bonds.
B) banknotes.
C) gold bills.
D) state money.
A change in perceived risk of a stock changes
A) the expected dividend growth rate.
B) the expected sales price.
C) the required rate of return.
D) the current dividend.
The three players in the money supply process include
A) banks, depositors, and the U.S. Treasury.
B) banks, depositors, and borrowers.
C) banks, depositors, and the central bank.
D) banks, borrowers, and the central bank.
The ________ that required separation of commercial and investment banking was
repealed in 1999.
A) the Federal Reserve Act.
B) the Glass-Steagall Act.
C) the Bank Holding Company Act.
D) the Monetary Control Act.
When using rational expectations, forecast errors will, on average, be ________ and
________ be predicted ahead of time.
A) positive; can
B) positive; cannot
C) negative; can
D) zero; cannot
If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent,
the real rate of interest is
A) 2 percent.
B) 8 percent.
C) 10 percent.
D) 12 percent.