In the balance sheet channel, an expansionary monetary policy will in the short run
(a) increase the real interest rate.
(b) decrease the real interest rate.
(c) leave the real interest rate unaffected.
(d) have an ambiguous effect on the real interest rate.
Answer:
How often does the FOMC issue its Domestic Policy Directive?
(a) Once per year
(b) Once per month
(c) At the end of every meeting
(d) Whenever requested to do so by the House Banking Committee or the Senate
Finance Committee
Answer:
A decline in borrower net worth will result in
(a) lower output, but a higher price level.
(b) a lower price level, but higher output.
(c) lower output and a lower price level.
(d) higher output and a higher price level.
Answer:
On a coupon bond, the yield to maturity
(a) always equals the coupon rate.
(b) equates the present value of all the bond’s payments to its price today.
(c) increases when the market price of the bond increases.
(d) equals the coupon payment divided by the current price of the bond.
Answer:
If the Fed credits the payee bank on a check for $10,000 before it debits the payor bank,
(a) the reserves of the payee bank will have risen by $10,000, but the monetary base
will have been unaffected.
(b) the reserves of the payor bank will have risen by $10,000, but the monetary base
will have been unaffected.
(c) the monetary base will have fallen by $10,000.
(d) the reserves of the payee bank and the monetary base will each have risen by
$10,000.
Answer:
New classical economists believe that the best way to reduce inflation is to
(a) do so gradually.
(b) do so all at once.
(c) use wage and price guidelines.
(d) bring on a recession, which gradually reduces cost-push inflation.
Answer:
Cost-push inflation
(a) originates in the desire of policymakers to expand employment.
(b) will result in increases in output, unless policymakers adjust aggregate demand in
response.
(c) cannot persist in the long run unless ratified by policymakers.
(d) was outlawed by the Humphrey-Hawkins Act of 1978.
Answer:
Which of the following is the correct new Keynesian expression for the price level?
(a) P = Pe+ b[(1 c)/c](Y Y*)
(b) Pe= P + b[(1 c)/c](Y Y*)
(c) P = Pe+ b[(1 +c)/c](Y Y*)
(d) Pe= P + b[(1 +c)/c](Y Y*)
Answer:
Expansionary fiscal policy will produce inflation only if
(a) it takes the form of a cut in personal income taxes.
(b) it takes the form of a cut in corporate profit taxes.
(c) it takes the form of an increase in government spending.
(d) it is accompanied by a sustained increase in the money supply.
Answer:
Under a system of barter
(a) each individual trades output directly with another.
(b) only agricultural goods may be traded.
(c) goods may be traded for money, but money may not be traded for goods.
(d) currency is accepted for purchases, but personal checks are not.
Answer:
What was the main reason Congress passed the Garn-St. Germain Act of 1982?
(a) To phase out Regulation Q
(b) To pump additional funds into the FDIC
(c) To combat problems caused by the gradual demise of Regulation Q
(d) To strengthen the market for municipal bonds
Answer:
Approximately how much in assets did U.S. banks hold in 2003?
(a) $500 million
(b) $5.1 billion
(c) $6.5 trillion
(d) $50.7 trillion
Answer:
Government obligations, such as Treasury bills and bonds, have
(a) high liquidity and high information costs.
(b) low liquidity and low information costs.
(c) low liquidity and high information costs.
(d) high liquidity and low information costs.
Answer:
The demand curve for bonds would be shifted to the left by
(a) an increase in expected returns on other assets.
(b) a decrease in the information costs of bonds relative to other assets.
(c) a decrease in expected inflation.
(d) an increase in the liquidity of bonds relative to other assets.
Answer:
The $300 million in U.S. Treasury Notes, dating back to Civil War issues and still
outstanding, are called
(a) Federal Reserve Notes.
(b) greenbacks.
(c) lobster tails.
(d) scrip.
Answer:
In the market for loanable funds, the buyer is considered to be
(a) the lender.
(b) the borrower.
(c) the lender or the borrower depending upon the use to which the funds are put.
(d) the lender or the borrower depending upon whether interest rates are rising or
falling.
Answer:
Equilibrium occurs in the foreign exchange market when the
(a) domestic return equals the foreign return when measured in the same currency.
(b) inflation rates in all countries are equalized.
(c) demand for domestic exports equals the demand for foreign imports.
(d) government budget deficits in all countries are equalized.
Answer:
What is the main reason the Fed operates in a political arena?
(a) It lacks a constitutional mandate.
(b) The members of the Board of Governors must run for reelection every 14 years.
(c) The members of the Board of Governors are typically prominent politicians.
(d) It is under the direct control of Congress.
Answer:
Which of the following was NOT considered to have been a drawback of the pre-1914
gold standard?
(a) It sometimes led to inflation, which several times in the late nineteenth century
caused recessions in the United States.
(b) Countries had little control over their domestic monetary policies.
(c) Countries with trade deficits experienced deflation.
(d) Changes in the world money supply were strongly influenced by gold discoveries.
Answer:
Suppose that research shows that by buying stocks issued by companies whose names
begin with the letter G investors can earn above-normal returns in even-numbered
years. From the perspective of the efficient markets hypothesis
(a) this is further evidence that the hypothesis is correct.
(b) this would be considered a pricing anomaly.
(c) investors must have insider information on these companies.
(d) purchasers of these stocks must have been noise traders.
Answer:
Milton Friedman and Anna Schwartz conclude that
(a) output fluctuations cause changes in money growth.
(b) changes in money growth cause output fluctuations.
(c) there is no causal link between the money supply and output.
(d) there is no evidence for changes in the money supply that are not influenced by
changes in output or by third factors that influenced both money and output.
Answer:
The new Keynesian view of the effect of monetary policy on output stresses the effects
of monetary policy on
(a) the net worth of borrowers.
(b) the willingness of banks to make loans.
(c) the ability of banks to make loans.
(d) interest rates.
Answer:
Which of the following will NOT cause the LM curve to shift to the left?
(a) A decrease in supply of nominal money balances
(b) A decrease in the aggregate price level
(c) An increase in the nominal return on money
(d) A decrease in the expected rate of inflation
Answer:
In an overnight Eurodollar transaction
(a) foreign governments borrow dollars from the U.S. Treasury overnight.
(b) a bank customer’s demand deposit is automatically withdrawn and deposited in a
foreign branch that pays interest.
(c) U.S. tourists deposit dollars in a European bank at the end of the day and receive
foreign currency the next morning.
(d) foreign tourists deposit foreign currency in a U.S. bank at the end of the day and
receive dollars the next morning.
Answer:
When the payoff method is used to handle a bank failure
(a) the bank is allowed to remain open.
(b) all depositors, insured and uninsured, receive their deposits back.
(c) insured depositors receive their deposits back only if the bank’s assets can be sold
for a sufficient amount.
(d) the bank is closed and all insured depositors receive their deposits back.
Answer:
When assessing the effects of regulation of the financial system, we can say that
regulation
(a) sometimes reduces the ability of the financial system to provide risk-sharing,
liquidity, and information services.
(b) has always had the main goal of increasing the ability of the financial system to
provide risk-sharing, liquidity, and information services.
(c) has always been directed toward the maintenance of financial stability.
(d) has largely been discontinued since 1980.
Answer:
For a specific change in the yield to maturity
(a) the shorter the time until a bond matures, the greater will be the change in its price.
(b) the longer the time until a bond matures, the greater will be the change in its price.
(c) the longer the time until a bond matures, the greater will be the change in its par
value.
(d) the shorter the time until a bond matures, the greater will be the change in its
coupon rate.
Answer:
The demand curve for loanable funds slopes down because
(a) at lower bond prices more loanable funds will be supplied.
(b) lower interest rates reduce the inflation rate.
(c) an increase in the interest rate makes borrowers more willing and able to demand
more funds.
(d) a decrease in the interest rate makes borrowers more willing and able to demand
more funds.
Answer:
In the new Keynesian view, which of the following expressions correctly states the
relationship between the price that an individual firm with flexible prices charges and
the aggregate price level?
(a) p = P + b(Y Y*)
(b) P = p + b(Y Y*)
(c) p = P + b(Y + Y*)
(d) p = P + b(Y* Y)
Answer:
If the demand for money is highly sensitive to the interest rate,
(a) the LM curve is relatively flat.
(b) the IS curve is relatively steep.
(c) the LM curve is relatively steep.
(d) investment spending will also be highly sensitive to the interest rate.
Answer:
The theory of purchasing power parity assumes that
(a) movements in nominal exchange rates are the result of movements in relative price
levels.
(b) real exchange rates are volatile.
(c) movements in nominal exchange rates are the result of movements in real exchange
rates.
(d) inflation rates are roughly the same in most countries.
Answer:
In the money channel view of how changes in the money supply affect output and the
real interest rate in the short run,
(a) other financial assets are considered to be poor substitutes for bank loans by many
borrowers.
(b) banks are passive intermediaries, meeting the public’s demand for money by
supplying deposits.
(c) credit crunches have a very important role to play.
(d) interest rates do not necessarily bring the volume of funds desired to be lent by
savers into equilibrium with the volume of funds desired to be borrowed by borrowers.
Answer:
During the last two decades,
(a) the Fed has abandoned its policy goal of financial market and institution stability.
(b) the Fed has not been called upon to avert financial panics.
(c) the Fed has been unable to avert several banking panics.
(d) the Fed has several times moved to avert financial panics.
Answer: