The expenditure multiplier in the ISLM framework is smaller than that derived from the
simple Keynesian model because
A) velocity is always assumed to be constant.
B) the economy is assumed to be in the liquidity trap.
C) the aggregate supply curve is assumed to be horizontal.
D) the LM curve is assumed to have a positive slope.
“Complete” crowding out of fiscal policy occurs when the
A) LM curve is horizontal.
B) LM curve is upward-sloping.
C) LM curve is vertical.
D) IS curve is vertical.
In the United States, the money supply is determined by the
A) Federal Reserve.
B) U.S. Congress.
C) U.S. Treasury.
D) Federal Deposit Insurance Corporation.
Most people are
A) risk lovers.
B) risk-averse.
C) indifferent toward risk.
D) None of the above.
Suppose that the Treasury decides to spend $12 billion on a given day. Because about
$12 billion in new tax revenues are expected to replenish the Treasury’s account at the
Fed a week later, the best policy for the Fed to pursue if it wishes to stabilize reserves is
to
A) do a $12 billion government security repurchase agreement.
B) do a $12 billion government security reverse repurchase agreement.
C) buy $12 billion in government securities outright and hold them to prevent bank
reserves from falling.
D) sell $12 billion in government securities to prevent bank reserves from rising.
If the British sell more Rolls Royce cars to the United States, the United States
__________ more pounds and __________ more dollars in the foreign exchange
market.
A) supplies; supplies
B) supplies; demands
C) demands; supplies
D) demands; demands
In 1964 a certain foreign bank opened a branch in the United States. That branch
A) has always been allowed to underwrite securities.
B) has never been allowed to underwrite securities.
C) gained the right to underwrite securities by the International Banking Act of 1978.
D) lost the right to underwrite securities by the International Banking Act of 1978.
Which of the following is an administered interest rate set by commercial banks?
A) The discount rate
B) The federal funds rate
C) The prime rate
D) The commercial paper rate
__________ bonds are municipal bonds that are backed by the general taxing power of
the state or local government.
A) General obligation
B) Revenue
C) Tax-anticipation
D) Bond-anticipation
The Monetarists argue that in the long run, the Phillips Curve is vertical because
A) wages and prices are flexible.
B) money demand is unstable.
C) investment is unstable.
D) wages change more slowly than the price level.
Investment banks specialize in information regarding
A) commodities.
B) certificates of deposit.
C) demand deposits.
D) primary securities.
An outright sale of government securities by the Fed
A) permanently increases bank reserves.
B) temporarily increases bank reserves.
C) permanently reduces bank reserves.
D) temporarily reduces bank reserves.
A clause in a loan contract disallowing the borrower from acquiring other companies
during the term of the loan is an example of a
A) guarantee.
B) collateral agreement.
C) restrictive covenant.
D) moral hazard.
A self-correcting mechanism tending to bring a country’s balance of payments into
equilibrium exists under __________ exchange rate systems.
A) fixed and floating
B) floating, but not fixed
C) fixed, but not floating
D) neither fixed nor floating
To avoid maturity mismatches, most financial intermediaries tend to
A) have assets whose maturities on average exceed the maturities of their liabilities.
B) have assets whose maturities on average are less than the maturities of their
liabilities.
C) have assets whose maturities on average mirror the maturities of their liabilities.
D) hold primarily real assets.