Everything else held constant, if disposable income increases by 200 and consumption
expenditure increases by 150, the mpc is
A) 0.
B) 0.15.
C) 0.5.
D) 0.75.
In the Keynesian liquidity preference framework, a rise in the price level causes the
demand for money to ________ and the demand curve to shift to the ________,
everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
If nominal GDP is $10 trillion, and velocity is 10, the money supply is
A) $1 trillion.
B) $5 trillion.
C) $10 trillion.
D) $100 trillion.
Which of the following is NOT an argument against using monetary policy to prick
asset-price bubbles?
A) The effect of increasing interest rates on asset prices is uncertain.
B) A bubble may only exist in some asset-prices and monetary policy will affect all
asset prices.
C) Using monetary policy to prick an asset-price bubble may have adverse effect on the
aggregate economy.
D) Even though credit-drive bubbles are easier to identify, they are still relatively hard
to identify.
________ imposes a conceptual structure and inherent discipline on policy makers, but
without eliminating all flexibility.
A) Constrained discretion
B) A policy rule
C) A discretionary policy
D) The Taylor rule
Comparing a discount bond and a coupon bond with the same maturity
A) the coupon bond has the greater effective maturity.
B) the discount bond has the greater effective maturity.
C) the effective maturity cannot be calculated for a coupon bond.
D) the effective maturity cannot be calculated for a discount bond.
If net exports increase by 100 and the mpc is 0.75, equilibrium aggregate output
increases by
A) 100.
B) 250.
C) 400.
D) 750.
In the simple deposit expansion model, an expansion in checkable deposits of $1,000
when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $200 in government bonds.
B) sold $500 in government bonds.
C) purchased $200 in government bonds.
D) purchased $500 in government bonds.
While the discount rate is “established” by the regional Federal Reserve Banks, in truth,
the rate is determined by
A) Congress.
B) the president of the United States.
C) the Senate.
D) the Board of Governors.
The decline in stock prices from 2000 through 2002
A) increased individuals’ willingness to spend.
B) had no effect on individual spending.
C) reduced individuals’ willingness to spend.
D) increased individual wealth.
Everything else held constant, if aggregate output is to the right of the LM curve, then
there is an excess ________ of money which will cause the interest rate to ________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
Of the following methods that banks might use to reduce moral hazard problems, the
one not legally permitted in the United States is the
A) requirement that firms keep compensating balances at the banks from which they
obtain their loans.
B) requirement that firms place on their board of directors an officer from the bank.
C) inclusion of restrictive covenants in loan contracts.
D) requirement that individuals provide detailed credit histories to bank loan officers.
In deriving the aggregate demand curve a ________ inflation rate leads the central bank
to ________ real interest rates, thereby ________ the level of equilibrium aggregate
output.
A) higher; raise; lowering
B) lower; raise; lowering
C) higher; lower; lowering
D) higher; lower; raising
If the price of diamonds is expected to decrease, all else equal, then the demand for
diamonds ________ and the demand for platinum ________.
A) decreases; increases
B) decreases; decreases
C) increases; increases
D) increases; decreases
The increase in the currency ratio during World War II was due to
A) bank panics.
B) a drop in the rate of interest paid on checking deposits.
C) the spread of ATMs.
D) high taxes and illegal activities.
Which is the most important category of Fed assets?
A) securities
B) discount loans
C) gold and SDR certificates
D) cash items in the process of collection
A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the
IS curve to shift to the ________ in the U.S., everything else held constant.
A) decreases; right
B) decreases; left
C) increases; right
D) increases; left
The Dodd-Frank bill created an agency to monitor markets for asset price bubbles and
the buildup of systemic risk. This agency is called the
A) Resolution Trust Authority.
B) Board of Governors.
C) Financial Stability Oversight Council.
D) Macroprudential Supervisory Agency.
The monetary liabilities of the Federal Reserve include
A) securities and loans to financial institutions.
B) currency in circulation and reserves.
C) securities and reserves.
D) currency in circulation and loans to financial institutions.
The limited memberships and high dollar minimums for hedge funds means that these
funds are
A) subject to weaker regulation than other mutual funds.
B) more stringently regulated for fear of collapse.
C) limited in the types of assets they can purchase.
D) under the control of the U.S. Treasury.
The Federal Reserve will engage in a matched sale-purchase transaction when it wants
to ________ reserves ________ in the banking system.
A) increase; permanently
B) increase; temporarily
C) decrease; temporarily
D) decrease; permanently
When the value of the dollar changes from £0.5 to £0.75, then the British pound has
________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the M1 money
multiplier is
A) 2.5.
B) 2.8.
C) 2.0.
D) 0.67.
If a conflict of interest exists
A) it will always have serious adverse consequences.
B) it may not have a serious adverse consequences if the incentive to take advantage of
the conflict is low.
C) the government needs to step in to pass legislation to remove the conflict.
D) there will not be serious adverse consequences, even if the incentive to take
advantage of the conflict is low.
Which of the following is NOT a financial institution?
A) a life insurance company
B) a pension fund
C) a credit union
D) a business college
The M2 money multiplier is
A) negatively related to high-powered money.
B) positively related to the time deposit ratio.
C) positively related to the required reserve ratio.
D) positively related to the excess reserves ratio.
A contract that requires the investor to sell securities on a future date is called a
A) short contract.
B) long contract.
C) hedge.
D) micro hedge.
A foreign exchange intervention with an offsetting open market operation that leaves
the monetary base unchanged 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.
If gold becomes acceptable as a medium of exchange, the demand for gold will
________ and the demand for bonds will ________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
For banks
A) return on assets exceeds return on equity.
B) return on assets equals return on equity.
C) return on equity exceeds return on assets.
D) return on equity is another name for net interest margin.
Three factors explain the risk structure of interest rates
A) liquidity, default risk, and the income tax treatment of a security.
B) maturity, default risk, and the income tax treatment of a security.
C) maturity, liquidity, and the income tax treatment of a security.
D) maturity, default risk, and the liquidity of a security.
When the level of unplanned inventory investment is equal to zero, the economy is
A) in disequilibrium.
B) in a recession.
C) in equilibrium.
D) overheating
During the 1950s, the Fed targeted
A) M1.
B) M2.
C) the monetary base.
D) money market conditions.
The government safety net creates ________ problem because risk-loving entrepreneurs
might find banking an attractive industry.
A) an adverse selection
B) a moral hazard
C) a lemons
D) a revenue