If the required reserve ratio is .2 and reserves initially decline by $25, demand deposits
can decline by
A) $125.
B) $50.
C) $25.
D) $5.
In the Keynesian model, money demand is positively related to
A) income.
B) interest rates.
C) saving.
D) aggregate supply.
Anything that causes the United States to buy more foreign goods shifts the foreign
currency __________ curve to the __________.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Bank reserves increase when the Treasury finances an expenditure through
A) taxation.
B) borrowing from the non-bank public.
C) borrowing from the banking system.
D) borrowing from the Fed.
Reserve requirements apply to
A) demand deposits.
B) business-owned time deposits.
C) business-owned savings deposits.
D) Reserve requirements apply to all of the above.
The Federal Reserve econometric model estimates that the liquidity effect an increase in
the money supply will
A) lower interest rates for 6 months to a year.
B) lower interest rates permanently.
C) have no effect on interest rates.
D) raise interest rates after 6 months to a year.
According to the Monetarists an increase in investment spending initially __________
unemployment so that the price level __________. The resulting __________ in the
real money supply __________ spending.
A) increases; rises; increase; decreases
B) increases; falls; increase; increases
C) decreases; falls; decrease; increases
D) decreases; rises; decrease; decreases
Suppose k = 0.2. With a $200 billion increase in the money supply, the LM curve shifts
A) to the right by $40 billion.
B) to the left by $160 billion.
C) to the left by $200 billion.
D) to the right by $1000 billion.
Deflation is another word for
A) falling prices.
B) hyperinflation.
C) recession.
D) depression.
Keynesians argue that velocity is
A) equal to the inflation rate.
B) equal to one.
C) negative.
D) unpredictable.
A bank that improves its service may be able to __________ the rate on its loans and so
__________ its net interest income.
A) lower; lower
B) lower; raise
C) raise; lower
D) raise; raise
The large number of bank failures in the 1980s compared to the number of failures in
earlier decades appears to be evidence __________ the existence of __________
problem in deposit insurance.
A) supporting; a moral hazard
B) supporting; an adverse selection
C) against; a moral hazard
D) against; an adverse selection
In the 1980s, banks __________ the amount of highly speculative loans they were
holding due to __________ deposit rates.
A) increased; rising
B) increased; falling
C) decreasing; rising
D) decreased; falling
“Information Problematic” borrowers are generally
A) municipal governments.
B) small businesses and individuals.
C) large businesses.
D) federal government.
Pension fund growth has been spurred by the recent development of “defined
__________ plans,” such as the __________ plan.
A) benefit; 401(k)
B) benefit; Keogh
C) contribution; 401(k)
D) contribution; Keogh
Minimizing per-dollar distribution costs favors issuing bonds __________ for issue
sizes above approximately __________.
A) privately; $10,000,000
B) privately; $100,000,000
C) publicly; $10,000,000
D) publicly; $100,000,000
Commercial paper has a minimum maturity of
A) one day.
B) seven days.
C) 30 days.
D) 270 days.
By altering people’s liquidity, an increase in the money supply relative to the demand
for liquidity should lead to
A) more spending on real assets but not financial assets.
B) more spending on either real assets or financial assets.
C) more spending on financial assets but not on real assets.
D) no change in spending on either real or financial assets.