Which of the following is an advantage to money targeting?
A) There is an immediate signal on the achievement of the target.
B) It does not rely on a stable money-inflation relationship.
C) It implies lack of transparency.
D) It implies smaller output fluctuations.
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
currency-deposit ratio is
A) 0.25.
B) 0.50.
C) 0.40.
D) 0.05.
When the Treasury bond market becomes more liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
positive spending shocks lead to ________ real interest rates ________.
A) higher; in both the short and long runs
B) higher; in the short run but not in the long run
C) lower; in both the short and long runs
D) lower; in the short run but not in the long run
Compared to the United States, Japan’s experience with monetary targeting during the
1978€€1987 period performed
A) better with regard to the inflation rate and output fluctuations.
B) worse with regard to the inflation rate and output fluctuations.
C) better with regard to the inflation rate, but worse with regard to output fluctuations.
D) worse with regard to the inflation rate, but better with regard to output fluctuations.
According to the liquidity premium theory of the term structure
A) bonds of different maturities are not substitutes.
B) if yield curves are downward sloping, then short-term interest rates are expected to
fall by so much that, even when the positive term premium is added, long-term rates fall
below short-term rates.
C) yield curves should never slope downward.
D) interest rates on bonds of different maturities do not move together over time.
A feature of Bitcoin, a new type of electronic money, that make it attractive as a
medium of exchange is
A) anonymous transactions.
B) volatility of value.
C) heavy regulations by the central bank.
D) wide acceptance by businesses.
Property and casualty insurance companies hold the largest share of their assets in
A) long-term government bonds.
B) short-term government securities and commercial paper.
C) tax-exempt municipal bonds and U.S. government securities.
D) medium-term corporate bonds.
Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to make their analysts’ recommendations public is an example of
A) regulate for transparency.
B) supervisory oversight.
C) separation of functions.
D) socialization of information production.
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes equals
$50, and the mpc equals 0.9.
Using the information in Situation 20-2, if taxes increase by $10, then the equilibrium
aggregate output will change by
A) -$90.
B) -$10.
C) $10.
D) $90.
If initially the money supply is $2 trillion, velocity is 5, the price level is 2, and real
GDP is $5 trillion, a fall in the money supply to $1 trillion
A) reduces real GDP to $2.5 trillion.
B) causes velocity to rise to 10.
C) decreases the price level to 1.
D) decreases the price level to 1 and decreases velocity to 2.5.
The typical shape for a yield curve is
A) gently upward sloping.
B) mound shaped.
C) flat.
D) bowl shaped.
Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of
liabilities with a duration of 1.05. The duration gap for this bank is
A) 0.5 year.
B) 1 year.
C) 1.5 years.
D) 2 years.
If you have a very low tolerance for risk, which of the following bonds would you be
least likely to hold in your portfolio?
A) a U.S. Treasury bond
B) a municipal bond
C) a corporate bond with a rating of Aaa
D) a corporate bond with a rating of Baa
Suppose it takes roughly two years for monetary policy to have a significant impact on
inflation. If inflation is currently low but policymakers believe inflation will rise over
the next two years with an unchanged stance of monetary policy, when should they
tighten monetary policy to prevent the inflationary surge?
A) now
B) wait until overt signs of inflation appear
C) next year
D) two years later
In response to the early Keynesians, monetarists contended that
A) monetary policy during the Great Depression was not easy.
B) bank failures during the Great Depression were not the cause of the decline in the
money supply.
C) evidence from the Great Depression demonstrated the ineffectiveness of monetary
policy.
D) there is a weak link between interest rates and investment spending.
If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real
GDP is $5 trillion, an increase in the money supply to $2 trillion
A) increases real GDP to $10 trillion.
B) causes velocity to fall to 2.5.
C) increases the price level to 2.
D) increases the price level to 2 and velocity to 10.
In the open-economy ISLM model, the goods market equilibrium condition is
A) output = consumption + investment + government spending.
B) output = consumption + investment + government spending – tax.
C) output = consumption + investment + government spending + net export.
D) output = potential output.
To lower interest rates on residential mortgages to stimulate the housing market, the Fed
extended its open market operations to purchase
A) mortgage-backed securities.
B) commercial papers.
C) long-term Treasuries.
D) Treasury bills and Treasury notes.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the required reserve ratio to
15% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 0.15 to 0.33
B) increase from 0.54 to 0.67
C) decrease from 0.73 to 0.71
D) decrease from 1.67 to 1.54