If the actual inflation was 4 percent over the past year and you owned a one-year bond
that paid 4 percent interest, what was your after-tax realized real interest rate if your tax
rate was 15 percent?
a. −0.6 percent
b. 0.0 percent
c. 1.1 percent
d. 2.0 percent
Answer:
When people keep money for some period instead of spending it or investing it, money
is serving the role of a
a. medium of exchange.
b. unit of account.
c. store of value.
d. standard of deferred payment.
Answer:
Government spending consitutues about of U.S. economy’s aggregate demand.
a. 1/10
b. 1/6
c. 1/4
d. 1/2
Answer:
Which of the following is NOT a component evaluated under the CAMELS rating
system?
a. Management
b. Sensitivity to risk
c. Strategic planning
d. Asset quality
Answer:
Which equation best represents the Taylor rule?
a. i=r*+πT+{w1× [(Y−Y*)/Y*] × 100} + [w2× (π −πT)]
b. i=r*+π +{w1× [(Y−Y*)/Y*] × 100} + [w2× (π − πT)]
c. i=r+πT+{w1× [(Y−Y*)/Y*] × 100} + [w2× (π −πT)]
d. i=r+π +{w1× [(Y−Y*)/Y*] × 100} + (w2× π)
Answer:
Which of the following is recorded under the liabilities side of a bank’s balance sheet?
a. Transaction deposits
b. Securities
c. Reserves
d. Loans
Answer:
When the Fed adopts a contractionary monetary policy, the interest rate at which the
Fed lends to other banks will be expected to_____ and the money supply in the
economy would be expected to______ .
a. decrease; decrease
b. decrease; increase
c. increase; decrease
d. increase; increase
Answer:
If the ex-post real interest rate is 5 percent and actual inflation rate is 2 percent, the
nominal interest rate is____
a. 7 percent.
b. 3 percent.
c. 2.5 percent.
d. 2 percent.
Answer:
Which of the following statements correctly identifies a difference between inside
money and outside money?
a. Inside money has value because the government decrees that it has value for payment
of taxes, while outside money has value because it is made using expensive metals.
b. Inside money consists of wages and salaries earned by employees in the private
sector, while outside money consists of wages and salaries earned by employees of the
government sector.
c. Inside money cannot be used for making purchases from foreign sellers, while
outside money can be used for making purchases from foreign sellers.
d. Inside money is created in the private sector, while outside money is created by the
government or by nature.
Answer:
People know that the Fed has the incentive to announce that the inflation rate will be 3
percent next year, so people will build 3 percent inflation into their wage negotiations.
But then the Fed has the incentive to increase inflation above 3 percent to make the
economy grow faster. This type of phenomenon is known as
a. inflation targeting.
b. time inconsistency.
c. McCallum’s rule.
d. an expectations trap.
Answer:
The present value of a series of future payments is
a. inversely related to the future value.
b. unrelated to the discount factor.
c. inversely related to the rate of discount.
d. directly related to the discount factor.
Answer:
In the dynamic model of money, an increase in the price level causes an increase in
money demand, thus leading to a higher nominal interest rate. This effect is referred to
as the
a. price-level effect.
b. income effect.
c. liquidity effect.
d. inflationary effect.
Answer:
If the expected inflation rate was 4 percent and the actual inflation rate was 6 percent,
then
a. borrowers gained in real terms at the expense of lenders.
b. lenders gained in real terms at the expense of borrowers.
c. borrowers and lenders were not affected.
d. the government lost because it collected less in taxes.
Answer:
When all capital and labor are fully utilized, the economy is said to be
a. at the peak of the business cycle.
b. experiencing an expansion.
c. at full employment.
d. sustainable.
Answer:
An equation that relates the interest rate to the output gap and the inflation rate is
a. the Phillips relation.
b. the Sharpe ratio.
c. Okun’s law.
d. the Taylor rule.
Answer:
Which of the following statements is true?
a. Both realized and implicit capital gains are taxed.
b. Realized capital gains are taxed, while implicit capital gains are not taxed.
c. Implicit capital gains are taxed, while realized capital gains are not taxed.
d. Neither realized capital gains, nor implicit capital gains are taxed.
Answer:
Which of the following monetary assets is likely to be most liquid?
a. Currency
b. Traveler’s checks
c. Funds in checking accounts
d. Money held as certificate of deposits
Answer:
U.S. citizens invested $10 billion in foreign securities during a certain year and $21
billion in acquiring capital goods in foreign countries while foreigners invested only
$27.5 billion in U.S. during that year. The net foreign investment of U.S. during that
year was .
a. -$3.5 billion.
b. -$58.5 billion.
c. $1.2 billion.
d. $3.5 billion.
Answer:
The largest component of aggregate demand is
a. net exports.
b. government spending.
c. investment.
d. consumption.
Answer:
The development of the large structural macroeconomic models was spearheaded by
economists.
a. Keynesian
b. classical
c. Ricardian
d. institutional
Answer:
Which of the following is NOT a cost of anticipated inflation but arises only if inflation
is unanticipated?
a. Inflation interacts with the tax system to hurt savings and investment in physical
capital.
b. Inflation represents an implicit tax on holding money.
c. Firms face menu costs of changing prices.
d. Higher inflation leads to greater uncertainty about the future inflation rate.
Answer:
Which of the following is true of an economy that has hit the zero lower bound?
a. The money supply in the economy increases rapidly as additions are made to the
monetary base.
b. Any increase increase in its monetary base is exactly offset by a decline in its money
multipliers.
c. Any short-term bond would provide a return that is much lower than the return from
holding cash.
d. The economy’s interest rates decline when there is an increase in the monetary base.
Answer:
Owning a variety of securities means engaging in
a. securitization.
b. sterilization.
c. diversification.
d. free-riding.
Answer:
If the M2 multiplier is 8.3, how much would the Fed need to add to the monetary base
in order to increase the M2 measure of the money supply by $830 million?
a. $10 million
b. $100 million
c. $1 billion
d. $6.889 billion
Answer:
Classical economists believe that the economy
a. is unable to return to equilibrium because wages and prices are sticky and do not
adjust right away.
b. will not return to equilibrium without government intervention.
c. is unable to return to equilibrium because wages and prices are flexible.
d. will return to equilibrium quickly without the need for government intervention.
Answer:
Which of the following is true of an economy at full employment?
a. There is no job turnover in the economy.
b. The unemployment rate in the economy is equal to the natural rate of unemployment.
c. The economy’s labor and capital are not fully utilized.
d. An increase in price level increases the full-employment level of output.
Answer:
In the aggregate demand-aggregate supply model, everything else remaining
unchanged, an increase in production costs shifts the curve to the .
a. long-run aggregate supply; right
b. long-run aggregate supply; left
c. short-run aggregate supply; right
d. short-run aggregate supply; left
Answer:
FDIC insurance covers a depositor up to
a. $10,000.
b. $50,000.
c. $100,000.
d. $250,000.
Answer:
The market in which banks with excess reserves lend them to banks that desire
additional reserves is known as the________ market.
a. capital reserves
b. excess reserves
c. federal funds
d. excess funds
Answer:
Country X has a population of 70 million, of which 32 million are employed and 8
million are unemployed but looking for employment. The size of the labor force in
Country X is .
a. 40 million
b. 32 million
c. 38 million
d. 62 million
Answer:
In the two-period model, an increase in income in period 1 causes the budget constraint
to
a. shift to the left in a parallel fashion.
b. shift to the right in a parallel fashion.
c. rotate in a clockwise direction along the horizontal axis.
d. rotate in a counterclockwise direction along the vertical axis.
Answer:
In recessions, the dollar usually
a. appreciates.
b. depreciates.
c. remains unaffected.
d. follows no consistent pattern.
Answer:
A particularly bad recession (in which output declines much more than usual for a
recession) is called
a. an inflationary period.
b. a downturn.
c. a peak.
d. a depression.
Answer: