As part of the “exchange rate effect of monetary policy,” a higher money supply causes
__________ of the domestic currency and thus __________ net exports.
A) appreciation; rising
B) appreciation; falling
C) depreciation; rising
D) depreciation; falling
Suppose the IS curve shifts back and forth. With a steep LM curve you get __________
variability in the interest rate and __________ variability in output than you get with a
flat LM curve.
A) more; more
B) more; less
C) less; more
D) less; less
Which of the following is a reserve target specified in the FOMC directive?
A) Bank reserves
B) Commercial bank capital requirements
C) Demand deposits
D) The prime rate
Monetary policy will be most effective when
A) the IS curve is flat and the LM curve is flat.
B) the IS curve is steep and the LM curve is flat.
C) the IS curve is flat and the LM curve is steep.
D) the IS curve is steep and the LM curve is steep.
Rising prices at a fast and furious pace is referred to as
A) inflation.
B) hyperinflation.
C) deflation.
D) a recession.
An unexpected rise in the Purchasing Managers’ Index should send bond prices
__________ and stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
Which of the following will cause the LM curve to shift to the right?
A) An increase in investment
B) An increase in money demand
C) A decrease in velocity
D) An increase in the money supply
All twelve Federal Reserve Bank presidents
A) attend Federal Open Market Committee Meetings.
B) vote on decisions regarding the discount rate.
C) vote on decisions regarding the prime rate.
D) vote on decisions regarding bank reserve requirements.
Suppose a shift of aggregate demand pushes the economy ‘southwest” away from full
employment in the aggregate demand and supply diagram. Monetarists would
recommend returning to full employment by
A) raising the money supply.
B) lowering the money supply.
C) waiting for the price level to rise.
D) waiting for the price level to fall.
Which of the following would be included in inflationary expectations that are formed
adaptively?
A) Money supply growth over the past two years
B) Statements made by the President of the United States
C) The average inflation rate over the past three years
D) A recent price agreement by oil exporting nations
When there are many thousands of small stockholders in a company, for each the cost
of monitoring manager performance is well __________ the benefits of doing so, which
helps __________ the manager-stockholder problem.
A) above; alleviates
B) above; brings on
C) below; alleviates
D) below; brings on
An increase in inflationary expectations will cause a(n) __________ in the demand for
loanable funds and a(n) __________ in the supply of loanable funds.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Banks are better at solving the stockholder-lender conflict than rating agencies when
they
A) are allowed to hold a substantial ownership stake in the borrowing firm.
B) steer clear of holding any ownership stake in the borrowing firm.
C) operate in markets-oriented financial systems.
D) issue individually-approved loans rather than lines of credit.
Suppose that IS and LM intersect at full-employment output. A leftward shift of LM
will be followed by a __________ price level that shifts LM to the __________ in a
return to full employment.
A) rising; right
B) rising; left
C) falling; right
D) falling; left
Which of the following is a goal of the Federal Reserve?
A) The federal funds rate target
B) Changes in reserve aggregates
C) Changes in monetary aggregates
D) Control of the rate of inflation
Which of the following institutions can not borrow from the Federal Reserve at the
discount window?
A) Thrift institutions
B) Member banks
C) Nonmember banks
D) Life insurance companies
According to the Monetarists a decrease 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) increases; falls; increase; decreases
D) decreases; rises; increase; increases
In terms of cash flows, a “balloon” mortgage resembles
A) an amortized loan.
B) a Treasury bill.
C) a conventional bond.
D) a zero-coupon bond.
The __________ the nonsystematic risk of a portfolio, the __________ the risk
premium will be.
A) higher; lower
B) higher; higher
C) lower; lower
D) None of the above.
The repo market is most closely related to the
A) federal funds market.
B) Treasury bond market.
C) Treasury note market.
D) commercial paper market.
If total consumption spending is $1,000, the marginal propensity to consume is 0.6, and
total output is $2,000, then the constant term is
A) $800.
B) $1,000.
C) $2,000.
D) $1,200.