Arguments for adopting a policy rule include
A) the time-inconsistency problem can lead to poor economic outcomes.
B) discretionary policies pursue overly expansionary monetary policies to boost
employment in the short run but generate higher inflation in the long run.
C) policy makers and politicians cannot be trusted.
D) all of the above.
In the simple Keynesian model, equilibrium aggregate output is determined by
A) aggregate demand.
B) aggregate supply.
C) the national demand for labor.
D) the price level.
A decrease in interest rates
A) increases the value of the dollar, net exports, and equilibrium output.
B) increases the value of the dollar, reducing net exports and equilibrium output.
C) reduces the value of the dollar, net exports, and equilibrium output.
D) reduces the value of the dollar, increasing net exports and equilibrium output.
The FHLBS gives loans to S&Ls and thus performs a function similar to the ________
for commercial banks.
A) Federal Reserve
B) U.S. Treasury
C) Office of the Comptroller of the Currency
D) U.S. Mint
The efficient markets hypothesis implies that prices in the stock market
A) follow a definite pattern.
B) are more likely to go up than down.
C) always undervalue the true assets of a corporation.
D) are unpredictable.
The “Greenspan doctrine”—central banks should not try to prick bubbles—was based
on which of the following arguments?
A) Asset-price bubbles are nearly impossible to identify.
B) Monetary actions would be likely to affect asset prices in general, rather than the
specific assets that are experiencing a bubble.
C) Raising interest rates has often been found to cause a bubble to burst more severely.
D) Monetary policy actions to prick bubbles can have harmful effects on the aggregate
economy.
E) All of the above.
Everything else held constant, in the market for reserves, increases in the discount rate
affect the federal funds rate
A) when the funds rate is below the discount rate.
B) when the funds rate equals the discount rate.
C) when the demand for federal funds intersects the vertical section of the reserve
supply curve.
D) when the demand for federal funds equals zero.
Everything else held constant, if a factor increases the demand for ________ goods
relative to ________ goods, the domestic currency will appreciate.
A) foreign; domestic
B) foreign; foreign
C) domestic; domestic
D) domestic; foreign
His analysis started with the recognition that the total quantity demanded of an
economy’s output was the sum of four types of spending: consumer expenditure,
planned investment spending, government spending, and net exports.
A) John Maynard Keynes
B) Sir John Hicks
C) Milton Friedman
D) Paul A. Samuelson
According to aggregate demand and supply analysis, the negative demand shock of
2000-2004 had the effect of
A) increasing aggregate output, lowering unemployment, and raising inflation.
B) decreasing aggregate output, raising unemployment, and raising inflation.
C) increasing aggregate output, lowering unemployment, and lowering inflation.
D) decreasing aggregate output, raising unemployment, and lowering inflation.
In developing countries, it can be expensive and time-consuming for the poor to
legalize their property ownership. Without legal title, the property cannot be used as
________ to borrow funds.
A) collateral
B) points
C) interest
D) restrictive covenants
A ________ makes investments in new start-up businesses.
A) capital buyout fund
B) sovereign wealth fund
C) venture capital fund
D) hedge fund
Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then
its central bank’s attempt to keep its currency from ________ will result in a ________
of international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
According to the liquidity preference theory, the demand for money is ________ related
to aggregate output and ________ related to interest rates.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Which of the following statements uses the economists’ definition of money?
A) I plan to earn a lot of money over the summer.
B) Betsy is rich—she has a lot of money.
C) I hope that I have enough money to buy my lunch today.
D) The job with New Company gave me the opportunity to earn more money.
A bank with insufficient reserves can increase its reserves by
A) lending federal funds.
B) calling in loans.
C) buying short-term Treasury securities.
D) buying municipal bonds.
The monetary transmission mechanism that links monetary policy to GDP through real
interest rates and investment spending is called the
A) traditional interest-rate channel.
B) Tobins’ q theory.
C) wealth effects.
D) cash flow channel.
When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A) the liabilities of the First National Bank decrease by $10.
B) the reserves of the First National Bank increase by $10.
C) the liabilities of Citibank decrease by $10.
D) the assets of Citibank decrease by $10.
According to the household liquidity effect, higher stock prices lead to increased
consumption expenditures because consumers
A) feel more secure about their financial position.
B) want to sell stocks and spend the proceeds before stock prices fall.
C) believe that their wages will increase due to increased profitability of firms.
D) can now afford more expensive imports.
Social Security is a
A) fully funded pension plan.
B) federally insured private pension plan.
C) government sponsored private pension plan.
D) “pay-as-you-go” system.
Which of the followings does NOT describe the money market in the ISLM model?
A) money demand function
B) investment function
C) money market equilibrium condition
D) money supply
Individuals that lend funds to a bank by opening a checking account are called
A) policyholders.
B) partners.
C) depositors.
D) debt holders.
The market where one currency is converted into another currency is called the
________ market.
A) stock
B) bond
C) derivatives
D) foreign exchange
The portfolio theories of money demand state that when income (and therefore, wealth)
is higher, the demand for the money asset will ________ and the demand for real
money balances will be ________.
A) rise; higher
B) rise; lower
C) fall; higher
D) fall; lower
The European System of Central Banks signals the stance of its monetary policy by
setting a target for the
A) federal funds rate.
B) overnight cash rate.
C) lombard rate.
D) reserve rate.
The three largest Federal Reserve banks (New York, Chicago, and San Francisco)
combined hold more than ________ percent of the assets of the Federal Reserve
System.
A) 25
B) 33
C) 50
D) 67
In a one-period valuation model, a decrease in the required return on investments in
equity causes a(n) ________ in the ________ price of a stock.
A) increase; current
B) increase; expected sales
C) decrease; current
D) decrease; expected sales
A well-capitalized financial institution has ________ to lose if it fails and thus is
________ likely to pursue risky activities.
A) more; more
B) more; less
C) less; more
D) less; less
In the model of the money supply process, the depositor’s role in influencing the money
supply is represented by
A) the currency holdings.
B) the currency holdings and excess reserve.
C) the currency holdings and borrowed reserve.
D) the market interest rate.
Provisions in loan contracts that prohibit borrowers from engaging in specified risky
activities are called
A) proscription bonds.
B) restrictive covenants.
C) due-on-sale clauses.
D) liens.
A decline in taxes ________ consumer expenditure and shifts the ________ curve to the
________, everything else held constant.
A) raises; LM; right
B) lowers; IS; left
C) raises; IS; right
D) lowers; LM; left