In the Baumol-Tobin analysis of the demand for money, either an increase in ________
or an increase in ________ increases money demand.
A) income; interest rates
B) brokerage fees; interest rates
C) interest rates; the price level
D) brokerage fees; income
According to the Lucas critique, if past increases in the short-term interest rate have
always been temporary, then
A) the term-structure relationship using past data will then show only a weak effect of
changes in the short-term interest rate on the long-term rate.
B) the term-structure relationship using past data will show no effect of changes in the
short-term interest rate on the long-term rate.
C) one cannot predict the term-structure relationship as it depends on expectations.
D) the term-structure relationship using past data will nevertheless show a strong effect
of changes in the short-term interest rate on the long-term rate because of a change in
the way expectations are formed.
In the ISLM framework, an expansionary monetary policy causes aggregate output to
________ and the interest rate to ________, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Which of the following bonds would have the highest default risk?
A) municipal bonds
B) investment-grade bonds
C) U.S. Treasury bonds
D) junk bonds
State banking authorities have sole jurisdiction over state banks
A) without FDIC insurance.
B) that are not members of the Federal Reserve System.
C) operating as bank holding companies.
D) chartered in the 21st century.
Which of the following did not contribute to the failing of Freddie Mac and Freddie
Mae?
A) Problems with adverse selection.
B) Problems with moral hazard.
C) Weak regulatory oversight.
D) Unethical accounting practices.
In the market for reserves, a lower interest rate paid on excess reserves
A) decreases the supply of reserves.
B) increases the supply of reserves.
C) decreases the effective floor for the federal funds rate.
D) increases the effective floor for the federal funds rate.
The long-run rate of unemployment to which an economy always gravitates is the
A) normal rate of unemployment.
B) natural rate of unemployment.
C) neutral rate of unemployment.
D) inflationary rate of unemployment.
The seignorage for a government is greater for ________ than for ________.
A) dollarization; a currency board
B) dollarization; exchange-rate targeting
C) dollarization; monetary targeting
D) dollarization; inflation targeting
E) exchange-rate targeting; dollarization
When the domestic currency is initially undervalued in a fixed exchange rate regime,
the central bank must intervene in the foreign exchange market to ________ the
domestic currency, thereby allowing the money supply to ________.
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
Which of the followings does NOT describe the goods market in the ISLM model?
A) consumption function
B) investment function
C) government spending and tax
D) money demand function
Equilibrium output is reduced by an increase in
A) planned investment.
B) taxes.
C) government spending.
D) net exports.
The opportunity cost of holding excess reserves is the federal funds rate
A) minus the discount rate.
B) plus the discount rate.
C) plus the interest rate paid on excess reserves.
D) minus the interest rate paid on excess reserves.
When the interest rate is above the equilibrium interest rate, there is an excess
________ money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
There is a ________ association between inflation and the growth rate of money
________.
A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply
Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets, but
did not lead to worsening financial market conditions in East Asia in 1997-1998 include
A) rise in interest rates abroad.
B) bankers’ lack of expertise in screening and monitoring borrowers.
C) deterioration of banks’ balance sheets because of increasing loan losses.
D) stock market decline.
Although the FDIC was created to prevent bank failures, its existence encourages banks
to
A) take too much risk.
B) hold too much capital.
C) open too many branches.
D) buy too much stock.
If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive
liabilities then
A) an increase in interest rates will reduce bank profits.
B) a decrease in interest rates will reduce bank profits.
C) interest rate changes will not impact bank profits.
D) a decrease in interest rates will increase bank profits.
Under the European System of Central Banks, the Governing Council is similar in
structure to the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
Much of the credit for prevention of a financial market meltdown after “Black Monday”
(October 19, 1987) must be given to the Federal Reserve System and then-chairman
A) Paul Volcker.
B) Alan Blinder.
C) Arthur Burns.
D) Alan Greenspan.
When banks involved in trading activities attempt to outguess markets, they are
A) forecasting.
B) diversifying.
C) speculating.
D) engaging in riskless arbitrage.
If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured
using gap analysis) will
A) decline by $0.5 million.
B) decline by $1.5 million.
C) decline by $2.5 million.
D) increase by $2.0 million.
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio =
40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.15 to 2.33
B) decrease from 2.33 to 2.15
C) increase from 1.54 to 1.67
D) decrease from 1.67 to 1.54
A share of common stock is a claim on a corporation’s
A) debt.
B) liabilities.
C) expenses.
D) earnings and assets.
Everything else held constant, an increase in government spending will cause
A) aggregate demand to increase.
B) aggregate demand to decrease.
C) the quantity of aggregate demand to increase.
D) the quantity of aggregate demand to decrease.
A credible nominal anchor
A) can help overcome the time-inconsistency problem by providing an expected
constraint on discretionary policy.
B) can help to anchor inflation expectations, which leads to smaller fluctuations in
inflation.
C) is required for a policy rule.
D) all of the above.
E) both A and B.
In the figure above, a factor that could cause the supply of bonds to increase (shift to
the right) is
A) a decrease in government budget deficits.
B) a decrease in expected inflation.
C) expectations of more profitable investment opportunities.
D) a business cycle recession.
If the United States has a current account deficit with England of $1 million, and the
Bank of England sells $1 million worth of pounds in the foreign exchange market, then
England ________ $1 million of international reserves and its monetary base ________
by $1 million.
A) gains; rises
B) gains; falls
C) loses; rises
D) loses; falls
The legislation that effectively prohibited banks from branching across state lines and
forced all national banks to conform to the branching regulations in the state in which
they reside is the
A) McFadden Act.
B) National Bank Act.
C) Glass-Steagall Act.
D) Garn-St.Germain Act.
Allowing bank branching across state lines gives banks greater ability to coordinate
bank operations. This makes it easier for them to receive the benefits of
A) the dual banking system.
B) economies of scale.
C) disintermediation.
D) interest-rate irregularities.