If the government finances its spending by selling bonds to the central bank, the
monetary base will ________ and the money supply will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) not change; not change
Increasing transactions costs of selling an asset make the asset
A) more valuable.
B) more liquid.
C) less liquid.
D) more moneylike.
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every
business cycle they studied over nearly a hundred-year period
A) the growth rate of the money supply decreased before output decreased.
B) interest rates decreased before output decreased.
C) the growth rate of federal government spending decreased before output decreased.
D) the growth rate of state and local government spending decreased before output
decreased.
Taxpayers were served poorly by thrift regulators in the 1980s. This poor performance
cannot be explained by
A) regulators’ desire to escape blame for poor performance, leading to a perverse
strategy of “bureaucratic gambling.”
B) regulators’ incentives to accede to pressures imposed by politicians, who sought to
keep regulators from imposing tough regulations on institutions that were major
campaign contributors.
C) Congress’s dogged determination to protect taxpayers from the unsound banking
practices of managers at many of the nation’s savings and loans.
D) politicians strong incentives to act in their own interests rather than the interests of
the taxpayers.
When banks offer borrowers smaller loans than they have requested, banks are said to
A) shave credit.
B) rediscount the loan.
C) raze credit.
D) ration credit.
The other checkable deposits component of the M1 measure reported by the Federal
Reserve includes
A) negotiable time deposits.
B) money market mutual fund shares.
C) automatic transfer from savings accounts.
D) money market deposit accounts.
Dodd-Frank addressed many of the issues that led to the financial crisis. Which of the
following was NOT addressed by Dodd-Frank regulations?
A) stricter consumer protection laws
B) privately owned, government-sponsored enterprises (GSEs) such as Fannie mae and
Freddie Mac
C) resolution authority over the large financial institutions
D) higher requirements on firms dealing in derivatives
Unlike banks, ________ have been allowed to branch statewide since 1980.
A) federally-chartered S&Ls
B) state-chartered S&Ls
C) financially troubled S&Ls
D) technically insolvent S&Ls
Stock prices are
A) relatively stable trending upward at a steady pace.
B) relatively stable trending downward at a moderate rate.
C) extremely volatile.
D) unstable trending downward at a moderate rate.
When Happy Feet Corporation announces that their fourth quarter earnings are up 10%,
their stock price falls. This is consistent with the efficient markets hypothesis
A) if earnings were not as high as expected.
B) if earnings were not as low as expected.
C) if a merger is anticipated.
D) the company just invented a new bunion product.
When tax revenues are greater than government expenditures, the government has a
budget
A) crisis.
B) deficit.
C) surplus.
D) revision.
Even economists have no single, precise definition of money because
A) money supply statistics are a state secret.
B) the Federal Reserve does not employ or report different measures of the money
supply.
C) the “moneyness” or liquidity of an asset is a matter of degree.
D) economists find disagreement interesting and refuse to agree for ideological reasons.
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess ________ of goods which will cause aggregate output to rise.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
In the ISLM framework, an expansionary fiscal 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
Of the four effects on interest rates from an increase in the money supply, the initial
effect is, generally, the
A) income effect.
B) liquidity effect.
C) price level effect.
D) expected inflation effect.
A coupon bond that has no maturity date and no repayment of principal is called a
A) consol.
B) cabinet.
C) Treasury bill.
D) Treasury note.
As aggregate output rises, the demand for money ________ and the interest rate
________, so that money demanded equals money supplied and the money market is in
equilibrium.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Only ________ can issue monoline insurance policies.
A) life insurance companies
B) insurance companies that issue multiple types of insurance
C) property insurance companies
D) insurance companies that specialize in credit insurance alone
A decrease in the availability of raw materials that increases the price level is called a
________ shock
A) negative demand
B) positive demand
C) negative supply
D) positive supply
The demand for gold increases, other things equal, when
A) the market for silver becomes more liquid.
B) interest rates are expected to rise.
C) interest rates are expected to fall.
D) real estate prices are expected to increase.
Patrick places his pocket change into his savings bank on his desk each evening. By his
actions, Patrick indicates that he believes that money is a
A) medium of exchange.
B) unit of account.
C) store of value.
D) unit of specialization.
Factors likely to cause a financial crisis in emerging market countries include
A) severe fiscal imbalances.
B) decreases in foreign interest rates.
C) a foreign exchange crisis.
D) too strong oversight of the financial industry.
Hedging risk for a short position is accomplished by
A) taking a long position.
B) taking another short position.
C) taking additional long and short positions in equal amounts.
D) taking a neutral position.
If the aggregate price level at time t is denoted by Pt, the inflation rate from time t – 1 to
t is defined as
A) πt = (Pt – Pt – 1)/Pt – 1.
B) πt = (Pt + 1 – Pt – 1)/Pt – 1.
C) πt = (Pt + 1 – Pt )/Pt.
D) πt = (Pt – Pt – 1)/Pt.
Which of the followings does NOT shift the short-run aggregate supply curve?
A) supply shocks.
B) persistent positive output gap.
C) changes in expected inflation.
D) an increase in output gap.
The government passed the Economic Recovery Act in October 2008 to prevent the
financial crisis from continuing to worsen. A controversial component of this act was
the
A) temporary decrease in the federal deposit insurance limit.
B) sale of new subprime mortgage assets.
C) borrowing of $150 million from AIG.
D) Troubled Asset Relief Program (TARP).
An international lender of last resort creates a serious ________ problem because
depositors and other creditors of banking institutions expect that they will be protected
if a crisis occurs.
A) moral hazard
B) adverse selection
C) public choice
D) strategic choice
When the Glass-Steagall Act was repealed in 1999, potential conflicts of interest arose
with
A) the development of universal banking.
B) the introduction of more credit-rating agencies.
C) accounting firms developing more comprehensive services.
D) investment analysis in investment banking.
Everything else held constant, when stock prices become ________ volatile, the
demand curve for bonds shifts to the ________ and the interest rate ________.
A) more; right; rises
B) more; right; falls
C) less; left; falls
D) less; left; does not change
The theory of purchasing power parity cannot fully explain exchange rate movements
in the short run because
A) all goods are identical even if produced in different countries.
B) monetary policy differs across countries.
C) some goods are not traded between countries.
D) fiscal policy differs across countries.