Everything else held constant, a monetary contraction is characterized by ________
output and ________ interest rates.
A) rising; rising
B) rising; falling
C) falling; rising
D) falling; falling
________ in the expected future domestic exchange rate causes the demand for
domestic assets to decrease and the domestic currency to ________, everything else
held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
When comparing the banking crisis in the United States to the crises in Latin America,
cost to the taxpayers of the government bailouts was
A) higher in Latin American than in the United States.
B) higher in the United States than in Latin America.
C) about the same in both Latin America and the United States.
D) positive in Latin America but negative in the United States.
Options are contracts that give the purchasers the
A) option to buy or sell an underlying asset.
B) obligation to buy or sell an underlying asset.
C) right to hold an underlying asset.
D) right to switch payment streams.
________ is a process of bundling together smaller loans (like mortgages) into standard
debt securities.
A) Securitization
B) Origination
C) Debt deflation
D) Distribution
If you sold a short contract on financial futures you hope interest rates
A) rise.
B) fall.
C) are stable.
D) fluctuate.
Using the one-period valuation model, assuming a year-end dividend of $0.11, an
expected sales price of $110, and a required rate of return of 10%, the current price of
the stock would be
A) $110.11.
B) $121.12.
C) $100.10.
D) $100.11
Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
In the Keynesian cross diagram, an increase in investment spending because companies
become more optimistic about investment profitability causes the aggregate demand
function to shift ________ and the equilibrium level of aggregate output to ________,
everything else held constant.
A) up; rise
B) up; fall
C) down; rise
D) down; fall
The Federal Open Market Committee makes the Fed’s decisions on the purchase or sale
of government securities, but these purchases or sales are executed by the Federal
Reserve Bank of
A) Chicago.
B) Boston.
C) New York.
D) San Francisco.
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 supply
When those most likely to produce the outcome insured against are the ones who
purchase insurance, insurance companies are said to face the problem of
A) fraudulent claims.
B) moral hazard.
C) adverse selection.
D) pecuniary purchases.
Although the Fed professed employment of ________ targeting during the 1970s, its
behavior suggests that it emphasized ________ targeting.
A) free-reserve; interest-rate
B) interest-rate; monetary aggregate
C) monetary aggregate; interest-rate
D) free reserve; monetary aggregate
The theory of bureaucratic behavior when applied to the Fed helps to explain why the
Fed
A) was supportive of congressional attempts to limit the central bank’s autonomy.
B) was so secretive about the conduct of future monetary policy.
C) sought less control over banks in the 1980s.
D) was willing to take on powerful groups that may threaten its autonomy.
The predominant form of household debt is
A) consumer installment debt.
B) collateralized debt.
C) unsecured debt.
D) unrestricted debt.
The primary reason for the recent reduction in the number of banks is
A) bank failures.
B) re-regulation of banking.
C) restrictions on interstate branching.
D) bank consolidation.
Thrift institutions include
A) banks, mutual funds, and insurance companies.
B) savings and loan associations, mutual savings banks, and credit unions.
C) finance companies, mutual funds, and money market funds.
D) pension funds, mutual funds, and banks.
One of the assumptions of the Gordon Growth Model is that dividends will continue
growing at ________ rate.
A) an increasing
B) a fast
C) a constant
D) an escalating
When interest rates fall in the United States (with the price level fixed), the value of the
dollar ________, domestic goods become ________ expensive, and net exports
________.
A) falls; less; fall
B) falls; less; rise
C) falls; more; fall
D) rises; less; fall
On ________, October 19, 1987, the stock market experienced its worst one-day drop
in its entire history with the DJIA falling by 22%.
A) “Terrible Tuesday”
B) “Woeful Wednesday”
C) “Freaky Friday”
D) “Black Monday”
Everything else held constant, if a central bank makes a sterilized sale of foreign assets,
then the domestic currency will
A) appreciate.
B) depreciate.
C) either appreciate, depreciate, or remain constant.
D) not be affected.
In the model of the money supply process for M2, the relationship between checkable
deposits and the M2 money supply is represented by
A) D = × M2.
B) D = (1 + c + t + mm) × M2.
C) M2 = × D.
D) M2 = .
If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and
if the reserve requirement is 10 percent, then the bank has actual reserves of
A) $14,000.
B) $19,000.
C) $24,000.
D) $29,000.
________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to appreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Open market operations intended to offset movements in noncontrollable factors (such
as float) that affect reserves and the monetary base are called
A) defensive open market operations.
B) dynamic open market operations.
C) offensive open market operations.
D) reactionary open market operations.
If the required reserve ratio is one-third, currency in circulation is $300 billion, and
checkable deposits are $900 billion, then the currency-deposit ratio is
A) 0.25.
B) 0.33.
C) 0.67.
D) 0.375.
If the Fed adopts a policy of pegging the interest rate, a ________ in government
spending forces the Fed to increase the money supply to prevent interest rates from
________.
A) fall; increasing
B) fall; decreasing
C) rise; decreasing
D) rise; increasing
Potential weaknesses of nominal GDP targeting include
A) it is more complicated to explain to the public than inflation targeting and thus the
public might be confused about the objectives of the central bank.
B) it implies that the central bank will respond to slowdowns in the real economy even
if inflation is not falling.
C) real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
D) it focuses not only on controlling inflation but also explicitly on stabilizing real
GDP.
When the growth rate of the money supply is increased, interest rates will fall
immediately if the liquidity effect is ________ than the other money supply effects and
there is ________ adjustment of expected inflation.
A) larger; fast
B) larger; slow
C) smaller; slow
D) smaller; fast
The most common definition that monetary policymakers use for price stability is
A) low and stable deflation.
B) an inflation rate of zero percent.
C) high and stable inflation.
D) low and stable inflation.
Suppose the economy is producing at the natural rate of output. An increase in
consumer and business confidence will cause ________ in real GDP in the short run
and ________ in inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Part of the increase in currency holdings in the 1960s and 1970s can be attributed to
A) increases in income tax rates.
B) the switch from progressive to proportional income taxes.
C) the adoption of regressive taxes.
D) bracket creep due to inflation and progressive income taxes.