The use of bankers’ acceptances is most useful in reducing
(a) interest rate risk.
(b) credit risk.
(c) exchange rate risk.
(d) the gap between current exchange rates and future exchange rates.
Answer:
To conduct open market operations the FOMC issues a directive to
(a) the trading desk at the Federal Reserve Bank of New York.
(b) the Board of Governors in Washington, D.C.
(c) the presidents of the district banks.
(d) chairman of the New York Stock Exchange.
Answer:
According to the new Keynesian view, upturns and downturns in economic activity
(a) may represent times when the economy is not at its long-run equilibrium.
(b) are always the result of unexpected changes in the money supply.
(c) cannot be offset by stabilization policy.
(d) are unrelated to movements in aggregate demand.
Answer:
If during a three-year period policymakers attempt to keep unemployment below the
natural rate of unemployment, in the new Keynesian view
(a) the LRAS curve will shift to the right.
(b) the LRAS curve will shift to the left.
(c) the total amount of output produced during the period will be smaller than in the
new classical view.
(d) the total amount of output produced during the period will be greater than in the
new classical view.
Answer:
How is the interest rate that prevails in the bond market determined?
(a) By the interaction of stock prices and bond prices
(b) By the decision of the president, in consultation with Congress
(c) By demand for and supply of bonds
(d) By the Board of Governors of the New York Stock Exchange
Answer:
A rise in the real interest rate will cause which of the components of aggregate demand
to decline?
(a) Only C
(b) Only C and I
(c) Only C, I, and NX
(d) C, I, G, and NX
Answer:
If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the
same time purchases $1 billion of short-term securities issued by the U.S. Treasury
(a) the monetary base will decline by $1 billion.
(b) the monetary base will rise by $1 billion.
(c) the Fed has conducted an unsterilized foreign-exchange intervention.
(d) the Fed has conducted a sterilized foreign-exchange intervention.
Answer:
When a country’s nominal exchange rate depreciates, the price of
(a) that country’s goods abroad increases.
(b) that country’s goods abroad decreases.
(c) foreign goods sold in the country decreases.
(d) that country’s goods produced and sold at home decreases.
Answer:
A risk-averse saver will
(a) always accept a lower expected return in exchange for less risk.
(b) sometimes accept a lower expected return in exchange for less risk.
(c) never accept a lower expected return in exchange for less risk.
(d) will only choose investments with zero risk.
Answer:
According to the new Keynesian approach, changes in the money supply will affect
output
(a) only if they are expected.
(b) only if they are unexpected.
(c) whether they are expected or unexpected.
(d) only if they affect the price level.
Answer:
In the savings-investment diagram, we know that an increase in the real interest rate
raises the level of saving because
(a) it causes a rightward shift in the investment curve.
(b) it causes a leftward shift in the investment curve.
(c) the saving curve slopes up.
(d) the saving curve slopes down.
Answer:
The experience of Argentina in the late 1980s illustrates the point that
(a) to be acceptable as a medium of exchange, households and firms must believe that
money has value and will be acceptable.
(b) any money not backed by gold will eventually become worthless.
(c) even a country with very low inflation rates may have severe economic problems.
(d) there is only a very slight link between rates of growth of the money supply and the
inflation rate.
Answer:
Municipal bonds are issued
(a) only by local governments.
(b) only by state governments.
(c) by both state and local governments.
(d) by the federal government, and by state and local governments.
Answer:
Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco. If
the real exchange rate is one-third of a slice of U.S. pizza for one slice of British pizza,
how many pounds should you receive in exchange for $1?
(a) 1/3
(b) 1.5
(c) 2
(d) 3
Answer:
Many economists believe
(a) the Fed could have reduced the severity of the Great Depression by raising interest
rates.
(b) the Fed could have reduced the severity of the Great Depression by encouraging
banks to make fewer loans to insolvent businesses.
(c) bank failures increased the severity of the Great Depression.
(d) the severity of the Great Depression and the policies of the Fed were unrelated.
Answer:
If nothing else changes, a higher price level
(a) increases the value of real money balances.
(b) leads to a proportionately higher nominal demand for money.
(c) leads to a proportionately lower nominal demand for money.
(d) decreases the value of nominal money balances.
Answer:
About how much would you have needed in 2000 to buy something that cost $0.10 in
1939?
(a) $0.10
(b) $1.00
(c) $10.00
(d) $100.00
Answer:
What determines the acceptability of dollar bills as a medium of exchange?
(a) Our society’s willingness to use green paper notes issued by the Federal Reserve as
money.
(b) The willingness of the Federal Reserve to redeem dollar bills for gold.
(c) The willingness of the U.S. Treasury to redeem dollar bills for gold.
(d) The public’s fear that failing to accept dollar bills will trigger a hyperinflation.
Answer:
In the face of workers pushing for higher wages, an accommodating monetary policy
will result in
(a) a higher price level and a lower level of current output.
(b) a lower price level and a higher level of current output.
(c) a higher price level and a higher level of current output.
(d) a lower price level and a lower level of current output.
Answer:
Finance companies
(a) issue stock and use the proceeds to purchase bonds.
(b) raise funds in financial markets to lend to households and firms.
(c) raise funds from banks to lend to households and firms.
(d) issue bonds and use the proceeds to purchase stock.
Answer:
If there is an excess supply of loanable funds at a given interest rate, then
(a) the price of bonds will fall.
(b) the price of bonds will rise.
(c) the interest rate will rise.
(d) the price of bonds may rise or fall depending upon the reasons for the excess supply
of loanable funds.
Answer:
Program trading
(a) is the likeliest cause of the stock market crash of October 1987.
(b) occurs only in the over-the-counter market.
(c) refers to computer-generated orders to buy or sell many stocks at the same time.
(d) has been abolished by order of the Brady Commission.
Answer:
The premise of the quantity theory of money demand is
(a) only gold and silver coins have value.
(b) it is only the quantity of money, and not its quality, that counts.
(c) the most obvious reason that households and businesses demand money is for use in
making transactions.
(d) the store of value function of money is more important than the medium of
exchange function of money.
Answer:
Which of the following is NOT a financial intermediary?
(a) Mutual fund
(b) Bank
(c) Stock exchange
(d) Insurance company
Answer:
Savers and borrowers began to make greater use of derivative markets during the 1980s
because of the
(a) increased volatility of interest rates.
(b) fall in marginal income tax rates.
(c) decline in inflation rates.
(d) decline in unemployment rates.
Answer:
Which of the following will NOT cause the LM curve to shift?
(a) An increase in the expected inflation rate
(b) A decline in the nominal return on money
(c) A decline in real output
(d) An increase in the aggregate price level
Answer:
An important difference between Keynes’s approach to the demand for money and
Friedman’s approach is that
(a) there is no role for the opportunity cost of holding money in Friedman’s theory.
(b) in Keynes’s theory changes in output have no effect on the demand for money.
(c) in Friedman’s theory money demand responds only slightly to short-run fluctuations
in income.
(d) in Keynes’s theory money demand is a function of the real interest rate, rather than
the nominal interest rate.
Answer:
Trading in capital markets involves
(a) debt instruments with maturities of more than one year.
(b) equities.
(c) debt instruments with maturities of less than one year.
(d) debt instruments with maturities of more than one year and equities.
Answer:
A decrease in the volume of discount loans
(a) increases the monetary base but decreases the money supply.
(b) decreases the monetary base but increases the money supply.
(c) increases both the monetary base and the money supply.
(d) decreases both the monetary base and the money supply.
Answer:
What did President George H. W. Bush and his advisers believe was causing the
weakness in the U.S. economy in the fall of 1991?
(a) A credit crunch
(b) High inflation
(c) Low interest rates
(d) A large federal budget deficit
Answer:
Which of the following statements is correct?
(a) The Fed exercises complete control over the money supply, but only partial control
over the real interest rate.
(b) The Fed exercises complete control over the real interest rate, but only partial
control over the money supply.
(c) The Fed exercises complete control over both the real interest rate and the money
supply.
(d) The Fed exercises complete control over neither the real interest rate nor the money
supply.
Answer:
The most important reason for federal government concern about the health of the
banking industry is that
(a) banks are the primary market for government bonds.
(b) banks are of great importance in reducing information costs in the financial system.
(c) many Americans receive a substantial part of their income as interest on bank
deposits.
(d) banks employ a substantial number of people.
Answer:
When did Irving Fisher first develop the quantity theory of money demand?
(a) Late 1700s
(b) Early 1800s
(c) Early 1900s
(d) Late 1990s
Answer:
In 1971 money market mutual funds were introduced as an alternative to
(a) commercial paper.
(b) Treasury bills.
(c) repurchase agreements.
(d) bank deposits.
Answer:
Comparing the U.S. banking system to the systems in other major industrial countries,
which of the following statements is true?
(a) The United States has more banks and more bank offices per capita.
(b) The United States has fewer banks and fewer bank offices per capita.
(c) The United States has more banks, but about the same number of bank offices per
capita.
(d) The United States has about the same number of banks, but more bank offices per
capita.
Answer: