If people expect real estate prices to increase significantly, the ________ curve for
bonds will shift to the ________, everything else held constant.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
If a bank has excess reserves of $7,000 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) $17,000.
C) $22,000.
D) $27,000.
In the Baumol-Tobin analysis of transactions demand, scale economies imply that an
increase in real income increases the quantity of money demanded ________, while an
increase in the price level increases the quantity of money demanded ________.
A) proportionately; less than proportionately
B) more than proportionately; proportionately
C) less than proportionately; proportionately
D) proportionately; more than proportionately
If housing prices are expected to increase, then, other things equal, the demand for
houses will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
From 1980 to 1985 the dollar appreciated relative to the British pound. Holding
everything else constant, one would expect that, when compared to 1980
A) fewer Britons traveled to the United States in 1985.
B) Britons imported more wine from California in 1985.
C) Americans exported more wheat to England in 1985.
D) more Britons traveled to the United States in 1985.
On the evening news you hear of a scientific study that directly links premature births
to cigarette smoking. This is an example of
A) direct-model evidence.
B) informed voter-model evidence.
C) structural-model evidence.
D) reduced-form evidence.
________ is the relative ease and speed with which an asset can be converted into a
medium of exchange.
A) Efficiency
B) Liquidity
C) Deflation
D) Specialization
A decrease in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
According to Tobin’s q theory, when equity prices are low the market price of existing
capital is ________ relative to new capital, so expenditure on fixed investment is
________.
A) cheap; low
B) dear; low
C) cheap; high
D) dear; high
The process of asset transformation refers to the conversion of
A) safer assets into risky assets.
B) safer assets into safer liabilities.
C) risky assets into safer assets.
D) risky assets into risky liabilities.
The FOMC “Statement on Long-Run Goals and Monetary Policy Strategy”made it clear
that the Federal Reserve would be pursuing ________, consistent with its dual mandate.
A) a flexible form of inflation targeting
B) a strict form of inflation targeting
C) a zero inflation targeting
D) an implicit inflation targeting
A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
In the FOMC’s “Statement on Long-Run Goals and Monetary Policy Strategy,”the
FOMC agreed to a single numerical value of the inflation objective, 2% on the
________.
A) PCE deflator
B) GDP deflator
C) CPI
D) PPI
The currency component includes paper money and coins held in
A) bank vaults.
B) ATMs.
C) the hands of the nonbank public.
D) the central bank.
An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets.
B) providing depositors with a variety of savings certificates.
C) hiring more support staff so that customers don’t have to wait so long for assistance.
D) spreading the cost of writing a standardized contract over many borrowers.
Net profit after taxes per dollar of assets is a basic measure of bank profitability called
A) return on assets.
B) return on capital.
C) return on equity.
D) return on investment.
The ________ describes points for which the goods market is in equilibrium.
A) LM curve
B) IS curve
C) consumption function
D) investment schedule
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain positive and firms will continue to
________ production.
A) below; lower
B) above; lower
C) below; raise
D) above; raise
If a pension fund has sufficient contributions and earnings to pay benefits, it is said to
be
A) underfunded.
B) at par.
C) fully funded.
D) over par.
If reserves in the banking system increase by $100, then checkable deposits will
increase by $400 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.10.
C) 0.20.
D) 0.25.
A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
Economists define investment as the purchase of
A) a new physical asset such as a new machine or a new house.
B) any physical asset, whether new or not, used by business to increase production.
C) any physical asset used by business to increase production and the repurchase of
common stock.
D) business spending on capital and household spending on durable goods.
Keynes hypothesized that the speculative component of money demand was primarily
determined by the level of
A) interest rates.
B) velocity.
C) income.
D) stock market prices.
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, one million dollars in required reserves, and faces a required
reserve ratio of ten percent. Given this information, we can say First National Bank has
________ million dollars on deposit with the Federal Reserve.
A) one
B) two
C) eight
D) ten
In the liquidity trap, monetary policy
A) has a large impact on interest rates.
B) has a small impact on interest rates.
C) has no impact on interest rates.
D) has a proportionate impact on interest rates.
The velocity of money is
A) the average number of times that a dollar is spent in buying the total amount of final
goods and services.
B) the ratio of the money stock to high-powered money.
C) the ratio of the money stock to interest rates.
D) the average number of times a dollar is spent in buying financial assets.
Government regulations to reduce the possibility of financial panic include all of the
following EXCEPT
A) transactions costs.
B) restrictions on assets and activities.
C) disclosure.
D) deposit insurance.
The measure of the aggregate price level that is frequently the focus of Federal Reserve
officials is the
A) consumer price index.
B) producer price index.
C) GDP deflator.
D) PCE deflator.
The chartering process is similar to ________ potential borrowers and the restriction of
risk assets by regulators is similar to ________ in private financial markets.
A) screening; restrictive covenants
B) screening; branching restrictions
C) identifying; branching restrictions
D) identifying; credit rationing
With the creation of the Federal Deposit Insurance Corporation, member banks of the
Federal Reserve System ________ to purchase FDIC insurance for their depositors,
while non-member commercial banks ________ to buy deposit insurance.
A) could choose; were required
B) could choose; were given the option
C) were required, could choose
D) were required; were required
An increase in productivity in a country will cause its currency to ________ because it
can produce goods at a ________ price, everything else held constant.
A) depreciate; lower
B) appreciate; lower
C) depreciate; higher
D) appreciate; higher