Allowing individuals to manage a portion of their Social Security funds is
A) socialization.
B) privatization.
C) democratization.
D) regeneration.
Everything else held constant, an increase in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Prior to 1980, member banks left the Federal Reserve System due to
A) the high cost of discount loans.
B) the high cost of required reserves.
C) a desire to avoid interest rate regulations.
D) a desire to avoid credit controls.
When the Fed supplies the banking system with an extra dollar of reserves, deposits
________ by ________ than one dollar—a process called multiple deposit creation.
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
If a bank has more rate-sensitive assets than rate-sensitive liabilities
A) it reduces interest rate risk by swapping rate-sensitive income for fixed rate income.
B) it reduces interest rate risk by swapping fixed rate income for rate-sensitive income.
C) it increases interest rate risk by swapping rate-sensitive income for fixed rate
income.
D) it neutralizes interest rate risk by receiving and paying fixed-rate streams.
A decrease in the foreign 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
Which of the following are primary concerns of the bank manager?
A) maintaining sufficient reserves to minimize the cost to the bank of deposit outflows
B) extending loans to borrowers who will pay low interest rates, but who are poor credit
risks
C) acquiring funds at a relatively high cost, so that profitable lending opportunities can
be realized
D) maintaining high levels of capital and thus maximizing the returns to the owners
Everything else held constant, a decrease in net taxes will cause the IS curve to shift to
the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Everything else held constant, an increase in currency holdings will cause
A) the money supply to rise.
B) the money supply to remain constant.
C) the money supply to fall.
D) checkable deposits to rise.
On paper, the Bank of Canada has ________ instrument independence and ________
goal independence when compared to the Federal Reserve System.
A) less; less
B) less; more
C) more; less
D) more; more
Disintermediation resulted from
A) interest rate ceilings combined with inflation-driven increases in interest rates.
B) elimination of Regulation Q (the regulation imposing interest rate ceilings on bank
deposits).
C) increases in federal income taxes.
D) reserve requirements.
Which of the following does NOT appear in the current account part of the balance of
payments?
A) a loan of $1 million from Bank of America to Brazil
B) foreign aid to El Salvador
C) an Air France ticket bought by an American
D) income earned by General Motors from its plants abroad
The goals of bank asset management include
A) maximizing risk.
B) minimizing liquidity.
C) lending at high interest rates regardless of risk.
D) purchasing securities with high returns and low risk.
Suppose that there is a negative aggregate demand shock and the central bank commits
to an inflation rate target. But if the commitment is not credible, then
A) the public’s expected inflation will remain unchanged.
B) the short-run aggregate supply curve will rise.
C) economic contraction will be worse.
D) all of the above.
E) both B and C.
Of the four effects on interest rates from an increase in the money supply, the one that
works in the opposite direction of the other three is the
A) liquidity effect.
B) income effect.
C) price level effect.
D) expected inflation effect.
Because the United States was the reserve-currency country under the Bretton Woods
system, it could run large balance of payments ________ without ________ significant
amounts of international reserves.
A) deficits; losing
B) deficits; gaining
C) surpluses; losing
D) surpluses; gaining
If initially the money supply is $2 trillion, velocity is 5, the price level is 2, and real
GDP is $5 trillion, a fall in the money supply to $1 trillion
A) reduces real GDP to $2.5 trillion.
B) causes velocity to rise to 10.
C) decreases the price level to 1.
D) decreases the price level to 1 and decreases velocity to 2.5.
If future changes in stock prices are unpredictable, then we say that the stock prices
follow a
A) random walk.
B) straight and narrow path.
C) meandering path.
D) generalized walk.
The Pension Benefit Guarantee Corporation performs a role similar to that of
A) the Federal Reserve System.
B) the Comptroller of the Currency.
C) the FDIC.
D) the Office of Thrift Supervision.
Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy. These lessons include the
following.
A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy.
B) Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero.
C) Avoiding fluctuations in the level of unemployment is an important objective of
monetary policy, thus providing a rationale for interest-rate stability as the primary
long-run goal for monetary policy.
D) Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are not
important elements in various monetary policy transmission mechanisms.
The interest rate on seasonal credit equals
A) the federal funds rate.
B) the primary credit rate.
C) the secondary credit rate.
D) an average of the federal funds rate and rates on certificates of deposits.
If the real exchange rate between the United States and Japan is ________, then it is
cheaper to buy goods in Japan than in the United States.
A) greater than 1.0
B) greater than 0.5
C) less than 0.5
D) less than 1.0
Which of the following statements are TRUE?
A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but
increases the demand for default-free bonds.
B) The expected return on corporate bonds decreases as default risk increases.
C) A corporate bond’s return becomes less uncertain as default risk increases.
D) As their relative riskiness increases, the expected return on corporate bonds
increases relative to the expected return on default-free bonds.
A current account surplus indicates that America is ________ its claims on foreign
wealth, while a deficit indicates that this country is ________ its claims on foreign
wealth.
A) reducing; reducing
B) reducing; increasing
C) increasing; reducing
D) increasing; increasing
Suppose that the latest Consumer Price Index (CPI) release shows a higher inflation rate
in the U.S. than was expected. Everything else held constant, the release of the CPI
report would immediately cause the demand for U.S. assets to ________ and the U.S.
dollar would ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Sweep accounts
A) have made reserve requirements nonbinding for many banks.
B) sweep funds out of deposit accounts into long-term securities.
C) enable banks to avoid paying interest to corporate customers.
D) reduce banks’ assets.
Relative to life insurance companies, property and casualty insurance companies hold
A) more liquid assets.
B) more long-term government bonds.
C) more commercial mortgages.
D) fewer municipal bonds.
Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to make their analysts’ recommendations public is an example of
A) regulate for transparency.
B) supervisory oversight.
C) separation of functions.
D) socialization of information production.
Situation 20-1
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information in Situation 20-1, if aggregate output equals $8,000, the
unplanned inventory investment equals
A) -$100
B) $0
C) $100
D) $500
The Federal Reserve System was created to
A) make it easier to finance budget deficits.
B) promote financial market stability.
C) lower the unemployment rate.
D) promote rapid economic growth.
Sweep accounts which were created to avoid reserve requirements became possible
because of a change in
A) deposit ceilings.
B) technology.
C) government rules.
D) bank mergers.
Decisions by depositors to increase their holdings of ________, or of banks to hold
excess reserves will result in a ________ expansion of deposits than the simple model
predicts.
A) deposits; smaller
B) deposits; larger
C) currency; smaller
D) currency; larger
Everything else held constant, in the market for reserves, when the federal funds rate is
5%, lowering the discount rate from 5% to 4%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
As a result of the global financial crisis several of the large, free-standing investment
banking firms chose to become bank holding companies. This means that they will now
be regulated by
A) the Federal Reserve.
B) the FDIC.
C) the state banking authorities.
D) the Treasury.
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the short
run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change