1) Suppose on any given day the prevailing equilibrium federal funds rate is above the
Federal Reserve’s federal funds target rate If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
2) A borrowed reserves target is ________ because increases in income ________
interest rates and discount loans, causing the Fed to ________ the monetary base,
everything else held constant
A) procyclical; increase; increase
B) countercyclical; increase; increase
C) procyclical; reduce; reduce
D) countercyclical; reduce; reduce
3) Everything else held constant, in the market for reserves, when the demand for
federal funds intersects the reserve supply curve on the vertical section, increasing the
discount rate
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate
4) The number and availability of discount brokers has grown rapidly since the
mid-1970s The efficient markets hypothesis predicts that people who use discount
brokers
A) will likely earn lower returns than those who use full-service brokers
B) will likely earn about the same as those who use full-service brokers, but will net
more after brokerage commissions
C) are going against evidence suggesting that full-service brokers can help outperform
the market
D) are likely to outperform the market by a wide margin
5) ________ and ________ may provide an explanation for stock market bubbles
A) Overconfidence; social contagion
B) Underconfidence; social contagion
C) Overconfidence; social isolationism
D) Underconfidence; social isolationism
6) Points on the IS curve satisfy ________ market equilibrium
A) money
B) goods
C) stock
D) bond
7) The Fed was committed to keeping interest rates low to assist Treasury financing of
budget deficits
A) only during World War I
B) during the Great Depression
C) during World War I and World War II
D) throughout the entire existence of the Fed
8) Which of the following are reported as liabilities on a bank’s balance sheet?
A) Reserves
B) Checkable deposits
C) Loans
D) Deposits with other banks
9) Bank loans from the Federal Reserve are called ________ and represent a ________
of funds
A) discount loans; use
B) discount loans; source
C) fed funds; use
D) fed funds; source
10) If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004
to 2005 is
A) 20%
B) 10%
C) 0%
D) -10%
11) The interest rate falls when either the demand for bonds ________ or the supply of
bonds ________
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
12) Assuming the economy is starting at the natural rate of output and everything else
held constant, the effect of ________ in aggregate ________ is a rise in both inflation
and output in the short-run, but in the long-run the only effect is a rise in inflation
A) a decrease; supply
B) a decrease; demand
C) an increase; supply
D) an increase; demand
13) If aggregate demand falls short of current output, business firms will ________
production to ________ inventories
A) cut; keep from accumulating
B) expand; keep from accumulating
C) cut; build up
D) expand; build up
14) In the Keynesian cross diagram, a decline in autonomous consumer expenditure
causes the aggregate demand function to shift down, the equilibrium level of aggregate
output to ________, and the IS curve to shift to the ________, everything else held
constant
A) rise; left
B) rise; right
C) fall; left
D) fall; right
15) The formula that links checkable deposits to the monetary base is
A) m =
B) M =
C) M =
D) D =
E) D = MB
16) The process where financial intermediaries create and sell low-risk assets and use
the proceeds to purchase riskier assets is known as
A) risk sharing
B) risk aversion
C) risk neutrality
D) risk selling
17) A well-capitalized financial institution has ________ to lose if it fails and thus is
________ likely to pursue risky activities
A) more; more
B) more; less
C) less; more
D) less; less
18) Everything else held constant, if aggregate output is to the ________ of the IS
curve, then there is an excess supply of goods which will cause aggregate output to
________
A) right; fall
B) right; rise
C) left; fall
D) left; rise