1) The disruption to financial markets starting in August 2007 that caused both
consumer and business spending to fall
A) shifted the aggregate demand curve to the right
B) shifted the aggregate demand curve to the left
C) shifted the aggregate supply curve to the right
D) shifted the aggregate supply curve to the left
2) Equity holders are a corporation’s ________ That means the corporation must pay all
of its debt holders before it pays its equity holders
A) debtors
B) brokers
C) residual claimants
D) underwriters
3) Allowing bank branching across state lines gives banks greater ability to coordinate
bank operations This makes it easier for them to receive the benefits of
A) the dual banking system
B) economies of scale
C) disintermediation
D) interest-rate irregularities
4) If a central bank does not want to allow the domestic currency to depreciate, it will
________ international reserves by purchasing its currency, thereby ________ the
monetary base and increasing the risk of higher unemployment
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
5) The two most important categories of assets on the Fed’s balance sheet are ________
and ________ because they earn interest
A) discount loans; coins
B) securities; discount loans
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts
6) When an economy grows out of a recession, normally the demand for bonds
________ and the supply of bonds ________, everything else held constant
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
7) Which of the following instruments are traded in a money market?
A) State and local government bonds
B) US Treasury bills
C) Corporate bonds
D) US government agency securities
8) The Keynesian demand for real balances can be expressed as
A) Md = f(i,Y)
B) Md/P = f(i)
C) Md/P = f(Y)
D) Md/P = f(i,Y)
9) Which of the following is a true statement?
A) Money and income are flow variables
B) Money is a flow variable
C) Income is a flow variable
D) Money and income are stock variables
10) To say that inflation is a monetary phenomenon seems to beg the question:
A) Why does inflationary monetary policy occur?
B) Why do politicians seek reelection?
C) Why is the Fed independent?
D) Why does the US Treasury print so much money?
11) Everything else held constant, an increase in the required 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
12) Banks subject to reserve requirements set by the Federal Reserve System include
A) only nationally chartered banks
B) only banks with assets less than $100 million
C) only banks with assets less than $500 million
D) all banks whether or not they are members of the Federal Reserve System
13) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A) 8 percent
B) 10 percent
C) 12 percent
D) 14 percent
14) Aggregate output is increased by a decrease in
A) autonomous consumption
B) government spending
C) planned investment
D) net taxes
15) Keynes’s model of the demand for money suggests that velocity is
A) constant
B) positively related to interest rates
C) negatively related to interest rates
D) positively related to bond values
16) ________ is the narrowest monetary aggregate that the Fed reports
A) M0
B) M1
C) M2
D) M3
17) Using Taylor’s rule, when the equilibrium real federal funds rate is 2 percent, there
is no output gap, the actual inflation rate is zero, and the target inflation rate is 2
percent, the nominal federal funds rate should be
A) 0 percent
B) 1 percent
C) 2 percent
D) 3 percent
18) Today 1 euro can be purchased for $110 This is the
A) spot exchange rate
B) forward exchange rate
C) fixed exchange rate
D) financial exchange rate
19) A major disruption in financial markets characterized by sharp declines in asset
prices and firm failures is called a
A) financial crisis
B) fiscal imbalance
C) free-rider problem
D) “lemons” problem
20) Whether one views the discretionary policies of the 1960s and 1970s as
destabilizing or believes the economy would have been less stable without these
policies, most economists agree that
A) stabilization policies proved more difficult in practice than many economists had
expected
B) stabilization policies proved not to be inflationary
C) the nondiscretionary policymakers were right in believing that the private economy
is inherently stable
D) the discretionary policymakers were right in believing that the private economy is
inherently stable