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1) When stock prices fall
A) an individual's wealth is not affected nor is their willingness to spend
B) a business firm will be more likely to sell stock to finance investment spending
C) an individual's wealth may decrease but their willingness to spend is not affected
D) an individual's wealth may decrease and their willingness to spend may decrease
2) Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds
A) by issuing stock
B) by issuing bonds
C) from nonbank loans
D) from bank loans
3) It is true that inflation is a
A) continuous increase in the money supply
B) continuous fall in prices
C) decline in interest rates
D) continually rising price level
4) If there are economies of scale in the transactions demand for money, as income
increases, money demand
A) increases proportionately
B) increases less than proportionately
C) increases more than proportionately
D) does not change
5) An increase 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
6) When regulators chose to allow insolvent S&Ls to continue to operate rather than to
close them, they were pursuing a policy of
A) regulatory forbearance
B) regulatory kindness
C) ostrich reasoning
D) ignorance reasoning
7) When prices are measured in terms of fixed (base-year) prices they are called
________ prices
A) nominal
B) real
C) inflated
D) aggregate
8) What is the present value of $50000 to be paid in two years if the interest rate is 5
percent?
A) $45351
B) $50000
C) $47625
D) $55000
9) In the Keynesian cross diagram, a decrease in investment spending because
companies become more pessimistic about investment profitability causes the aggregate
demand function to shift ________ and the equilibrium level of aggregate output to
________, everything else held constant
A) up; rise
B) up; fall
C) down; rise
D) down; fall
10) Everything else held constant, in the market for reserves, when the supply for
federal funds intersects the reserve demand curve on the downward sloping section,
decreasing the interest rate paid on excess reserves
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
11) There are two types of open market operations: ________ open market operations
are intended to change the level of reserves and the monetary base, and ________ open
market operations are intended to offset movements in other factors that affect the
monetary base
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static
12) Financial markets quickly eliminate unexploited profit opportunities through
changes in
A) dividend payments
B) tax laws
C) asset prices
D) monetary policy
13) Because these securities are more liquid and generally have smaller price
fluctuations, corporations and banks use the ________ securities to earn interest on
temporary surplus funds
A) money market
B) capital market
C) bond market
D) stock market
