1) There are two types of investment: ________ investmentthe spending by business
firms on equipment and structures, and planned spending on residential housesand
________ investmentspending by business firms on additional holdings of raw
materials, parts, and finished goods
A) planned; gross
B) planned; inventory
C) fixed; gross
D) fixed; inventory
2) An increase in spending that results from expansionary ________ policy causes the
interest rate to ________, everything else held constant
A) fiscal; rise
B) fiscal; fall
C) incomes; rise
D) incomes; fall
3) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to decrease and the domestic currency to ________, everything else
held constant
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
4) To prevent bank runs and the consequent bank failures, the United States established
the ________ in 1934 to provide deposit insurance
A) FDIC
B) SEC
C) Federal Reserve
D) ATM
5) Channeling funds from individuals with surplus funds to those desiring funds when
the saver does not purchase the borrower’s security is known as
A) barter
B) redistribution
C) financial intermediation
D) taxation
6) A system of deposit insurance
A) attracts risk-taking entrepreneurs into the banking industry
B) encourages bank managers to decrease risk
C) increases the incentives of depositors to monitor the riskiness of their bank’s asset
portfolio
D) increases the likelihood of bank runs
7) This theory views shocks to tastes (workers’ willingness to work, for example) and
technology (productivity) as the major driving forces behind short-run fluctuations in
the business cycle because these shocks lead to substantial short-run fluctuations in the
natural rate of output
A) The natural rate hypothesis
B) Hysteresis
C) Real business cycle theory
D) The Phillips curve model
8) In a one-period valuation model, a decrease in the required return on investments in
equity causes a(n) ________ in the ________ price of a stock
A) increase; current
B) increase; expected sales
C) decrease; current
D) decrease; expected sales
9) In the long-run ISLM model and with everything else held constant, an increase in
the money supply leaves the level of output and interest rates unchanged, an outcome
called
A) interest rate overshooting
B) long-run money neutrality
C) long-run crowding out
D) the long-run Phillips curve
10) Individuals that lend funds to a bank by opening a checking account are called
A) policyholders
B) partners
C) depositors
D) debt holders
11) ________ in the domestic interest rate causes the demand for domestic assets to
shift to the ________ and the domestic currency to depreciate, everything else held
constant
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
12) The Fed is considering eliminating
A) primary credit lending
B) secondary credit lending
C) seasonal credit lending
D) its lender of last resort function
13) In Keynes’s liquidity preference framework, if there is excess demand for money,
there is
A) an excess demand for bonds
B) equilibrium in the bond market
C) an excess supply of bonds
D) too much money
14) Total reserves are the sum of ________ and ________
A) excess reserves; borrowed reserves
B) required reserves; currency in circulation
C) vault cash; excess reserves
D) excess reserves; required reserves