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1) An expansionary monetary policy shifts the LM curve to the ________, reducing
________, everything else held constant
A) left; output and increasing interest rates
B) left; both real output and interest rates
C) right; both interest rates and real output
D) right; interest rates and increasing real output
2) Everything else held constant, an increase in the currency ratio causes the M1 money
multiplier to ________ and the money supply to ________
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
3) Lucas argues that when policies change, expectations will change thereby
A) changing the relationships in econometric models
B) causing the government to abandon its discretionary stance
C) forcing the Fed to keep its deliberations secret
D) making it easier to predict the effects of policy changes
4) Under the Bretton Woods system, a country running a balance of payments surplus
________ international reserves, and had to implement ________ monetary policy to
weaken its currency
A) lost; expansionary
B) lost; contractionary
C) gained; expansionary
D) gained; contractionary
5) The major criticism of the view that expectations are formed adaptively is that
A) this view ignores that people use more information than just past data to form their
expectations
B) it is easier to model adaptive expectations than it is to model rational expectations
C) adaptive expectations models have no predictive power
D) people are irrational and therefore never learn from past mistakes
6) The nonactivists who opposed the recent fiscal stimulus package argue that
A) fiscal stimulus would take too long to work because of long implementation lags
B) fiscal stimulus might kick in after the economy had already recovered
C) fiscal stimulus could lead to increased volatility in inflation and economic activity
D) all of the above
E) none of the above
7) In a ________ banking system, commercial banks provide a full range of banking,
securities, and insurance services, all within a single legal entity
A) universal
B) severable
C) barrier-free
D) dividerless
8) The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of the fact that
A) paper is more costly to produce than precious metals
B) precious metals were not generally acceptable
C) precious metals were difficult to carry and transport
D) paper money is less accepted than checks
9) Everything else held constant, a decrease in autonomous planned investment
spending 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
10) In emerging market countries, many firms have debt denominated in foreign
currency like the dollar or yen A depreciation of the domestic currency
A) results in increases in the firm's indebtedness in domestic currency terms, even
though the value of their assets remains unchanged
B) results in an increase in the value of the firm's assets
C) means that the firm does not owe as much on their foreign debt
D) strengthens their balance sheet in terms of the domestic currency
11) If people expect nominal interest rates to be lower in the future, the expected return
to bonds ________, and the demand for money ________
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
12) The seignorage for a government is greater for ________ than for ________
A) dollarization; a currency board
B) dollarization; exchange-rate targeting
C) dollarization; monetary targeting
D) dollarization; inflation targeting
E) exchange-rate targeting; dollarization
13) When the price of a bond is ________ the equilibrium price, there is an excess
demand for bonds and price will ________
A) above; rise
B) above; fall
C) below; fall
D) below; rise
14) Suppose that the Bank of Japan buys yen-denominated assets with US dollar assets
Everything else held constant, this transaction will cause ________ in the foreign assets
held by the Federal Reserve and ________ in the US monetary base
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
