1) Because of the presence of asymmetric information problems in credit markets, an
expansionary monetary policy causes a ________ in net worth, which ________ the
adverse selection problem, thereby ________ increased lending to finance investment
spending
A) decline; increases; encouraging
B) rise; increases; discouraging
C) rise; reduces; encouraging
D) decline; reduces; discouraging
2) Arguments for discretionary policies include
A) policy rules can be too rigid because they cannot foresee every contingency
B) policy rules do not easily incorporate the use of judgment
C) discretion avoids the straightjacket that would lock in the wrong policy if the model
that was used to derive the policy rule proved to be incorrect
D) discretion enables policy makers to change policy settings when an economy
undergoes structural changes
E) all of the above
3) Based on the Taylor Principle, a central bank’s endogenous response of decreasing
interest rates when inflation falls
A) causes an upward movement along the monetary policy curve
B) causes a downward movement along the monetary policy curve
C) shifts the monetary policy curve upward
D) shifts the monetary policy curve downward
4) Firms that are designated as systemically important financial institutions (SIFIs) are
subject to all of the following additional Federal Reserve regulations except
A) higher capital standards
B) stricter liquidity requirements
C) providing a plan for orderly liquidation if necessary
D) interest rate ceilings on time deposits
5) The figure above illustrates the effect of an increased rate of money supply growth at
time period T0 From the figure, one can conclude that the
A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to
changes in expected inflation
B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to
changes in expected inflation
C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to
changes in expected inflation
D) Fisher effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
6) Collateral is ________ the lender receives if the borrower does not pay back the loan
A) a liability
B) an asset
C) a present
D) an offering
7) Empirical evidence shows that the quantity theory of money is a good theory of
inflation
A) in the long run, but not in the short run
B) in the short run, but not in the longrun
C) in both the long run and the short run
D) not in either the long run nor the short run
8) When the interest rate on a bond is above the equilibrium interest rate, in the bond
market there is excess ________ and the interest rate will ________
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
9) Which of the following are not assets on the Fed’s balance sheet?
A) Discount loans
B) US Treasury deposits
C) Cash items in the process of collection
D) US Treasury bills
10) The Phillips curve indicates that when the labor market is ________, production
costs will ________ and aggregate supply decreases
A) easy; rise
B) easy; fall
C) tight; fall
D) tight; rise
11) The primary assets of money market mutual funds are
A) stocks
B) bonds
C) money market instruments
D) deposits
12) When the financial crisis started in August 2007, inflation was rising and the Fed
began an aggressive easing lowering of the federal funds rate, which indicated that
A) the Fed pursued an autonomous monetary policy tightening
B) the Fed pursued an autonomous monetary policy easing
C) the Fed had an automatic negative response to inflation based on the Taylor rule
D) the Fed had an automatic positive response to inflation based on the Taylor rule