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1) The quantity theory of inflation indicates that if the aggregate output is growing at
3% per year and the growth rate of money is 5%, then inflation is
A) 2%
B) 8%
C) -2%
D) 16%
2) The money supply is ________ related to the nonborrowed monetary base, and
________ related to the level of borrowed reserves
A) positively; negatively
B) negatively; not
C) positively; positively
D) negatively; negatively
3) The ________ suggests that the most important factor affecting the demand for
domestic and foreign assets is the expected return on domestic assets relative to foreign
assets
A) theory of portfolio choice
B) law of one price
C) interest parity condition
D) theory of foreign capital mobility
4) If housing prices are expected to increase, then, other things equal, the demand for
houses will ________ and that of Treasury bills will ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
5) Large fluctuations in money supply growth and smaller fluctuations in the federal
funds rate between October 1982 and the early 1990s indicate that the Fed had shifted
to ________ as an operating target
A) borrowed reserves
B) nonborrowed reserves
C) excess reserves
D) required reserves
6) Which of the following is not a source of borrowings for a bank?
A) Federal funds
B) Eurodollars
C) Transaction deposits
D) Discount loans
7) If the required reserve ratio is one-third, currency in circulation is $300 billion, and
checkable deposits are $900 billion, then the currency ratio is
A) 025
B) 033
C) 067
D) 0375
8) The Fed prefers that so that
A) banks borrow reserves from each other ; banks can monitor each other for credit risk
B) banks borrow reserves from each other; the Fed can monitor banks for credit risk
C) banks borrow reserves from the Fed; banks can monitor each other for credit risk
D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk
9) Which of the following is not a benefit to an individual purchasing a mutual fund?
A) reduced risk
B) lower transactions costs
C) free-riding
D) diversification
10) The primary assets of a pension fund are
A) money market instruments
B) corporate bonds and stock
C) consumer and business loans
D) mortgages
11) The fluctuations in both money supply growth and the federal funds rate during
1979-1982 suggest that the Fed
A) had shifted to borrowed reserves as an operating target
B) had shifted to total reserves as an operating target
C) had shifted to the monetary base as an operating target
D) never intended to target monetary aggregates
12) The most comprehensive measure of aggregate output is
A) gross domestic product
B) net national product
C) the stock value of the industrial 500
D) national income
13) Approaches to establishing central bank credibility include
A) continued success at keeping inflation under control
B) inflation targeting
C) exchange rate targeting
D) all of the above
14) Because inflation in Germany after World War I sometimes exceeded 1,000 % per
month, one can conclude that the German economy suffered from
A) deflation
B) disinflation
C) hyperinflation
D) superdeflation
15) Which of the following are not traded in a capital market?
A) US government agency securities
B) State and local government bonds
C) Repurchase agreements
D) Corporate bonds
16) If the ________ curve is relatively more unstable than the ________ curve, an
interest rate target is preferred
A) IS; IS
B) IS; LM
C) LM; IS
D) LM; LM
17) The Depository Institutions Deregulation and Monetary Control Act of 1980
A) restricted thrift institutions to making loans for home mortgages
B) restricted the use of ATS accounts
C) imposed restrictive interest-rate ceilings on large agricultural loans
D) increased deposit insurance from $40,000 to $100,000
18) Using Taylor's rule, when the equilibrium real federal funds rate is 3 percent, the
positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual
inflation rate is 2 percent, the nominal federal funds rate target should be
A) 5 percent
B) 55 percent
C) 6 percent
D) 65 percent
19) The long-run aggregate supply curve is
A) a vertical line through the non-inflationary rate of output
B) a vertical line through the current level of output
C) a vertical line through the natural rate level of output
D) a horizontal line through the current level of output
20) Keynes reasoned that consumer expenditure is most closely related to
A) the level of interest rates
B) the price level
C) disposable income
D) the marginal tax rate
