1) The teal book is the Fed research document containing
A) the forecast of national economic variables for the next three years
B) forecasts of the money aggregates conditional on different monetary policy stances
C) information on the state of the economy in each Federal Reserve district
D) both A and B
E) A, B and C
2) Everything else constant, a stronger dollar will mean that
A) vacationing in England becomes more expensive
B) vacationing in England becomes less expensive
C) French cheese becomes more expensive
D) Japanese cars become more expensive
3) The present value of a fixed-payment loan is calculated as the ________ of the
present value of all cash flow payments
A) sum
B) difference
C) multiple
D) log
4) The most important developments that have reduced banks’ income advantages in the
past thirty years include:
A) the increase in off-balance sheet activities
B) the growth of securitization
C) the elimination of Regulation Q ceilings
D) the competition from money market mutual funds
5) ________ theory relates the quantity of money and monetary policy to changes in
aggregate economic activity and inflation
A) Monetary
B) Fiscal
C) Financial
D) Systemic
6) The conversion of a barter economy to one that uses money
A) increases efficiency by reducing the need to exchange goods and services
B) increases efficiency by reducing the need to specialize
C) increases efficiency by reducing transactions costs
D) does not increase economic efficiency
7) The expectations-augmented Phillips curve implies that as expected inflation
increases, nominal wages ________ to prevent real wages from ________
A) fall; rising
B) fall; falling
C) rise; falling
D) rise; rising
8) In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to raise
production
A) below; negative
B) above; negative
C) below; positive
D) above; positive
9) If the central bank targets a monetary aggregate, it is likely to lose control over the
interest rate because
A) of fluctuations in the demand for reserves
B) of fluctuations in the consumption function
C) bond values will tend to remain stable
D) of fluctuations in the business cycle
10) Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy These lessons include:
A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy
B) Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero
C) Avoiding fluctuations in the level of unemployment is an important objective of
monetary policy, thus providing a rationale for interest-rate stability as the primary
long-run goal for monetary policy
D) Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are not
important elements in various monetary policy transmission mechanisms
11) Suppose that there is a negative aggregate supply shock and the central bank
commits to an inflation rate target
A) If the commitment is credible, the public’s expected inflation will remain unchanged
B) Credible policy produces better outcomes on both inflation and output in the short
run
C) Policies that are not credible produce worse economic contraction
D) all of the above
E) both A and C
12) Everything else held constant, an increase in interest rates on student loans
A) increases the cost of a college education
B) reduces the cost of a college education
C) has no effect on educational costs
D) increases costs for students with no loans
13) In the long-run ISLM model and with everything else held constant, as long as the
level of output ________ the natural rate level, the price level will continue to
________, shifting the LM curve to the ________, until finally output is back at the
natural rate level
A) exceeds; rise; right
B) exceeds; fall; left
C) remains below; fall; right
D) remains below; rise; left
14) With direct finance, funds are channeled through the financial market from the
________ directly to the ________
A) savers, spenders
B) spenders, investors
C) borrowers, savers
D) investors, savers
15) The supply curve for bonds has the usual upward slope, indicating that as the price
________, ceteris paribus, the ________ increases
A) falls; supply
B) falls; quantity supplied
C) rises; supply
D) rises; quantity supplied
16) The speculative motive for holding money is closely tied to what function of
money?
A) Store of wealth
B) Unit of account
C) Medium of exchange
D) Standard of deferred payment
17) If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits
(measured using gap analysis) will
A) decline by $05 million
B) decline by $15 million
C) decline by $25 million
D) increase by $20 million
18) Your bank has the following balance sheet:
AssetsLiabilities
Reserves$ 50 millionCheckable deposits$200 million
Securities 50 million
Loans150 millionBank capital50 million
If the required reserve ratio is 10%, what actions should the bank manager take if there
is an unexpected deposit outflow of $50 million?
19) What is the theory of bureaucratic behavior and how can it be used to explain the
behavior of the Federal Reserve?
20) Describe what the liquidity trap is Explain how it can be problematic for monetary
policymakers
21) What is a stock? How do stocks affect the economy?
22) How does a mutual fund lower transactions costs through economies of scale?