1) The problem created by asymmetric information before the transaction occurs is
called ________, while the problem created after the transaction occurs is called
________
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) costly state verification; free-riding
D) free-riding; costly state verification
2) Tobin’s q theory suggests that monetary policy may affect investment spending
through its impact on
A) stock prices
B) interest rates
C) bond prices
D) cash flow
3) The efficient markets hypothesis implies that prices in the stock market
A) follow a definite pattern
B) are more likely to go up than down
C) always undervalue the true assets of a corporation
D) are unpredictable
4) If the required reserve ratio is 25 percent, the simple deposit multiplier is
A) 50
B) 25
C) 40
D) 100
5) Arguments for adopting a policy rule include
A) 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
B) discretion enables policy makers to change policy settings when an economy
undergoes structural changes
C) discretionary policies pursue overly expansionary monetary policies to boost
employment in the short run but generate higher inflation in the long run
D) all of the above
6) A tax increase ________ disposable income, ________ consumption expenditure,
and shifts the IS curve to the ________, everything else held constant
A) increases; increases; right
B) increases; decreases; left
C) decreases; increases; left
D) decreases; decreases; left
7) A central bank has ________ chance to identify a credit-driven bubble compared to
an irrational exuberance bubble
A) a greater
B) less of a
C) about the same level of a
D) a greater, less or about the same level of a
8) Which of the following benefit directly from any increase in the corporation’s
profitability?
A) a bond holder
B) a commercial paper holder
C) a shareholder
D) a T-bill holder
9) In the model of the money supply process, the bank’s role in influencing the money
supply process is represented by
A) the excess reserve
B) both the excess reserve and the market interest rate
C) the currency ratio
D) only borrowed reserves
10) Of the following, the largest is
A) money market deposit accounts
B) demand deposits
C) M1
D) M2
11) The monetary policy strategy that suffers a lack of transparency is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
12) Countries with surpluses in their balance of payments frequently do not want to see
their currencies ________ because it makes their goods ________ expensive abroad
A) appreciate; less
B) appreciate; more
C) depreciate; less
D) depreciate; more
13) Either a dual or hierarchial mandate is acceptable as long as ________ is the
primary goal in the ________
A) price stability; short run
B) price stability; long run
C) reducing business-cycle fluctuations; short run
D) reducing business-cycle fluctuations; long run
14) To reduce moral hazard problems, banks include restrictive covenants in loan
contracts In order for these restrictive covenants to be effective, banks must also
A) monitor and enforce them
B) be willing to rewrite the contract if the borrower cannot comply with the restrictions
C) trust the borrower to do the right thing
D) be prepared to extend the deadline when the borrower needs more time to comply
15) Equity of US companies can be purchased by
A) US citizens only
B) foreign citizens only
C) US citizens and foreign citizens
D) US mutual funds only
16) Everything else held constant, a decrease in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
17) Everything else held constant, if a central bank makes an unsterilized purchase of
foreign assets, then the domestic money supply will ________ and the domestic
currency will ________
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
18) If the economy suffers a permanent negative supply shock because there is an
increase in regulations that permanently reduce the level of potential output, then
A) potential output falls
B) the long-run aggregate supply curve shifts leftward
C) the short-run aggregate supply curve shifts upward
D) all of the above
19) In the one-period valuation model, the value of a share of stock today depends upon
A) the present value of both the dividends and the expected sales price
B) only the present value of the future dividends
C) the actual value of the dividends and expected sales price received in one year
D) the future value of dividends and the actual sales price