1) The research document given to the Federal Open Market Committee that contains
information on the state of the economy in each Federal Reserve district is called the
A) beige book
B) green book
C) blue book
D) black book
2) Today the United States has a dual banking system in which banks supervised by the
________ and by the ________ operate side by side
A) federal government; municipalities
B) state governments; municipalities
C) federal government; states
D) municipalities; states
3) Keynes argued that when interest rates were low relative to some normal value,
people would expect bond prices to ________ so the quantity of money demanded
would ________
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
4) In the model of the money supply process, the depositor’s role in influencing the
money supply is represented by
A) the currency holdings
B) the currency holdings and excess reserve
C) the currency holdings and borrowed reserve
D) the market interest rate
5) As aggregate output rises, the demand for money ________ and the interest rate
________, so that money demanded equals money supplied and the money market is in
equilibrium
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
6) Estimates suggest that, in the United States economy, it takes just over ________ for
monetary policy to affect output and just over ________ for monetary policy to affect
the inflation rate
A) 1 year; 2 years
B) 2 years; 1 year
C) 1 year; 6 months
D) 6 months; 1 year
7) When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be higher
B) output will be at its potential
C) output will be unchanged
D) inflation will be unchanged
E) both A and B
8) The policy tool of changing reserve requirements is
A) the most widely used
B) the preferred tool from the bank’s perspective
C) no longer used
D) still used, even with its disadvantages
9) The increase in the currency ratio during World War II was due to
A) bank panics
B) a drop in the rate of interest paid on checking deposits
C) the spread of ATMs
D) high taxes and illegal activities
10) In its earliest years, the Federal Reserve’s guiding principle for the conduct of
monetary policy was known as the
A) real bills doctrine
B) liberal liquidity doctrine
C) free reserves doctrine
D) quantity theory of money
11) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $08 billion, then the
monetary base is
A) $480 billion
B) $4808 billion
C) $80 billion
D) $808 billion
12) If real estate prices are expected to drop, all else equal, the demand for bonds
________ and the interest rate_______
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
13) Because Keynes assumed that the expected return on money was zero, he argued
that people would
A) never hold money
B) never hold money as a store of wealth
C) hold money as a store of wealth when the expected return on bonds was negative
D) hold money as a store of wealth only when forced to by government policy
14) External financing by ________ should be more important in developing countries
than in industrialized countries because information about private firms is more difficult
to collect in developing countries
A) financial intermediaries
B) bonds
C) stock
D) direct lending
15) In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain negative and firms will continue to
________ production
A) below; lower
B) above; lower
C) below; raise
D) above; raise
16) All of the following are necessary criteria for a commodity to function as money
except
A) it must deteriorate quickly
B) it must be divisible
C) it must be easy to carry
D) it must be widely accepted
17) By looking at aggregate demand via its component parts, we can conclude that the
aggregate demand curve is downward sloping because
A) a lower inflation rate causes the real interest rate to fall, and stimulates planned
investment spending
B) a lower inflation rate causes the real interest rate to rise, and stimulates planned
investment spending
C) a higher inflation rate causes the real interest rate to fall, and stimulates planned
investment spending
D) a higher inflation rate causes the real interest rate to rise, and stimulates planned
investment spending
18) If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on dollar-denominated assets is
A) 11 percent
B) 9 percent
C) 5 percent
D) 3 percent
E) 1 percent