1) The Fed’s discount lending is of three types: ________ is the most common category;
________ is given to a limited number of banks in vacation and agricultural areas;
________ is given to banks that have experienced severe liquidity problems
A) seasonal credit; secondary credit; primary credit
B) secondary credit; seasonal credit; primary credit
C) primary credit; seasonal credit; secondary credit
D) seasonal credit; primary credit; secondary credit
2) Open market sales shrink ________ thereby lowering ________
A) the money multiplier; the money supply
B) the money multiplier; reserves and the monetary base
C) reserves and the monetary base; the money supply
D) the money base; the money multiplier
3) Which regulatory body charters national banks?
A) The Federal Reserve
B) The FDIC
C) The Comptroller of the Currency
D) The US Treasury
4) Which of the following is a depository institution?
A) A life insurance company
B) A mutual savings bank
C) A pension fund
D) A finance company
5) A country that dollarizes
A) maximizes its seignorage
B) earns the same amount of seignorage as it would with a currency board
C) earns the same amount of seignorage as it would with exchange-rate targeting
D) eliminates its seignorage
E) must pay seignorage to other governments to use their currency
6) A policy in which the money supply is kept growing at a constant rate regardless of
the state of the economy is
A) a Taylor rule
B) a discretionary policy
C) a policy rule advocated by monetarists
D) advocated by activists
7) Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent Given this information, we can say First
National Bank has ________ million dollars in required reserves
A) one
B) two
C) nine
D) ten
8) When the price level falls, the ________ curve for nominal money ________, and
interest rates ________, everything else held constant
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
9) A decrease in interest rates
A) increases the value of the dollar, net exports, and equilibrium output
B) increases the value of the dollar, reducing net exports and equilibrium output
C) reduces the value of the dollar, net exports, and equilibrium output
D) reduces the value of the dollar, increasing net exports and equilibrium output
10) An increase in the money supply shifts the LM curve to the right, causing the
interest rate to ________ and output to ________, everything else held constant
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
11) In both New Zealand and Canada, what has happened to the unemployment rate
since the countries adopted inflation targeting?
A) The unemployment rate increased sharply
B) The unemployment rate remained constant
C) The unemployment rate has declined substantially after a sharp increase
D) The unemployment rate declined sharply immediately after the inflation targets were
adopted
12) Lessons that economists and policy makers have learned from the recent global
financial crisis include
A) Developments in the financial sector have a far greater impact on economic activity
than was earlier realized
B) The zero lower bound on interest rates can be a serious problem
C) The cost of cleaning up after a financial crisis is very high
D) Price and output stability do not ensure financial stability
E) All of the above
13) A theory of aggregate economic fluctuations called real business cycle theory holds
that
A) changes in the real money supply are the only demand shocks that affect the natural
rate of output
B) aggregate demand shocks do affect the natural rate of output
C) aggregate supply shocks do affect the natural rate of output
D) changes in net exports are the only demand shocks that affect the natural rate of
output
14) An example of the problem of ________ is when a corporation uses the funds raised
from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of
its employees and their families
A) adverse selection
B) moral hazard
C) risk sharing
D) credit risk
15) The public’s fear of centralized power and distrust of moneyed interests led to the
demise of the first two experiments in central banking, otherwise known as
A) the First Bank of the United States and the Second Bank of the United States
B) the First Bank of the United States and the Central Bank of the United States
C) the First Central Bank of the United States and the Second Central Bank of the
United States
D) the First Bank of North America and the Second Bank of North America
16) Everything else held constant, when a country’s currency appreciates, the country’s
goods abroad become ________ expensive and foreign goods in that country become
________ expensive
A) more; less
B) more; more
C) less; less
D) less; more
17) An increase in government spending causes the equilibrium level of aggregate
output to ________ at any given interest rate and shifts the ________ curve to the
________, everything else held constant
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
18) The free-rider problem occurs because
A) people who pay for information use it freely
B) people who do not pay for information use it
C) information can never be sold at any price
D) it is never profitable to produce information
19) Financial innovations occur because of financial institutions search for
A) profits
B) fame
C) stability
D) recognition
20) ________ are the most important monetary policy tool because they are the primary
determinant of changes in the ________, the main source of fluctuations in the money
supply
A) Open market operations; monetary base
B) Open market operations; money multiplier
C) Changes in reserve requirements; monetary base
D) Changes in reserve requirements; money multiplier