1) As the relative expected return on dollar assets increases, foreigners will want to hold
more ________ assets and less ________ assets, everything else held constant
A) foreign; foreign
B) foreign; dollar
C) dollar; foreign
D) dollar; dollar
2) Evidence from the United States and other foreign countries indicates that
A) there is a strong positive association between inflation and growth rate of money
over long periods of time
B) there is little support for the assertion that “inflation is always and everywhere a
monetary phenomenon”
C) countries with low monetary growth rates tend to experience higher rates of
inflation, all else being constant
D) money growth is clearly unrelated to inflation
3) Mean reversion refers to the fact that
A) small firms have higher than average returns
B) stocks that have had low returns in the past are more likely to do well in the future
C) stock returns are high during the month of January
D) stock prices fluctuate more than is justified by fundamentals
4) Although foreign exchange market trades are said to involve the buying and selling
of currencies, most trades involve the buying and selling of
A) bank deposits denominated in different currencies
B) SDRs
C) gold
D) ECUs
5) Keynes’s motivation in developing the aggregate output determination model
stemmed from his concern with explaining
A) the hyperinflations of the 1920s
B) why the Great Depression occurred
C) the high unemployment in Great Britain before World War I
D) the high unemployment in Great Britain after World War II
6) If a perpetuity has a price of $500 and an annual interest payment of $25, the interest
rate is
A) 25 percent
B) 5 percent
C) 75 percent
D) 10 percent
7) Suppose that the Federal Reserve conducts an open market sale Everything else held
constant, this will cause the demand for US assets to ________ and the US dollar will
________
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
8) Under the Bretton Woods system, a country running a balance of payments
________ lost international reserves, and had to implement ________ monetary policy
to strengthen its currency
A) surplus; expansionary
B) surplus; contractionary
C) deficit; expansionary
D) deficit; contractionary
9) Total Reserves minus vault cash equals
A) bank deposits with the Fed
B) excess reserves
C) required reserves
D) currency in circulation
10) Everything else held constant, if aggregate output is to the ________ of the LM
curve, then there is an excess demand of money which will cause the interest rate to
________
A) right; fall
B) right; rise
C) left; fall
D) left; rise
11) Everything else held constant, an increase in the time deposit ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
12) In the Keynesian framework, as long as output is below the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to
________ production
A) negative; lower
B) negative; raise
C) positive; lower
D) positive; raise
13) When the growth rate of the money supply increases, interest rates end up being
permanently lower if
A) the liquidity effect is larger than the other effects
B) there is fast adjustment of expected inflation
C) there is slow adjustment of expected inflation
D) the expected inflation effect is larger than the liquidity effect
14) An example of the ________ problem would be if Brian borrowed money from
Sean in order to purchase a used car and instead took a trip to Atlantic City using those
funds
A) moral hazard
B) adverse selection
C) costly state verification
D) agency
15) Tobin’s model of the speculative demand for money improves on Keynes’s analysis
by showing that
A) the speculative demand for money is interest insensitive
B) the transactions demand for money is interest insensitive
C) people will hold a diversified portfolio
D) people will hold money or bonds but not both
16) If a corporation announces that it expects quarterly earnings to increase by 25% and
it actually sees an increase of 22%, what should happen to the price of the corporation’s
stock if the efficient markets hypothesis holds, everything else held constant?
17) Why does the Federal Reserve Bank of New York play a special role within the
Federal Reserve System?
18) Would it make sense to buy a house when mortgage rates are 14% and expected
inflation is 15%? Explain your answer
19) Explain and demonstrate graphically the effects of a negative supply shock in both
the short-run and long-run
20) Who are the voting members of the Federal Open Market Committee and why is
this committee important? Where does the power lie within this committee?