1) Compared to checks, paper currency and coins have the major drawbacks that they
A) are easily stolen
B) are hard to counterfeit
C) are not the most liquid assets
D) must be backed by gold
2) Everything else held constant, if consumption expenditure falls by 160 when
disposable income falls by 200, the mpc is
A) 0
B) 02
C) 04
D) 08
3) The Fed’s use of the federal funds rate as an operating target in the 1970s resulted in
A) countercyclical monetary policy
B) too slow growth in M1 throughout the decade
C) procyclical monetary policy
D) too rapid growth in M1 throughout the decade
4) Banks have attempted to maintain adequate profit levels by
A) making fewer riskier loans, such as commercial real estate loans
B) pursuing new off-balance-sheet activities
C) increasing reserve deposits at the Fed
D) decreasing capital accounts
5) Under a fixed exchange rate regime, if a country has an overvalued exchange rate,
then its central bank’s attempt to keep its currency from ________ will result in a
________ of international reserves
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
6) Suppose that there is a positive aggregate demand shock and the central bank
commits to an inflation rate target If the commitment is credible, then
A) the public’s expected inflation will remain unchanged
B) the short-run aggregate supply curve will not shift
C) over time inflation will fall back down to the inflation target
D) all of the above
E) both A and B
7) Budget deficits are important because deficits
A) cause bank failures
B) always cause interest rates to fall
C) can result in higher rates of monetary growth
D) always cause prices to fall
8) An advantage to American banks from operating foreign branches is that Eurodollar
deposits in offshore branches are
A) not subject to reserve requirements
B) insured by the FDIC
C) subject to extensive regulatory supervision
D) all demand deposits that pay no interest
9) Irving Fisher took the view that the institutional features of the economy which affect
velocity change ________ over time so that velocity will be fairly ________ in the
short run
A) rapidly; erratic
B) rapidly; stable
C) slowly; stable
D) slowly; erratic
10) The interest rate thought to have the most important impact on aggregate demand is
the
A) short-term interest rate
B) T-bill rate
C) rate on 90-day CDs
D) long-term interest rate
11) A bank that wants to monitor the check payment practices of its commercial
borrowers, so that moral hazard can be prevented, will require borrowers to
A) place a bank officer on their board of directors
B) place a corporate officer on the bank’s board of directors
C) keep compensating balances in a checking account at the bank
D) purchase the bank’s CDs
12) Everything else held constant, a shift in tastes in the US towards American goods
will ________ net exports in the US and cause the quantity of aggregate output
demanded to ________ in Mexico
A) decrease; rise
B) decrease; fall
C) increase; rise
D) increase; fall
13) Taxpayers were served poorly by thrift regulators in the 1980s This poor
performance cannot be explained by
A) regulators’ desire to escape blame for poor performance, leading to a perverse
strategy of “bureaucratic gambling”
B) regulators’ incentives to accede to pressures imposed by politicians, who sought to
keep regulators from imposing tough regulations on institutions that were major
campaign contributors
C) Congress’s dogged determination to protect taxpayers from the unsound banking
practices of managers at many of the nations savings and loans
D) politicians strong incentives to act in their own interests rather than the interests of
the taxpayers
14) The figure above illustrates the effect of an increased rate of money supply growth
at time period T0 From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
B) liquidity effect is larger than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
C) liquidity effect is larger than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation