1) Suppose the economy is producing at the natural rate of output Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the short
run and ________ in inflation in the short run
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
2) In the Keynesian cross diagram, an increase in investment spending because
companies become more optimistic about investment profitability causes the aggregate
demand function to shift ________, the equilibrium level of aggregate output to rise,
and the IS curve to shift to the ________, everything else held constant
A) up; left
B) up; right
C) down; left
D) down; right
3) The Second Bank of the United States was denied a new charter by
A) President Andrew Jackson
B) Vice President John Calhoun
C) President Benjamin Harrison
D) President John Q Adams
4) The Bretton Woods system broke down in the early 1970s for all but one of the
following reasons:
A) deficit countries losing international reserves were not willing to devalue their
currencies
B) surplus countries were not willing to revalue their currencies upwards
C) surplus countries were not willing to pursue more expansionary policies
D) the United States had been pursuing an inflationary monetary policy to reduce
domestic unemployment
5) The price of a barrel of oil doubled between 2007 and the middle of 2008 To make
matters worse, a financial crisis hit the US economy starting in August of 2007 Which
of the following is true of the Chinese experience?
A) The worldwide decline in demand led to a collapse of Chinese exports
B) Instead of relying solely on the economy’s self-correcting mechanism, much more
aggressive fiscal expansions than those of the US (in addition to a substantial monetary
easing) served to shift the AD curve back to general equilibrium relatively quickly
C) The Chinese economy was better able than the US economy to weather the financial
crisis with output growth starting to grow earlier and more quickly than that of the US
D) All of the above
E) None of the above
6) Aggregate output and the interest rate are ________ related to government spending
and are ________ related to taxes
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively
7) Suppose that the European Central Bank enacts expansionary policy Everything else
held constant, this will cause the demand for US assets to ________ and the US dollar
to ________
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
8) Of all commercial banks, about ________ percent belong to the Federal Reserve
System
A) 17
B) 22
C) 38
D) 52
9) Overseeing who operates banks and how they are operated is called
A) prudential supervision
B) hazard insurance
C) regulatory interference
D) loan loss reserves
10) Everything else held constant, a decline in interest rates will cause spending on
housing to
A) fall
B) remain unchanged
C) either rise, fall, or remain the same
D) rise
11) Sweep accounts
A) have made reserve requirements nonbinding for many banks
B) sweep funds out of deposit accounts into long-term securities
C) enable banks to avoid paying interest to corporate customers
D) reduce banks’ assets
12) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
currency ratio is
A) 025
B) 050
C) 040
D) 005
13) If the economy is on the IS curve, but is to the right of the LM curve, aggregate
output will ________ and the interest rate will ________
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
14) Which of the following are reported as assets on a bank’s balance sheet?
A) Borrowings
B) Reserves
C) Savings deposits
D) Bank capital
15) The Fed can offset the effects of an increase in float by engaging in
A) a repurchase agreement
B) a matched sale-purchase transaction
C) an interest rate swap
D) an open market purchase
16) In an agreement to exchange dollars for euros in three months at a price of $090 per
euro, the price is the
A) spot exchange rate
B) money exchange rate
C) forward exchange rate
D) fixed exchange rate
17) The velocity of money is
A) the average number of times that a dollar is spent in buying the total amount of final
goods and services
B) the ratio of the money stock to high-powered money
C) the ratio of the money stock to interest rates
D) the average number of times a dollar is spent in buying financial assets
18) When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A) the liabilities of the First National Bank increase by $10
B) the reserves of the First National Bank increase by $ 10
C) the liabilities of Citibank increase by $10
D) the assets of Citibank fall by $10
19) The discount rate refers to the interest rate on
A) primary credit
B) secondary credit
C) seasonal credit
D) federal funds