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1) In the long-run ISLM model and with everything else held constant, the long-run
effect of an expansionary monetary policy is to
A) increase real output and the interest rate
B) not change either real output or the interest rate
C) increase real output and leave the interest rate unchanged
D) increase the interest rate and leave real output unchanged
2) To keep from running out of international reserves under the Bretton Woods system,
a country had to implement ________ monetary policy to ________ its currency
A) expansionary; strengthen
B) expansionary; weaken
C) contractionary; strengthen
D) contractionary; weaken
3) Everything else held constant, if aggregate output is to the left of the IS curve, then
there is an excess ________ of goods which will cause aggregate output to ________
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
4) The percentage of deposits that banks must hold in reserve is the
A) excess reserve ratio
B) required reserve ratio
C) total reserve ratio
D) currency ratio
5) In practice, the Fed's policy of targeting money market conditions in the 1960s
proved to be
A) countercyclical, helping to stabilize the economy
B) procyclical, destabilizing the economy
C) procyclical, helping to stabilize the economy
D) countercyclical, destabilizing the economy
6) Although the Fed professed employment of a monetary aggregate targeting strategy
during the 1970s, its behavior suggests that it emphasized
A) free-reserve targeting
B) interest-rate targeting
C) a real-bills doctrine
D) price-index targeting
7) State banking authorities have sole jurisdiction over state banks
A) without FDIC insurance
B) that are not members of the Federal Reserve System
C) operating as bank holding companies
D) chartered in the 21st century
8) Suppose the economy is producing below the natural rate of output and the
government is suffering from large budget deficits To deal with the deficit problem,
suppose the government takes a policy action to reduce the size of the deficits This
policy action will cause ________ in the unemployment rate in the short run and
________ in inflation in the short run, everything else held constant
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) an increase; a decrease
9) If fluctuations in interest rates become smaller, then, other things equal, the demand
for stocks ________ and the demand for long-term bonds ________
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
10) ________ is the relative ease and speed with which an asset can be converted into a
medium of exchange
A) Efficiency
B) Liquidity
C) Deflation
D) Specialization
11) Which of the following would a bank not hold as insurance against the highest cost
of deposit outflow-bank failure?
A) Excess reserves
B) Secondary reserves
C) Bank capital
D) Mortgages
12) Which of the following statements concerning Keynesian ISLM analysis is true?
A) For a given change in taxes, the IS curve will shift less than for an equal change in
government spending
B) Changes in net exports arising from a change in interest rates causes a shift in the IS
curve
C) A fall in the money supply shifts the LM curve to the right
D) Expansionary fiscal policy will cause the interest rate to fall
13) If bad credit risks are the ones who most actively seek loans then financial
intermediaries face the problem of
A) moral hazard
B) adverse selection
C) free-riding
D) costly state verification
