1) If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk
at the New York Fed bank will likely conduct ________ open market operations to
________ reserves
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
2) Everything else held constant, an increase in wealth will cause the holdings of
checkable deposits to the holdings of currency to ________ and the currency ratio will
________
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
3) If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has total reserves of
A) $16,000
B) $20,000
C) $26,000
D) $36,000
4) Using the information in situation 20-2, if government increases their spending by
$50 and increases net taxes by 50, then equilibrium aggregate output will change by
A) -$100
B) -$50
C) $50
D) $100
5) When bad storms slow the check-clearing process, float tends to ________ causing
the Fed to initiate ________ open market ________
A) decrease; defensive; sales
B) decrease; dynamic; purchases
C) increase; defensive; sales
D) increase; dynamic; purchases
6) ________ work in the secondary markets matching buyers with sellers of securities
A) Dealers
B) Underwriters
C) Brokers
D) Claimants
7) As in the United States, an important factor in the banking crises in Norway, Sweden,
and Finland was the
A) financial liberalization that occurred in the 1980s
B) decline in real interest rates that occurred in the 1980s
C) high inflation that occurred in the 1980s
D) sluggish economic growth that occurred in the 1980s
8) Suppose on any given day the prevailing equilibrium federal funds rate is below the
Federal Reserve’s federal funds target rate If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
9) The ________ interest rate more accurately reflects the true cost of borrowing
A) nominal
B) real
C) discount
D) market
10) The risk of a well-diversified portfolio depends only on the ________ risk of the
assets in the portfolio
A) systematic
B) nonsystematic
C) portfolio
D) investment
11) An increase in the time to the promised future payment ________ the present value
of the payment
A) decreases
B) increases
C) has no effect on
D) is irrelevant to
12) Using the liquidity preference framework, what will happen to interest rates if the
Fed increases the money supply?
13) Explain the similarities and differences between the European System of Central
Banks and the Federal Reserve System
14) If the interest rate is 5%, what is the present value of a security that pays you $1,
050 next year and $1,10250 two years from now? If this security sold for $2200, is the
yield to maturity greater or less than 5%? Why?
15) In the Baumol-Tobin model, given that total costs for an individual equals +
, where T0 = monthly income, b = brokerage costs, and C = amount raised from
each bond transaction, derive the so-called square root rule
16) Explain and show graphically the effect of an increase in the expected inflation rate
on the equilibrium exchange rate, everything else held constant
17) Explain the time-inconsistency problem What is the likely outcome of discretionary
policy? What are the solutions to the time-inconsistency problem?