1) Nonactivists of the policies believe that
A) wages and prices are very flexible
B) the self-correcting mechanism is very rapid
C) government action is unnecessary
D) all of the above
2) Everything else held constant, a decrease in planned investment expenditure
________ aggregate ________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
3) If a central bank does not want to see its currency ________ in value, it may pursue
expansionary monetary policy to lower the domestic interest rate, thereby ________ its
currency
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
4) Under a fixed exchange rate regime, if a country has an undervalued 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
5) Loss aversion can explain why very little ________ actually takes place in the
securities market
A) short selling
B) bargaining
C) bartering
D) negotiating
6) If the British pound appreciates from $050 per pound to $075 per pound, the US
dollar depreciates from ________ per dollar to ________ per dollar
A) £2; £25
B) £2; £133
C) £2; £15
D) £2; £125
7) There is ________ for any bond whose time to maturity matches the holding period
A) no interest-rate risk
B) a large interest-rate risk
C) rate-of-return risk
D) yield-to-maturity risk
8) A bank has no excess reserves and demand deposit liabilities of $100,000 when the
required reserve ratio is 20 percent If the reserve ratio is raised to 25 percent, the bank’s
excess reserves will now be
A) -$5,000
B) -$1,000
C) $1,000
D) $5,000
9) Assume that disposable income equals $1000 and the mpc equals 06 If total
consumption equal $800, then autonomous consumption is equal to
A) $0
B) $200
C) $800
D) $1000
10) The legislation that separated investment banking from commercial banking until
its repeal in 1999 is known as the
A) National Bank Act of 1863
B) Federal Reserve Act of 1913
C) Glass-Steagall Act
D) McFadden Act
11) The ________ the returns on two securities move together, the ________ benefit
there is from diversification
A) less; more
B) less; less
C) more; more
D) more; greater
12) An important feature of money market mutual fund shares is
A) deposit insurance
B) the ability to write checks against shareholdings
C) the ability to borrow against shareholdings
D) claims on shares of corporate stock
13) If market participants notice that a variable behaves differently now than in the past,
then, according to rational expectations theory, we can expect market participants to
A) change the way they form expectations about future values of the variable
B) begin to make systematic mistakes
C) no longer pay close attention to movements in this variable
D) give up trying to forecast this variable
14) Traders working for banks are subject to the
A) principal-agent problem
B) free-rider problem
C) double-jeopardy problem
D) exchange-risk problem
15) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, an increase in the reserve requirement
________ the ________ for reserves and causes the federal funds interest rate to rise,
everything else held constant
A) decreases; demand
B) increases; demand
C) increases; supply
D) decreases; supply