1) Which of the following is not an advantage of inflation targeting?
A) There is simplicity and clarity of the target
B) Inflation targeting does not rely on a stable money-inflation relationship
C) There is an immediate signal on the achievement of the target
D) Inflation targeting reduces the effects of inflation shocks
2) Money market mutual fund shares function like
A) checking accounts that pay interest
B) bonds
C) stocks
D) currency
3) Because prices are slow to move in the short-run, when the Federal Reserve lowers
the federal funds rate,
A) nominal interest rates rise
B) real interest rates fall
C) inflation falls
D) real interest rates rise
4) In the Keynesian model of income determination, consumer expenditure includes
spending by
A) consumers on personal computers
B) businesses on personal computers
C) governments on personal computers
D) foreigners on domestic personal computers
5) Everything else held constant, an increase in the required reserve ratio on checkable
deposits will cause
A) the money supply to rise
B) the money supply to remain constant
C) the money supply to fall
D) checkable deposits to rise
6) If reserves in the banking system increase by $100, then checkable deposits will
increase by $400 in the simple model of deposit creation when the required reserve
ratio is
A) 001
B) 010
C) 020
D) 025
7) Of the following, the one that appears in the current account of the balance of
payments is
A) an Italian investor’s purchase of IBM stock
B) income earned by US subsidiaries of Barclay’s Bank of London
C) a loan by a Swiss bank to an American corporation
D) a purchase of a British Treasury bond by the Fed
8) In May 1991, the FDIC announced that it would sell the government’s final 26%
stake in Continental Illinois, ending government ownership of the bank that it had
rescued in 1984 The FDIC took control of the bank, rather than liquidate it, because it
believed that Continental Illinois
A) was a good investment opportunity for the government
B) could be the Chicago branch of a new governmentally-owned interstate banking
system
C) was too big to fail
D) would become the center of the new midwest region central bank system
9) Everything else held constant, a shift in tastes in the US toward Mexican 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
10) Banks, savings and loan associations, mutual savings banks, and credit unions
A) are no longer important players in financial intermediation
B) since deregulation now provide services only to small depositors
C) have been adept at innovating in response to changes in the regulatory environment
D) produce nothing of value and are therefore a drain on society’s resources
11) Which of the following bank assets is the most liquid?
A) Consumer loans
B) Reserves
C) Cash items in process of collection
D) US government securities
12) The process of indirect finance using financial intermediaries is called
A) direct lending
B) financial intermediation
C) resource allocation
D) financial liquidation
13) A sharp increase in the growth of the money supply is likely followed by
A) a recession
B) a depression
C) an increase in the inflation rate
D) no change in the economy
14) If there is an excess demand for money, individuals ________ bonds, causing
interest rates to ________
A) sell; rise
B) sell; fall
C) buy; rise
D) buy; fall
15) Decisions by ________ about their holdings of currency and by ________ about
their holdings of excess reserves affect the money supply
A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks
16) Ending the “Great Inflation” era in the 1970’s is an example of
A) inflation targeting
B) exchange rate targeting
C) central bank independence
D) appointment of a more conservative central banker
E) all of the above
17) In the early 1970s, the US ran large balance of payments ________, causing an
________ dollar and an ________ German mark
A) deficits; undervalued; overvalued
B) deficits; overvalued; undervalued
C) surpluses; undervalued; overvalued
D) surpluses; overvalued; undervalued
18) When the Fed purchases artwork to decorate the conference room at the Federal
Reserve Bank of Kansas City,
A) reserves rise, but the monetary base falls
B) reserves fall
C) currency in circulation falls
D) the monetary base rises
19) Everything else held constant, an autonomous monetary policy tightening ________
aggregate ________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
20) Which of the following increases aggregate supply in the short-run, everything else
held constant?
A) An increase in the price of crude oil
B) A successful wage push by workers
C) Expectations of a higher inflation
D) A technological improvement that increases worker productivity