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1) An increase in the quantity of money supplied shifts the money supply curve to the
________ and the LM curve to the ________, everything else held constant
A) right; left
B) right; right
C) left; left
D) left; right
2) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, a ________ in the reserve requirement
________ the demand for reserves, lowering the federal funds interest rate, everything
else held constant
A) rise; decreases
B) rise; increases
C) decline; increases
D) decline; decreases
3) In the figure above, the price of bonds would fall from P2 to P1 if
A) there is a business cycle recession
B) there is a business cycle expansion
C) inflation is expected to increase in the future
D) inflation is expected to decrease in the future
4) Microprudential supervision focuses on the safety and soundness of
A) individual financial institutions
B) the financial system as a whole
C) the shadow banking system
D) government credit agencies
5) Arguments for adopting a policy rule include
A) the time-inconsistency problem can lead to poor economic outcomes
B) discretionary policies pursue overly expansionary monetary policies to boost
employment in the short run but generate higher inflation in the long run
C) policy makers and politicians cannot be trusted
D) all of the above
6) If a central bank does not want to see its currency ________ in value, it may pursue
contractionary monetary policy to raise the domestic interest rate, thereby ________ its
currency
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
7) A debt contract is incentive compatible
A) if the borrower has the incentive to behave in the way that the lender expects and
desires, since doing otherwise jeopardizes the borrower's net worth in the business
B) if the borrower's net worth is sufficiently low so that the lender's risk of moral
hazard is significantly reduced
C) if the debt contract is treated like an equity
D) if the lender has the incentive to behave in the way that the borrower expects and
desires
8) If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $16,000
B) $20,000
C) $26,000
D) $36,000
9) Which is the most important category of Fed assets?
A) Securities
B) Discount loans
C) Gold and SDR certificates
D) Cash items in the process of collection
10) A corporation acquires new funds only when its securities are sold in the
A) primary market by an investment bank
B) primary market by a stock exchange broker
C) secondary market by a securities dealer
D) secondary market by a commercial bank
11) The sum of the Fed's monetary liabilities and the US Treasury's monetary liabilities
is called
A) the money supply
B) currency in circulation
C) bank reserves
D) the monetary base
