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1) A simple deposit multiplier equal to one implies a required reserve ratio equal to
A) 100 percent
B) 50 percent
C) 25 percent
D) 0 percent
2) In response to the overvalued dollar in the early 1970s, the German Bundesbank
bought ________ and sold ________ to keep the exchange rate fixed, gaining
international reserves
A) marks; dollars
B) marks; pounds
C) dollars; marks
D) dollars; pounds
3) Which of the following instruments are traded in a capital market?
A) US Government agency securities
B) Negotiable bank CDs
C) Repurchase agreements
D) US Treasury bills
4) The situation in which expansionary fiscal policy does not lead to a rise in aggregate
output is referred to as
A) fiscal neutrality
B) a recession
C) complete crowding out
D) inflation
5) The small-firm effect refers to the
A) negative returns earned by small firms
B) returns equal to large firms earned by small firms
C) abnormally high returns earned by small firms
D) low returns after adjusting for risk earned by small firms
6) The effectiveness lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy
C) the time it takes to pass legislation to implement a particular policy
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy
E) the time it takes for the policy actually to have an impact on the economy
7) The measure of the aggregate price level that is frequently the focus of Federal
Reserve officials is the
A) consumer price index
B) producer price index
C) GDP deflator
D) PCE deflator
8) If the price of bonds is set ________ the equilibrium price, the quantity of bonds
demanded exceeds the quantity of bonds supplied, a condition called excess ________
A) above; demand
B) above; supply
C) below; demand
D) below; supply
9) The equation of exchange states that the quantity of money multiplied by the number
of times this money is spent in a given year must equal
A) nominal income
B) real income
C) real gross national product
D) velocity
10) In the simple deposit expansion model, an expansion in checkable deposits of
$1,000 when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $200 in government bonds
B) sold $500 in government bonds
C) purchased $200 in government bonds
D) purchased $500 in government bonds
11) The ability of a central bank to set monetary policy goals is
A) political independence
B) goal independence
C) policy independence
D) instrument independence
12) A disadvantage of ________made from precious metals is that it is very heavy and
hard to transport from one place to another
A) commodity money
B) fiat money
C) electronic money
D) paper money
13) Between May and July 1997, concerns about the large current account deficit in
Thailand and the weakness in the Thai financial system caused speculators to suspect
that Thailand might be forced to
A) devalue its currency
B) sell baht to prop up its value
C) buy dollars to prop up the baht
D) impose capital controls
14) The process of transforming otherwise illiquid financial assets into marketable
capital market instruments is known as
A) securitization
B) internationalization
C) arbitrage
D) program trading
15) The discount rate is
A) the interest rate the Fed charges on loans to banks
B) the price the Fed pays for government securities
C) the interest rate that banks charge their most preferred customers
D) the price banks pay the Fed for government securities
