________ are the only depository institutions that are tax-exempt.
A) Commercial banks
B) Savings and loans
C) Mutual savings banks
D) Credit unions
Answer:
The expectations-augmented Phillips curve implies that as expected inflation increases,
nominal wages ________ to prevent real wages from ________.
A) fall; rising
B) fall; falling
C) rise; falling
D) rise; rising
Answer:
Holding large amounts of bank capital helps prevent bank failures because
A) it means that the bank has a higher income.
B) it makes loans easier to sell.
C) it can be used to absorb the losses resulting from bad loans.
D) it makes it easier to call in loans.
Answer:
The difference between money and income is that
A) money is a flow and income is a stock.
B) money is a stock and income is a flow.
C) there is no differencemoney and income are both stocks.
D) there is no differencemoney and income are both flows.
Answer:
Low stock market prices might ________ consumers willingness to spend and might
________ businesses willingness to undertake investment projects.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
Complete Milton Friedman’s famous proposition: “Inflation is always and everywhere a
________ phenomenon.”
A) monetary
B) political
C) policy
D) budgetary
Answer:
A monetary expansion ________ stock prices due to a decrease in the ________ and an
increase in the ________, everything else held constant.
A) reduces; future sales price; expected rate of return
B) reduces; current dividend; expected rate of return
C) increases; required rate of return; future sales price
D) increases; required rate of return; dividend growth rate
Answer:
In the generalized dividend model, a future sales price far in the future does not affect
the current stock price because
A) the present value cannot be computed.
B) the present value is almost zero.
C) the sales price does not affect the current price.
D) the stock may never be sold.
Answer:
The Basel Committee ruled that regulators in other countries can ________ the
operations of a foreign bank if they believe that it lacks effective oversight.
A) restrict
B) encourage
C) renegotiate
D) enhance
Answer:
When short-term interest rates are expected to fall sharply in the future, the yield curve
will
A) slope up.
B) be flat.
C) be inverted.
D) be an inverted U shape.
Answer:
Approaches to establishing central bank credibility include
A) continued success at keeping inflation under control.
B) central bank independence.
C) appointment of a more conservative central banker.
D) all of the above.
Answer:
If the economy is on the IS curve, but is to the right of the LM curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Answer:
The bond supply and demand framework is easier to use when analyzing the effects of
changes in ________, while the liquidity preference framework provides a simpler
analysis of the effects from changes in income, the price level, and the supply of
________.
A) expected inflation; bonds
B) expected inflation; money
C) government budget deficits; bonds
D) government budget deficits; money
Answer:
Everything else held constant, when output is ________ the natural rate level, wages
will begin to ________, decreasing short-run aggregate supply.
A) above; fall
B) above; rise
C) below; fall
D) below; rise
Answer:
The M2 money supply is represented by
A) M2 = × MB.
B) M2 = × .
C) MB = × M2.
D) MB = × .
Answer:
The management of money and interest rates is called ________ policy and is
conducted by a nation’s ________ bank.
A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central
Answer:
Factors that can cause the supply curve for bonds to shift to the right include
A) an expansion in overall economic activity.
B) a decrease in expected inflation.
C) a decrease in government deficits.
D) a business cycle recession.
Answer:
Suppose the economy is producing at the natural rate of output and the government
passes legislation that severely restricts a company’s ability to reduce production costs
via outsourcing. Everything else held constant, this policy action will cause ________
in the unemployment rate in the short run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
Answer:
Which of the following does not appear in the current account part of the balance of
payments?
A) A loan of $1 million from Bank of America to Brazil.
B) Foreign aid to El Salvador.
C) An Air France ticket bought by an American.
D) Income earned by General Motors from its plants abroad.
Answer:
Prior to 2008, the bank’s cost of holding reserves equaled
A) the interest paid on deposits times the amount of reserves.
B) the interest paid on deposits times the amount of deposits.
C) the interest earned on loans times the amount of loans.
D) the interest earned on loans times the amount on reserves.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be unchanged.
D) inflation will be unchanged.
Answer:
In explaining the evolution of money
A) government regulation is the most important factor.
B) commodity money, because it is valued more highly, tends to drive out paper money.
C) new forms of money evolve to lower transaction costs.
D) paper money is always backed by gold and therefore more desirable than checks.
Answer:
Typically, yield curves are
A) gently upward sloping.
B) mound shaped.
C) flat.
D) bowl shaped.
Answer:
Keynes mentioned two factors that influenced planned investment spending:
A) interest rates and disposable income.
B) interest rates and business expectations about the future.
C) disposable income and business expectations about the future.
D) interest rates and business expectations about inflation.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of an expansionary fiscal policy is to ________ real output and ________ the interest
rate.
A) increase; increase
B) not change; not change
C) increase; not change
D) not change; increase
Answer:
Loss aversion can explain why very little ________ actually takes place in the securities
market.
A) short selling
B) bargaining
C) bartering
D) negotiating
Answer:
An international lender of last resort creates a serious moral hazard problem because
________ and other ________ of banking institutions expect that they will be protected
if a crisis occurs.
A) depositors; debtors
B) depositors; creditors
C) borrowers; debtors
D) borrowers; creditors
Answer:
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.
Answer:
Everything else held constant, during a business cycle expansion, the supply of bonds
shifts to the ________ as businesses perceive more profitable investment opportunities,
while the demand for bonds shifts to the ________ as a result of the increase in wealth
generated by the economic expansion.
A) right; left
B) right; right
C) left; left
D) left; right
Answer:
Analysis of adverse selection indicates that financial intermediaries, especially banks,
A) have advantages in overcoming the free-rider problem, helping to explain why
indirect finance is a more important source of business finance than is direct finance.
B) despite their success in overcoming free-rider problems, nevertheless play a minor
role in moving funds to corporations.
C) provide better-known and larger corporations a higher percentage of their external
funds than they do to newer and smaller corporations which rely to a greater extent on
the new issues market for funds.
D) must buy securities from corporations to diversify the risk that results from holding
non-tradable loans.
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess demand of money which will cause the interest rate to
________.
A) right; fall
B) right; rise
C) left; fall
D) left; rise
Answer:
An increase in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; LM; left
D) fall; IS; left
Answer:
When bad drivers line up to purchase collision insurance, automobile insurers are
subject to the
A) moral hazard problem.
B) adverse selection problem.
C) assigned risk problem.
D) ill queue problem.
Answer: