Assuming a 10% reserve requirement, a withdrawal of $1,000 cash by a depositor will
immediately cause ____ and eventually cause ____.
a. bank reserves to fall by $1,000; the money supply to fall by $9,000
b. bank reserves to fall by $1,000; the money supply to fall by $10,000
c. the money supply to fall by $1,000; the money supply to fall by $10,000
d. none of the above
Answer:
During the 1940s, price indices failed to reveal mounting inflationary pressures in the
United States because
a. rigid price controls masked the true price level
b. the presence of a booming export industry distorted the figures
c. such price indices were based on an outdated sample of goods
d. none of the above is correct
Answer:
The relationship between a nation’s price level and the quantity of real goods and
services desired is called the
a. aggregate demand relationship
b. aggregate supply relationship
c. Okun’s Law relationship
d. Phillips Curve relationship
Answer:
In Tobin’s q theory, expansionary monetary policy
a. lowers stock prices, lowering q and reducing new investment spending
b. lowers stock prices, inducing firms to buy existing firms when looking to expand
c. raises stock prices, raising q and increasing new investment spending
d. raises stock prices, lowering q and inducing new investment spending
Answer:
Suppose you deposit $100 of currency into your commercial bank savings account. This
action does what to the monetary base?
a. increases it $100
b. decreases it $100
c. leaves it unchanged
d. not enough information is given to answer the question
Answer:
Suppose that a country’s sacrifice ratio is 4, and that GDP is $10,000 billion. The cost of
reducing inflation from 6 percent to 5 percent will be
a. $40 billion
b. $400 billion
c. $4,000 billion
d. $40,000 billion
Answer:
Despite its shortcomings as a store of value, people often choose to hold money over
time because it is
a. an excellent standard of value
b. backed by gold
c. the source of all wealth
d. liquid
Answer:
Of the three lags of policy, the longest lag for monetary policymakers is the
a. implementation lag
b. impact lag
c. recognition lag
d. none of the above
Answer:
Evidence from the era of the Great Depression shows that
a. commercial banks which operated investment banking services failed 3 times more
often than ordinary commercial banks
b. smaller firms often receive preferential treatment from the banking sector
c. securities underwritten by commercial banks were of higher quality than those
underwritten by traditional investment banks
d. none of the above
Answer:
Which of the following factors would increase the actual deposit expansion multiplier?
a. the deposit of cash into banks
b. the desire of banks to hold more excess reserves
c. the desire of individuals to hold more cash
d. elimination of the reserve requirement
Answer:
With respect to uses of funds, which pair of entities most closely resemble one another?
a. commercial banks and mutual savings banks
b. commercial banks and credit unions
c. mutual savings banks and credit unions
d. savings and loan associations and mutual savings banks
Answer:
Suppose that two of America’s largest banks–Whole Hog Bank and Piggy
Bank–merge, and the next day an index of other major bank stock prices falls by 20
percent. We can hypothesize, then, that the true motive behind the merger is
a. cost cutting considerations
b. exploitation of monopoly power
c. increasing portfolio diversification
d. we cannot hypothesize anything about the merger given these facts
Answer:
Events in the 1920s that set into motion contractionary forces contributing to the Great
Depression of 1929-1933 include
a. a tremendous building boom that necessitated a reduction in construction activity in
the 1930s
b. a highly overvalued stock market
c. the Fed’s tightening of monetary policy in the late 1920s
d. all of the above
Answer:
The FOMC policy directive
a. is carried out by the individual district Federal Reserve banks
b. is carried out by the New York district Federal Reserve bank
c. is carried out by the Board of Governors
d. none of the above
Answer:
Assume the nominal interest rate is 12 percent, the expected inflation rate is 5 percent,
and the marginal income tax rate is 25 percent. Then the after-tax real interest rate is:
a. negative 2 percent
b. 4 percent
c. 7 percent
d. none of the above
Answer:
The Ricardian Equivalence Proposition suggests that larger budget deficits have no
effect on:
a. overall aggregate demand
b. interest rates
c. investment
d. any of the above
Answer:
Which of the following is true?
a. When the money supply increases, adverse selection and moral hazard problems tend
to decrease.
b. When the money supply increases, stock prices tend to increase.
c. When the money supply increases, interest rates tend to decrease.
d. All of the above are true.
Answer:
Federal Reserve float
a. arises because “deferred availability cash items” typically exceed “cash items in the
process of collection”
b. has an effect on the base identical to a Federal Reserve open market sale of securities
c. is essentially an interest-free loan from the Federal Reserve to the nation’s banks
d. does all of the above
Answer:
Which of the following is true?
a. Liquidity and yield are positively related.
b. Liquidity and risk are positively related.
c. Risk and yield are positively related.
d. All of the above are true.
Answer:
With respect to monetary policy, the longest lag of policy is likely to be the
a. implementation lag
b. impact lag
c. recognition lag
d. none of the above
Answer:
Which of the following is true about legal tender?
a. Legal tender is not involved in the vast majority of transactions in the U.S.
b. An asset must be legal tender to be classified as money.
c. Having legal tender status is neither necessary nor sufficient to be money.
d. Cash and checking accounts are legal tender.
Answer:
Which of the following is an instrument of the capital market?
a. commercial paper
b. mortgages
c. negotiable CDs
d. all of the above
Answer:
In order to serve as money, an item
a. must have value in use as well as in exchange
b. must be declared “legal tender” by the government
c. must be issued by the government
d. none of the above
Answer:
Which function of money eliminates the requirement of a “double coincidence of
wants” which exists in a barter economy?
a. store of value
b. standard of value
c. standard of deferred payment
d. medium of exchange
Answer:
The equation of exchange suggests that if velocity remains constant and the money
supply increases, then
a. aggregate expenditures in the nation must rise
b. the nation’s price level must rise
c. the nation’s real output must rise
d. all of the above must occur
Answer:
Which of the following is a fundamental commercial bank accounting identity?
a. assets minus liabilities equals capital
b. assets plus liabilities equals capital
c. assets plus capital equals liabilities
d. none of the above
Answer:
Which of the following potential intermediate monetary policy target variables scores
highest on the criterion of importance?
a. discount loans
b. net free reserves
c. nominal short-term interest rates
d. real long-term interest rates
Answer:
Which of the following characterizes budget deficits in the United States in the past 30
years?
a. They decreased in the 1980s and increased through the 1990s.
b. They increased in the 1980s and decreased in the 1990s.
c. They increased in the 1970s and decreased in the 1980s.
d. They rose steadily throughout the 1990s.
Answer:
In the short run, the Phillips curve is ____; in the long run, the Phillips curve is ____.
a. downward sloping; horizontal
b. upward sloping; vertical
c. downward sloping; vertical
d. upward sloping; horizontal
Answer:
Moral hazard would not be a problem if
a. information were asymmetric
b. monitoring were costless
c. loan screening procedures could detect lesser-qualified loan applicants
d. all of the above
Answer:
The short-run Phillips curve shifts rightward (or northeast)
a. if expected inflation increases
b. if the NAIRU increases
c. in both of the above cases
d. in neither of the above cases
Answer: