If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and
if the reserve requirement is 15 percent, then the bank has actual reserves of
A) $17,000.
B) $19,000.
C) $24,000.
D) $29,000.
Answer:
Everything else held constant, an increase in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
Answer:
The primary liabilities of a commercial bank are
A) bonds.
B) mortgages.
C) deposits.
D) commercial paper.
Answer:
In the simple deposit expansion model, if the required reserve ratio is 10 percent and
the Fed increases reserves by $100, checkable deposits can potentially expand by
A) $100.
B) $250.
C) $500.
D) $1,000.
Answer:
Everything else held constant, a decrease in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
A balance of payments deficit is associated with a ________ of international reserves,
while a balance of payments surplus is associated with a ________.
A) loss; loss
B) loss; gain
C) gain; loss
D) gain; gain
Answer:
Bonds with relatively low risk of default are called ________ securities and have a
rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a
higher default risk and are called ________.
A) investment grade; lower grade
B) investment grade; junk bonds
C) high quality; lower grade
D) high quality; junk bonds
Answer:
The ________ is below the coupon rate when the bond price is ________ its par value.
A) yield to maturity; above
B) yield to maturity; below
C) discount rate; above
D) discount rate; below
Answer:
According to Tobin’s q theory, when equity prices are low the market price of existing
capital is ________ relative to new capital, so expenditure on fixed investment is
________.
A) cheap; low
B) dear ; low
C) cheap; high
D) dear; high
Answer:
An ECU was
A) a paper substitute for gold issued by the IMF.
B) a loan by European countries to the IMF.
C) a paper currency issued by the European Common Market.
D) a monetary unit created by the European Monetary System.
Answer:
Everything else held constant, when a country’s currency depreciates, its goods abroad
become ________ expensive while foreign goods in that country become ________
expensive.
A) more; less
B) more; more
C) less; less
D) less; more
Answer:
As interest rates rise, the opportunity cost of holding money ________ and the demand
for money ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Answer:
Based on the Taylor Principle, a central bank’s endogenous response of decreasing
interest rates when inflation falls
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Answer:
The long-run rate of unemployment to which an economy always gravitates is the
A) normal rate of unemployment.
B) natural rate of unemployment.
C) neutral rate of unemployment.
D) inflationary rate of unemployment.
Answer:
The interest rate on seasonal credit equals
A) the federal funds rate.
B) the primary credit rate.
C) the secondary credit rate.
D) an average of the federal funds rate and rates on certificates of deposits.
Answer:
Lower tariffs and quotas cause a country’s currency to ________ in the ________ run,
everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
Answer:
During World War II, whenever interest rates would rise and the price of bonds would
begin to fall, the Fed would
A) lower reserve requirements.
B) raise reserve requirements.
C) make open market purchases of government securities.
D) make open market sales of government securities.
Answer:
If a central bank does not want to see its currency ________ in value, it may pursue
expansionary monetary policy to lower the domestic interest rate, thereby ________ its
currency.
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
Answer:
Evidence from business cycle fluctuations in the United States indicates that
A) a negative relationship between money growth and general economic activity exists.
B) recessions are usually preceded by declines in bond prices.
C) recessions are usually preceded by dollar depreciation.
D) recessions are usually preceded by a decline in the growth rate of money.
Answer:
Everything else held constant, a depreciation of the domestic currency will cause the IS
curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
Bonds issued by state and local governments are called ________ bonds.
A) corporate
B) Treasury
C) municipal
D) commercial
Answer:
Which of the followings does not shift the short-run aggregate supply curve?
A) supply shocks.
B) persistent positive output gap.
C) changes in expected inflation.
D) an increase in output gap.
Answer:
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 increases
the demand for reserves, ________ the federal funds interest rate, everything else held
constant.
A) rise; lowering
B) decline; raising
C) decline; lowering
D) rise; raising
Answer:
Government regulations designed to reduce the moral hazard problem include
A) laws that force firms to adhere to standard accounting principles.
B) light sentences for those who commit the fraud of hiding and stealing profits.
C) state verification subsidies.
D) state licensing restrictions.
Answer:
The primary assets of credit unions are
A) municipal bonds.
B) business loans.
C) consumer loans.
D) mortgages.
Answer:
Prior to 1980, member banks left the Federal Reserve System due to
A) the high cost of discount loans.
B) the high cost of required reserves.
C) a desire to avoid interest rate regulations.
D) a desire to avoid credit controls.
Answer:
What country is given credit for the birth of the Eurodollar market?
A) The United States
B) England
C) The Soviet Union
D) Japan
Answer:
Since 1974, commercial banks importance as a source of funds for nonfinancial
borrowers
A) has shrunk dramatically, from around 40 percent of total credit advanced to around
25 percent by 2011.
B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50
percent by 2011.
C) has expanded dramatically, from around 50 percent of total credit advanced to above
70 percent by 2011.
D) has expanded dramatically, from around 30 percent of total credit advanced to above
50 percent by 2011.
Answer:
A simple deposit multiplier equal to four implies a required reserve ratio equal to
A) 100 percent.
B) 50 percent.
C) 25 percent.
D) 0 percent.
Answer:
If the consumption function is expressed as C = a + mpc × YD, then “a” represents
A) autonomous consumer expenditure.
B) the marginal propensity to consume.
C) the expenditure multiplier.
D) disposable income.
Answer: