If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and
if the reserve requirement is 10 percent, then the bank has actual reserves of
A. $14,000.
B. $17,000.
C. $22,000.
D. $27,000.
Answer:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an increase in the currency-deposit ratio to 50%
causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.5 to 2.8
b. decrease from 2.8 to 2.5
c. increase from 2.33 to 2.8
d. decrease from 2.8 to 2.33
Answer:
One way to derive aggregate demand is by looking at its four component parts, which
are
A. consumer expenditures, planned investment spending, government spending, and net
exports.
B. consumer expenditures, actual investment spending, government spending, and net
exports.
C. consumer expenditures, planned investment spending, government spending, and
gross exports.
D. consumer expenditures, planned investment spending, government spending, and
taxes.
Answer:
Suppose on any given day the prevailing equilibrium federal funds rate is above the
Federal Reserve’s federal funds target rate. If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant.
A. defensive; sale
B. defensive; purchase
C. dynamic; sale
D. dynamic; purchase
Answer:
When Keynesians argue that “correlation does not necessarily imply causation,” they
are probably criticizing
A. structural-model evidence.
B. reduced-form evidence.
C. indirect-model evidence.
D. black-box evidence.
Answer:
An increase in the nonborrowed monetary base, everything else held constant, will
cause
a. the money supply to fall.
b. the money supply to rise.
c. no change in the money supply.
d. demand deposits to fall.
Answer:
If the yield curve has a mild upward slope, the liquidity premium theory (assuming a
mild preference for shorter-term bonds) indicates that the market is predicting
A. a rise in short-term interest rates in the near future and a decline further out in the
future.
B. constant short-term interest rates in the near future and further out in the future.
C. a decline in short-term interest rates in the near future and a rise further out in the
future.
D. a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
Answer:
When the ________ interest rate is low, there are greater incentives to ________ and
fewer incentives to ________.
A. nominal; lend; borrow
B. real; lend; borrow
C. real; borrow; lend
D. market; lend; borrow
Answer:
All else the same, when the Fed calls in a $100 discount loan previously extended to the
First National Bank, reserves in the banking system
A. increase by $100.
B. increase by more than $100.
C. decrease by $100.
D. decrease by more than $100.
Answer:
The Fed can offset the effects of an increase in float by engaging in
A. a repurchase agreement.
B. a matched sale-purchase transaction.
C. an interest rate swap.
D. an open market purchase.
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
currency-deposit ratio is
a. 0.25.
b. 0.50.
c. 0.40.
d. 0.05.
Answer:
A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate
risk by
A. buying stock options.
B. selling puts on financial futures.
C. using a foreign exchange swap.
D. buying swaptions.
Answer:
According to Tobin’s q theory, ________ policy can affect ________ spending through
its effect on the prices of common stock.
A. fiscal; consumption
B. fiscal; investment
C. monetary; consumption
D. monetary; investment
Answer:
A contract requiring payment of an annual premium in exchange for the payment of a
future stream of payments beginning at a specified age and continuing until death is
A. whole life insurance.
B. an annuity.
C. term life insurance.
D. variable life insurance.
E. universal life insurance.
Answer:
Suppose that there is a negative aggregate demand shock and the central bank commits
to an inflation rate target. If the commitment is credible, then
A. the public’s expected inflation will remain unchanged.
B. the short-run aggregate supply curve will rise.
C. over time inflation will fall.
D. all of the above.
E. both A and C.
Answer:
The facility that was created in December of 2007 that banks can use to borrow from
the Fed that has less of a stigma for banks compared to borrowing from the discount
window is the
A. Term Securities Lending Facility.
B. Term Auction Facility.
C. Primary Dealer Credit Facility.
D. Commercial Paper Funding Facility.
Answer:
Everything else held constant, if workers expect an increase in inflation, ________
aggregate supply ________.
A. long-run; increases
B. long-run; decreases
C. short-run; decreases
D. short-run; increases
Answer:
Under the Basel Accord, assets and off-balance sheet activities were sorted according to
________ categories with each category assigned a different weight to reflect the
amount of ________.
A. 2; adverse selection
B. 2; credit risk
C. 4; adverse selection
D. 4; credit risk
Answer:
If prices in the diamond market become less volatile, all else equal, then the demand for
diamonds ________ and the demand for gold ________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
Answer:
The interest rate the Fed charges banks borrowing from the Fed is the
A. federal funds rate.
B. Treasury bill rate.
C. discount rate.
D. prime rate.
Answer:
A decline in taxes ________ consumer expenditure and shifts the ________ curve to the
________, everything else held constant.
A. raises; LM; right
B. lowers; IS; left
C. raises; IS; right
D. lowers; LM; left
Answer:
American farmers who sell beef to Europe benefit most from
A. a decrease in the dollar price of euros.
B. an increase in the dollar price of euros.
C. a constant dollar price for euros.
D. a European ban on imports of American beef.
Answer:
In the model of the money supply process, the Federal Reserve’s role in influencing the
money supply is represented by
a. both the required reserve ratio and the market interest rate.
b. the required reserve ratio, nonborrowed reserves, and borrowed reserves.
c. only borrowed reserves.
d. only nonborrowed reserves.
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:
Franco Modigliani has found that an expansionary monetary policy can cause stock
market prices to ________ and consumption to ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
The payments system is
A. the method of conducting transactions in the economy.
B. used by union officials to set salary caps.
C. an illegal method of rewarding contracts.
D. used by your employer to determine salary increases.
Answer:
The interest rate that describes how well a lender has done in real terms after the fact is
called the
A. ex post real interest rate.
B. ex ante real interest rate.
C. ex post nominal interest rate.
D. ex ante nominal interest rate.
Answer:
Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in
Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace
the walls of the conference room. Suppose further that, at a public auction, the bank
sells the painting for $19.95. This sale will cause ________ in the monetary base,
everything else held constant.
a. an increase of $19.95
b. an increase of more than $19.95
c. a decrease of $19.95
d. a decrease of more than $19.95
Answer:
In the basic closed-economy ISLM model, the goods market can be described by the
A. consumption function.
B. investment function.
C. government spending and tax.
D. goods market equilibrium condition.
E. all of the above.
Answer:
The term structure of interest rates is
A. the relationship among interest rates of different bonds with the same maturity.
B. the structure of how interest rates move over time.
C. the relationship among the term to maturity of different bonds.
D. the relationship among interest rates on bonds with different maturities.
Answer:
The reason that economists are so interested in the stability of velocity is because if the
demand for money is not stable, then steady growth of the money supply
A. is going to promote price stability at the expense of low unemployment.
B. is going to promote low unemployment at the expense of price stability.
C. is an ineffective way to conduct monetary policy.
D. can still be used to conduct monetary policy if the goal is price stability.
Answer: