1) If a person selling bonds to the Fed cashes the Fed’s check, then reserves ________
and currency in circulation ________, everything else held constant.
A) remain unchanged; declines
B) remain unchanged; increases
C) decline; remains unchanged
D) increase; remains unchanged
2) If you sell twenty-five $100,000 futures contracts to hedge holdings of a Treasury
security, the value of the Treasury securities you are holding is
A) $250,000
B) $1,000,000
C) $2,500,000
D) $5,000,000
3) The classical economists believed that if the quantity of money doubled,
A) output would double
B) prices would fall
C) prices would double
D) prices would remain constant
4) To an economist, ________ is anything that is generally accepted in payment for
goods and services or in the repayment of debt.
A) wealth
B) income
C) money
D) credit
5) An increase in the monetary base that goes into ________ is not multiplied, while an
increase that goes into ________ is multiplied.
A) deposits; currency
B) excess reserves; currency
C) currency; excess reserves
D) currency; deposits
6) ________ in the money supply creates excess demand for ________, causing interest
rates to ________, everything else held constant.
A) An increase; money; rise
B) An increase; bonds; fall
C) A decrease; bonds; rise
D) A decrease; money; fall
7) If float is predicted to decrease because of unseasonably good weather, the manager
of the trading desk at the Federal Reserve Bank of New York will likely conduct a
________ open market ________ of securities.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
8) Starting in 1974, the conventional M1 money demand function began to
A) severely underpredict the demand for money
B) severely overpredict the demand for money
C) predict more precisely the demand for money
D) do none of the above
9) The price of a coupon bond and the yield to maturity are ________ related; that is, as
the yield to maturity ________, the price of the bond ________.
A) positively; rises; rises
B) negatively; falls; falls
C) positively; rises; falls
D) negatively; rises; falls
10) The monetary liabilities of the Federal Reserve include
A) securities and loans to financial institutions
B) currency in circulation and reserves
C) securities and reserves
D) currency in circulation and loans to financial institutions
11) The demand for silver decreases, other things equal, when
A) the gold market is expected to boom
B) the market for silver becomes more liquid
C) wealth grows rapidly
D) interest rates are expected to rise
12) When the price of a bond is ________ the equilibrium price, there is an excess
demand for bonds and price will ________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
13) Countries with balance of payments deficits do not want to see their currencies
________ because it makes foreign goods ________ expensive for domestic
consumers.
A) appreciate; less
B) appreciate; more
C) depreciate; less
D) depreciate; more
14) Which of the following is not included in the monetary aggregate M2?
A) Currency
B) Savings bonds
C) Traveler’s checks
D) Checking deposits
15) Of the following, the largest is
A) money market deposit accounts
B) demand deposits
C) M1
D) M2
16) 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 lower
D) inflation will not change
E) both A and B
17) When the economy suffers a temporary negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate output drops in the short run
B) output will return to potential output over time
C) aggregate output is stabilized
D) all of the above
E) both A and B
18) When financial intermediaries deleverage, firms cannot fund investment
opportunities resulting in
A) a contraction of economic activity
B) an economic boom
C) an increased opportunity for growth
D) a call for government regulation
19) That only large, well-established corporations have access to securities markets
A) explains why indirect finance is such an important source of external funds for
businesses
B) can be explained by the problem of moral hazard
C) can be explained by government regulations that prohibit small firms from acquiring
funds in securities markets
D) explains why newer and smaller corporations rely so heavily on the new issues
market for funds
20) If your nominal income in 2002 was $50,000, and prices doubled between 2002 and
2011, to have the same real income, your nominal income in 2011 must be
A) $50,000
B) $75,000
C) $90,000
D) $100,000
21) If an individual moves money from a money market deposit account to currency,
A) M1 increases and M2 stays the same
B) M1 stays the same and M2 increases
C) M1 stays the same and M2 stays the same
D) M1 increases and M2 decreases
22) A capital ________ can promote financial instability in an emerging-market country
because it can lead to a lending boom and excessive risk-taking on the part of banks,
which helps trigger a ________.
A) inflow; financial crisis
B) inflow; currency devaluation
C) outflow; financial crisis
D) outflow; currency devaluation
23) The equation that shows the amount of the monetary base needed to support
existing levels of checkable deposits, excess reserves, and currency is
A) MB = (rr D) + ER + C
B) MB = (rr + D) + ER + C
C) MB = + ER + C
D) MB = (rr D) – ER – C
24) Which of the following bank assets is the most liquid?
A) Consumer loans
B) Reserves
C) Cash items in process of collection
D) U.S. government securities
25) The primary assets of a finance company are
A) municipal bonds
B) corporate stocks and bonds
C) consumer and business loans
D) mortgages
26) Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in c 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
27) A rising stock market index due to higher share prices
A) increases people’s wealth, but is unlikely to increase their willingness to spend
B) increases people’s wealth and as a result may increase their willingness to spend
C) decreases the amount of funds that business firms can raise by selling newly-issued
stock
D) decreases people’s wealth, but is unlikely to increase their willingness to spend
28) The primary difference between the “payoff” and the “purchase and assumption”
methods of handling failed banks is
A) that the FDIC guarantees all deposits when it uses the “payoff” method
B) that the FDIC guarantees all deposits when it uses the “purchase and assumption”
method
C) that the FDIC is more likely to use the “payoff” method when the bank is large and it
fears that depositor losses may spur business bankruptcies and other bank failures
D) that the FDIC is more likely to use the purchase and assumption method for small
institutions because it will be easier to find a purchaser for them compared to large
institutions
29) High-powered money minus currency in circulation equals
A) reserves
B) the borrowed base
C) the nonborrowed base
D) discount loans