Long-term customer relationships ________ the cost of information collection and
make it easier to ________ credit risks.
A) reduce; screen
B) increase; screen
C) reduce; increase
D) increase; increase
Answer:
Only when budget deficits are financed by money creation does the increased
government spending lead to ________ in the ________.
A) a decrease; monetary base
B) an increase; monetary base
C) a decrease; money multiplier
D) an increase; money multiplier
Answer:
Secondary reserves are so called because
A) they can be converted into cash with low transactions costs.
B) they are not easily converted into cash, and are, therefore, of secondary importance
to banking firms.
C) 50% of these assets count toward meeting required reserves.
D) they rank second to bank vault cash in importance of bank holdings.
Answer:
The monetary policy strategy that results in the loss of an independent monetary policy
is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information in Situation 20-1, if aggregate output equals $8,000, the
unplanned inventory investment equals
A) -$100
B) $0
C) $100
D) $500
Answer:
The amount of assets per dollar of equity capital is called the
A) asset ratio.
B) equity ratio.
C) equity multiplier.
D) asset multiplier.
Answer:
The reduction in transactions costs per dollar of investment as the size of transactions
increases is
A) discounting.
B) economies of scale.
C) economies of trade.
D) diversification.
Answer:
The relationship between borrowed reserves, the nonborrowed monetary base, and the
monetary base is
A) MB = MBn – BR.
B) BR = MBn – MB.
C) BR = MB – MBn.
D) MB = BR – MBn.
Answer:
In the long-run ISLM model and with everything else held constant, as long as the level
of output ________ the natural rate level, the price level will continue to ________,
shifting the LM curve to the ________, until finally output is back at the natural rate
level.
A) exceeds; rise; right
B) exceeds; rise; left
C) remains below; fall; left
D) remains below; rise; right
Answer:
The Resolution Trust Corporation was created by the FIRREA in order to
A) manage and resolve insolvent S&Ls.
B) build up trust in government regulation.
C) regulate the S&L industry.
D) purchase large amounts of government debt.
Answer:
If a central bank does not want to see its currency fall in value, it may pursue ________
monetary policy to ________ the domestic interest rate, thereby strengthening its
currency.
A) expansionary; raise
B) contractionary; raise
C) expansionary; lower
D) contractionary; lower
Answer:
An assumption in the model of the money supply process is that the desired levels of
currency and excess reserves
A) are given as constants.
B) grow proportionally with checkable deposits.
C) grow proportionally with high-powered money.
D) grow proportionally over time.
Answer:
According to aggregate demand and supply analysis, America’s involvement in the
Vietnam War had the effect of
A) increasing aggregate output, lowering unemployment, and raising the inflation.
B) decreasing aggregate output, lowering unemployment, and lowering the inflation.
C) increasing aggregate output, raising unemployment, and raising the inflation.
D) decreasing aggregate output, raising unemployment, and lowering the inflation.
Answer:
The demand for houses decreases, all else equal, when
A) wealth increases.
B) real estate prices are expected to increase.
C) stock prices become more volatile.
D) gold prices are expected to increase.
Answer:
A bank with insufficient reserves can increase its reserves by
A) lending federal funds.
B) calling in loans.
C) buying short-term Treasury securities.
D) buying municipal bonds.
Answer:
Solutions to the moral hazard problem include
A) low net worth.
B) monitoring and enforcement of restrictive covenants.
C) greater reliance on equity contracts and less on debt contracts.
D) greater reliance on debt contracts than financial intermediaries.
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the right and the domestic currency to ________, everything
else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer:
Keynes’s theory of the demand for money is consistent with ________ movements in
________.
A) countercyclical; velocity
B) procyclical; velocity
C) countercyclical; expectations
D) procyclical; expectations
Answer:
An increase in the monetary base that goes into currency is ________, while an increase
that goes into deposits is ________.
A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied
Answer:
The yield to maturity for a discount bond is ________ related to the current bond price.
A) negatively
B) positively
C) not
D) directly
Answer:
Financial crises in advanced economies might start from a
A) debt deflation.
B) currency crisis.
C) mismanagement of financial innovations.
D) currency mismatch.
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:
Which investment bank filed for bankruptcy on September 15, 2008 making it the
largest bankruptcy filing in U.S. history?
A) Lehman Brothers
B) Merrill Lynch
C) Bear Stearns
D) Goldman Sachs
Answer:
An increase in an asset’s expected return relative to that of an alternative asset, holding
everything else constant, ________ the quantity demanded of the asset.
A) increases
B) decreases
C) has no effect on
D) erases
Answer:
Whatever a society uses as money, the distinguishing characteristic is that it must
A) be completely inflation proof.
B) be generally acceptable as payment for goods and services or in the repayment of
debt.
C) contain gold.
D) be produced by the government.
Answer:
An equal increase in all bond interest rates
A) increases the return to all bond maturities by an equal amount.
B) decreases the return to all bond maturities by an equal amount.
C) has no effect on the returns to bonds.
D) decreases long-term bond returns more than short-term bond returns.
Answer:
The monetary policy (MP) curve indicates the relationship between
A) the Federal Funds Rate and the real interest rate.
B) the Federal Funds Rate and the inflation rate.
C) the inflation rate and the expected inflation rate.
D) the real interest rate the central bank sets and the inflation rate.
Answer:
Net profit after taxes per dollar of equity capital is a basic measure of bank profitability
called
A) return on assets.
B) return on capital.
C) return on equity.
D) return on investment.
Answer:
If there is an excess demand for money, individuals ________ bonds, causing interest
rates to ________.
A) sell; rise
B) sell; fall
C) buy; rise
D) buy; fall
Answer:
Due to asymmetric information in credit markets, monetary policy may affect economic
activity through the balance sheet channel, where an increase in the money supply
A) raises stock prices, lowering the cost of new capital relative to firms’ market value,
thus increasing investment spending.
B) raises firms’ net worth, decreasing adverse selection and moral hazard problems,
thus increasing banks’ willingness to lend to finance investment spending.
C) raises the level of bank reserves, deposits, and bank loans, thereby raising spending
by those individuals who do not have access to credit markets.
D) lowers the value of the dollar, increasing net exports and aggregate demand.
Answer:
Interest rates increased continuously during the 1970s. The most likely explanation is
A) banking failures that reduced the money supply.
B) a rise in the level of income.
C) the repeated bouts of recession and expansion.
D) increasing expected rates of inflation.
Answer:
During the bank panics of the Great Depression the excess reserve ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.
Answer:
________ is the relative ease and speed with which an asset can be converted into a
medium of exchange.
A) Efficiency
B) Liquidity
C) Deflation
D) Specialization
Answer:
A ________ in market interest rates relative to the discount rate will cause discount
borrowing to ________.
A) fall; increase
B) rise; decrease
C) rise; increase
D) fall; remain unchanged
Answer: