Banks create money when they
a. expand loans and buy securities
b. expand loans and sell securities
c. reduce loans and buy securities
d. reduce loans and sell securities
Answer:
Which of the following is listed on the asset side of the Federal Reserve balance sheet?
a. capital accounts
b. deposits of depository institutions
c. Federal Reserve notes
d. none of the above
Answer:
Which of the following is true about outright open market purchases of securities versus
repurchase agreements?
a. outright purchases are usually made to neutralize the impact of transitory changes in
R and B on bank reserves and the monetary base
b. repurchase agreements are usually made to bring about long-run or permanent
growth in the monetary aggregates
c. both of the above are correct
d. neither of the above is correct
Answer:
Over the last 100 years:
a. stocks have had a return of approximately 10 percent per year in real terms
b. stocks have had a return of approximately 7 percent per year in nominal terms
c. stocks have outperformed government bonds and real estate, on average
d. stock prices have remained relatively invariant to outside economic factors such as
inflation rates and consumer confidence
Answer:
Most of the profits earned by the ECB are
a. distributed to the private shareholders that own the ECB
b. distributed to the central banks of the EU member nations
c. directed to social welfare programs within the EU
d. remitted to the EU treasury to fund EU agriculture programs
Answer:
The primary asset of life insurance companies is:
a. corporate bonds
b. corporate stocks
c. mortgages
d. government bonds
Answer:
In a severely declining economy:
a. demand for funds rises and interest rates rise
b. demand for funds falls and interest rates fall
c. supply of funds rises and interest rates rise
d. supply of funds falls and interest rates fall
Answer:
The motivating force behind bank mergers includes
a. economies of scale
b. the desire to increase market power
c. the desire for geographic diversification
d. all of the above
Answer:
One complication of monetary policy relates to uncertainty about the ____ associated
with the AS curve, AD curve, and the level of the NAIRU.
a. slopes
b. positions
c. dynamics
d. all of the above
Answer:
Choose the answer that best describes the order of implementation of Fed policy.
a. operating targets; intermediate targets; ultimate goals; policy tools
b. operating targets; policy tools; intermediate targets; ultimate goals
c. policy tools; intermediate targets; operating targets; ultimate goals
d. policy tools; operating targets; intermediate targets; ultimate goals
Answer:
As a general rule, the countries that have the lowest inflation rates
a. have central banks that are relatively independent
b. have central banks that are not very independent
c. have the highest nominal interest rates
d. are not described by any of the above
Answer:
____ believe that velocity is relatively stable and predictable.
a. Keynesians
b. monetarists
c. non-monetarists
d. all of the above
Answer:
The supply of the monetary base is controlled by
a. banks and the public
b. banks and the Treasury
c. the Federal Reserve and the Treasury
d. the Treasury
Answer:
The Governing Council is comprised of
a. the Executive Board and the Governors
b. the Executive Board and the members of ECOFIN
c. the members of ECOFIN and the Governors
d. none of the above
Answer:
Okun’s Law describes the relationship between
a. inflation and interest rates
b. interest rates and unemployment
c. unemployment and the output gap
d. unemployment and inflation
Answer:
When buying stocks, portfolio diversification
a. tends to increase risk and therefore return
b. eliminates the problem of stocks being riskier than bonds
c. can be accomplished by investing in a mutual fund
d. none of the above is true
Answer:
In terms of the loanable funds market, an increase in the expected rate of inflation
shifts:
a. demand for funds right, supply of funds right, and interest rates rise
b. demand for funds left, supply of funds right, and interest rates rise
c. supply of funds left, demand for funds left, and interest rates rise
d. demand for funds right, supply of funds left, and interest rates rise
Answer:
Which of the following is excluded from M1?
a. currency and coins
b. credit cards
c. demand deposits
d. all of the above
Answer:
Assuming a 10% reserve requirement, when a bank customer withdraws $200 from her
checking account
a. bank excess reserves fall by $20
b. bank required reserves fall by $180
c. bank reserves fall by $200
d. all of the above occur
Answer:
Which of the following expressions is correct?
a. B = M/m
b. m = M/B
c. M = B x m
d. all of the above
Answer:
Which of the following is not an ultimate goal of monetary policy?
a. high employment
b. high long-term interest rates
c. long-term economic growth
d. stable price level
Answer:
Most major countries now operate under a(n)
a. adjustable peg system
b. Bretton Woods system
c. freely floating system
d. managed float system
Answer:
The 2001 recession was characterized by
a. a decrease in household consumption
b. a decrease in the purchase of new homes
c. a decline in real business fixed investment
d. all of the above
Answer:
Suppose that economic activity is accelerating, and that the Fed is worried about
inflation. One way the Fed could counter these inflationary forces is to
a. buy securities in the open market
b. decrease the reserve requirement
c. increase the discount rate and the federal funds rate
d. do all of the above
Answer:
Suppose aggregate deposits in the banking system are $800 billion, there are no excess
reserves in the system, and the reserve requirement is 12 percent. Now suppose the Fed
cuts the reserve requirement to 10 percent. After all banks use up all their excess
reserves, aggregate deposits will have expanded by
a. $960 billion
b. $160 billion
c. $16 billion
d. none of the above
Answer:
As the number of commodities in a barter economy doubles (say, from 100 to 200), the
number of exchange rates one must keep track of roughly:
a. halves
b. increases by a factor of 100
c. doubles
d. quadruples
Answer:
As a general rule, increases in interest rates ____ the demand for money and ____
velocity.
a. reduce; reduce
b. increase; increase
c. reduce; increase
d. increase; reduce
Answer:
Other things being equal, the higher a bank’s capital accounts ratio
a. the greater the inherent profitability of the institution
b. the higher its rate of return on equity to owners
c. the lower its risk of insolvency
d. all of the above
Answer:
The most rapid growth rates of the monetary base and the money supply were
witnessed in which period?
a. 1929-1933
b. 1942-1945
c. 1975-1979
d. 1979-1982
Answer:
Regarding the bank demand curve for excess reserves (as a function of the short-term
interest rate) in the 1930s
a. monetarists believe the curve shifted rightward
b. monetarists believe the curve was not particularly flat
c. Keynesians believe it was extremely flat at low interest rates
d. all of the above are true
Answer:
Increasingly widespread use of the stored value card would tend to reduce the use of:
a. checks
b. currency
c. both of the above
d. none of the above
Answer:
Suppose OPEC announces a dramatic cutback in oil production. This announcement is
likely to cause:
a. the yield curve to flatten
b. borrowers to borrow short-term now
c. long-term interest rates to rise
d. bond yields to fall
Answer: