Everything else held constant, a decrease in net exports ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from
A) issuing equity to finance bank expansion.
B) engaging in underwriting and dealing of corporate securities.
C) selling new issues of government securities.
D) purchasing any debt securities.
Answer:
According to the liquidity premium theory of the term structure, a slightly upward
sloping yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
Answer:
Which of the following are not reported as assets on a bank’s balance sheet?
A) Cash items in the process of collection
B) Deposits with other banks
C) U.S. Treasury securities
D) Checkable deposits
Answer:
Everything else held constant, an increase in government spending ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
Conflicts of interest are a type of ________ problem that can happen when an
institution provides multiple services.
A) adverse selection
B) free-riding
C) discounting
D) moral hazard
Answer:
If brokerage commissions on bond sales decrease, then, other things equal, the demand
for bonds will ________ and the demand for real estate will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
Which of the following statements about central bank structure and independence are
true?
A) In recent years, with the exception of the Bank of England and the Bank of Japan,
most countries have reduced the independence of their central banks, subjecting them to
greater democratic control.
B) Before the Bank of England was granted greater independence, the Federal Reserve
was the most independent of the world’s central banks.
C) Both theory and experience suggest that more independent central banks produce
better monetary policy.
D) While the European Central Bank is independent, it is not as independent as the
Federal Reserve.
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:
Money is defined as
A) bills of exchange.
B) anything that is generally accepted in payment for goods and services or in the
repayment of debt.
C) a risk-free repository of spending power.
D) the unrecognized liability of governments.
Answer:
Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer:
Estimates suggest that, in the United States economy, it takes just over ________ for
monetary policy to affect output and just over ________ for monetary policy to affect
the inflation rate.
A) 1 year; 2 years
B) 2 years; 1 year
C) 1 year; 6 months
D) 6 months; 1 year
Answer:
The total amount of reserves in the banking system is equal to the ________ required
reserves and excess reserves.
A) sum of
B) difference between
C) product of
D) ratio between
Answer:
In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $250 in government bonds.
B) sold $100 in government bonds.
C) sold $50 in government bonds.
D) purchased $100 in government bonds.
Answer:
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$900 next year?
A) 5 percent
B) 10 percent
C) -5 percent
D) -10 percent
Answer:
When the growth rate of the money supply increases, interest rates end up being
permanently lower if
A) the liquidity effect is larger than the other effects.
B) there is fast adjustment of expected inflation.
C) there is slow adjustment of expected inflation.
D) the expected inflation effect is larger than the liquidity effect.
Answer:
Which of the following is not a disadvantage of of the Fed’s “just do it” approach to
monetary policy?
A) There is low transparency of policy.
B) There is low accountability for central bankers.
C) This type of policy relies on the policy-makers in charge.
D) It relies on a stable money-inflation relationship.
Answer:
The most important developments that have reduced banks’ income advantages in the
past thirty years include:
A) the increase in off-balance sheet activities.
B) the growth of securitization.
C) the elimination of Regulation Q ceilings.
D) the competition from money market mutual funds.
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________, firms will continue to raise
production, and output will continue to rise.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
Answer:
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.
Answer:
Although debt contracts require less monitoring than equity contracts, debt contracts are
still subject to ________ since borrowers have an incentive to take on more risk than
the lender would like.
A) moral hazard
B) agency theory
C) diversification
D) the “lemons” problem
Answer:
When rare coin prices become volatile, the ________ curve for bonds shifts to the
________, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Answer:
The principal-agent problem would not occur if ________ of a firm had complete
information about actions of the ________.
A) owners; customers
B) owners; managers
C) managers; customers
D) managers; owners
Answer:
Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or
believes the economy would have been less stable without these policies, most
economists agree that
A) stabilization policies proved more difficult in practice than many economists had
expected.
B) stabilization policies proved not to be inflationary.
C) the nondiscretionary policymakers were right in believing that the private economy
is inherently stable.
D) the discretionary policymakers were right in believing that the private economy is
inherently stable.
Answer:
The “Greenspan doctrine” – central banks should not try to prick bubbles – was based on
which of the following arguments?
A) Asset-price bubbles are nearly impossible to identify.
B) Monetary actions would be likely to affect asset prices in general, rather than the
specific assets that are experiencing a bubble.
C) Raising interest rates has often been found to cause a bubble to burst more severely.
D) Monetary policy actions to prick bubbles can have harmful effects on the aggregate
economy.
E) all of the above.
Answer:
Suppose the economy is producing at the natural rate of output. An open market
purchase of bonds by the Fed will cause ________ in real GDP the the short run and
________ in inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Answer:
A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
Answer:
If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 5
B) 2.5
C) 4
D) 10
Answer:
A decrease in the domestic interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
Answer:
If an individual moves money from a demand deposit account to a money market
deposit account,
A) M1 decreases 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.
Answer:
Which of the following statements is correct?
A) If most shocks to the economy are aggregate demand shocks or permanent aggregate
supply shocks, then policy that stabilizes inflation will also stabilize economic activity,
even in the short run.
B) If temporary supply shocks are more common, then a central bank must choose
between stabilizing inflation and stabilizing output in the short run.
C) In the long run, there is no conflict between stabilizing inflation and economic
activity in response to shocks.
D) all of the above.
Answer:
A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to ________,
everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
Answer: