In the simple deposit expansion model, if the required reserve ratio is 10 percent and
the Fed increases reserves by $100, checkable deposits can potentially expand by
A. $100.
B. $250.
C. $500.
D. $1,000.
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:
The most comprehensive measure of aggregate output is
A. gross domestic product.
B. net national product.
C. the stock value of the industrial 500.
D. national income.
Answer:
Because these securities are more liquid and generally have smaller price fluctuations,
corporations and banks use the ________ securities to earn interest on temporary
surplus funds.
A. money market
B. capital market
C. bond market
D. stock market
Answer:
Suppose a person cashes his payroll check and holds all the funds in the form of
currency. Everything else held constant, total reserves in the banking system ________
and the monetary base ________.
A. remain unchanged; increases
B. decrease; increases
C. decrease; remains unchanged
D. decrease; decreases
Answer:
Everything else held constant, if the expected return on U.S. Treasury bonds falls from
8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent,
then the expected return of corporate bonds ________ relative to U.S. Treasury bonds
and the demand for corporate bonds ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Answer:
If the maturity of a debt instrument is less than one year, the debt is called
A. short-term.
B. intermediate-term.
C. long-term.
D. prima-term.
Answer:
The short-run aggregate supply curve shifts to the right when
A. output gap is higher.
B. output gap is lower.
C. expected inflation is higher.
D. expected inflation is lower.
Answer:
If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from
year 1 to year 2 is
A. 20%.
B. 10%.
C. 11%.
D) 120%.
Answer:
If the aggregate price level at time t is denoted by Pt, the inflation rate from time t – 1 to
t is defined as
A. πt = (Pt – Pt – 1)/Pt – 1.
B. πt = (Pt + 1 – Pt – 1)/Pt – 1.
C. πt = (Pt + 1 – Pt)/Pt.
D. πt = (Pt – Pt – 1)/Pt.
Answer:
Everything else held constant, an increase in the money market fund ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease
Answer:
An emerging market country that successfully used exchange-rate targeting to lower its
inflation from above 100 percent in 1988 to below 10 percent in 1994 (before
devaluation) was________
A) Thailand.
B) Mexico.
C) The Philippines.
D) Indonesia.
Answer:
Planned investment spending is higher
A. when real interest rate is higher.
B. during financial frictions.
C. when businesses are optimistic.
D. all of the above.
E. A and C.
Answer:
Bank holding companies that rival money center banks in size, but are not located in
money center cities are
A) superregional banks.
B) bank clearing houses.
C) international banks.
D) local banks.
Answer:
When an economy grows out of a recession, normally the demand for bonds ________
and the supply of bonds ________, everything else held constant.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Answer:
Keynes was especially concerned with explaining the
A. recession of 1920-21.
B. low levels of output and employment during the Great Depression.
C. strong economic growth of the 1920s.
D. high unemployment in Great Britain during the 1920s.
Answer:
Because it is a unit of account, money
A. increases transaction costs.
B. reduces the number of prices that need to be calculated.
C. does not earn interest.
D. discourages specialization.
Answer:
Financial innovations that grew out of the bank branching restrictions were
A) bank holding companies and automated teller machines.
B) bank holding companies and securitization.
C) automated teller machines and sweep accounts.
D) automated teller machines and bank credit cards.
Answer:
All of the following are necessary criteria for a commodity to function as money
EXCEPT
A. it must deteriorate quickly.
B. it must be divisible.
C. it must be easy to carry.
D. it must be widely accepted.
Answer:
If people expect real estate prices to increase significantly, the ________ curve for
bonds will shift to the ________, everything else held constant.
A. demand; right
B. demand; left
C. supply; left
D. supply; right
Answer:
Everything else held constant, an increase in expected inflation, lowers the expected
return on ________ compared to ________ assets.
A. bonds; financial
B. bonds; real
C. real estate; financial
D. real estate; real
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of an expansionary monetary policy is to
A. increase real output and the interest rate.
B. not change either real output or the interest rate.
C. increase real output and leave the interest rate unchanged.
D. increase the interest rate and leave real output unchanged.
Answer:
If the price level increases, everything else held constant, the ________ curve shifts to
the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Answer:
An international lender of last resort creates a serious ________ problem because
depositors and other creditors of banking institutions expect that they will be protected
if a crisis occurs.
A) moral hazard
B) adverse selection
C) public choice
D) strategic choice
Answer:
Because interest rates have substantial fluctuations, the ________ theory of the demand
for money indicates that velocity has substantial fluctuations as well.
A. classical
B. Cambridge
C. liquidity preference
D. Pigouvian
Answer:
Methods of financing government spending are described by an expression called the
government budget constraint, which states the following
A. DEFICIT = (G – T) = ΔMB + ΔBONDS.
B. DEFICIT = (G – T) = ΔMB – ΔBONDS.
C. DEFICIT = (G – T) = ΔBONDS – ΔMB.
D. DEFICIT = (G – T) = ΔMB/ΔBONDS.
Answer:
Mutual savings banks are owned by
A) shareholders.
B) partners.
C) depositors.
D) foreign investors.
Answer:
Because inflation was not a serious problem during the Great Depression, Keynes’s
analysis assumed
A. that unemployment also was not a problem.
B. that the money supply was fixed.
C. that the price level was fixed.
D. that monetary policy is not effective.
Answer:
The federal agencies that examine banks include
A. the Federal Reserve System.
B. the Internal Revenue Service.
C. the SEC.
D. the U.S. Treasury.
Answer:
Currency circulated by banks that could be redeemed for gold was called
A. junk bonds.
B. banknotes.
C. gold bills.
D. state money.
Answer:
Most mutual funds are
A. no-load funds.
B. load funds.
C. large-load funds.
D. small-load funds.
Answer:
A disadvantage of virtual banks (clicks) is that
A. their hours are more limited than physical banks.
B. they are less convenient than physical banks.
C. they are more costly to operate than physical banks.
D. customers worry about the security of on-line transactions.
Answer:
Using the ISLM model, explain the effects of a monetary expansion combined with a
fiscal contraction. How do the equilibrium level of output and interest rate change?
Answer:
If the interest rate is 5%, what is the present value of a security that pays you $1, 050
next year and $1,102.50 two years from now? If this security sold for $2200, is the
yield to maturity greater or less than 5%? Why?
Answer:
Banking crises have occurred throughout the world. What similarities do we find when
we look at the different countries?
Answer:
Everything else held constant, would an increase in volatility of stock prices have any
impact on the demand for rare coins? Why or why not?
Answer:
Using the ISLM model, explain and show graphically the effect of a fiscal expansion
when the demand for money is completely insensitive to changes in the interest rate.
What is this effect called?
Answer:
Explain and demonstrate graphically the effects of a negative supply shock in both the
short-run and long-run.
Answer:
What happens to economic growth and unemployment during a business cycle
recession? What is the relationship between the money growth rate and a business cycle
recession?
Answer: