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1) The time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy is called
A) the data lag
B) the recognition lag
C) the legislative lag
D) the implementation lag
E) the effectiveness lag
2) Economists define investment as the purchase of
A) a new physical asset such as a new machine or a new house
B) any physical asset, whether new or not, used by business to increase production
C) any physical asset used by business to increase production and the repurchase of
common stock
D) business spending on capital and household spending on durable goods
3) Increasing the amount of information available to investors helps to reduce the
problems of ________ and ________ in the financial markets
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
4) The name economists give the process by which stockholders gather information by
frequent monitoring of the firm's activities is
A) costly state verification
B) the free-rider problem
C) costly avoidance
D) debt intermediation
5) ________ bubble is driven entirely by unrealistic optimistic expectations
A) An irrational exuberance
B) A credit-driven
C) A stock
D) A debt-driven
6) The predominant form of household debt is
A) consumer installment debt
B) collateralized debt
C) unsecured debt
D) unrestricted debt
7) Because the United States was the reserve-currency country under the Bretton Woods
system, it could run large balance of payments ________ without ________ significant
amounts of international reserves
A) deficits; losing
B) deficits; gaining
C) surpluses; losing
D) surpluses; gaining
8) The Bretton Woods system was one in which central banks
A) bought and sold their own currencies to keep their exchange rates fixed
B) agreed not to intervene in the foreign exchange market to maintain a fixed exchange
rate regime that had existed prior to World War I
C) agreed to limit domestic money growth to the average of the five largest industrial
nations
D) agreed to limit domestic money growth to the average of the seven largest industrial
nations
9) Tobin's model of the speculative demand for money shows that people can reduce
their ________ by ________ their asset holdings
A) wealth; diversifying
B) risk; specializing
C) return; diversifying
D) risk; diversifying
10) Supply-side economic policies seek to
A) raise interest rates through contractionary monetary policy
B) increase federal government expenditures
C) increase consumption expenditures by increasing taxes
D) increase saving and investment using tax incentives
11) The formula for the M1 money multiplier is
A) m = (1 + c)/(rr + e + c)
B) M = 1/(rr + e + c)
C) M = (1 + c)/(rr + e + c)
D) m = [1/(rr + e + c)] MB
12) US Treasury deposits at the Fed are ________ for the Fed but ________ for the
Treasury Thus an increase in US Treasury deposits ________ the monetary base
A) a liability; an asset; increases
B) a liability; an asset; decreases
C) an asset; a liability; increases
D) an asset; a liability; decreases
