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1) 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
2) An important factor in producing the subprime mortgage crisis was
A) lax consumer protection regulation
B) onerous rules placed on mortgage originators
C) weak incentives for mortgage brokers to use complicated mortgage products
D) strong incentives for the mortgage brokers to verify income information
3) An expectation may fail to be rational if
A) relevant information was not available at the time the forecast is made
B) relevant information is available but ignored at the time the forecast is made
C) information changes after the forecast is made
D) information was available to insiders only
4) Debt contracts
A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic
intervals
B) have a higher cost of state verification than equity contracts
C) are used less frequently to raise capital than are equity contracts
D) never result in a loss for the lender
5) When you deposit a $50 bill in the Security Pacific National Bank,
A) its liabilities decrease by $50
B) its assets increase by $50
C) its reserves decrease by $50
D) its cash items in the process of collection increase by $50
6) Forty or so dealers establish a "market" in these securities by standing ready to buy
and sell them
A) Secondary stocks
B) Surplus stocks
C) US government bonds
D) Common stocks
7) Funds held in ________ are subject to reserve requirements
A) all checkable deposits
B) all checkable and time deposits
C) all checkable, time, and money market fund deposits
D) all time deposits
8) Under the current managed float exchange rate regime, countries with balance of
payments ________ frequently do not want to see their currencies ________ because it
makes foreign goods more expensive for domestic consumers and can stimulate
inflation
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
9) The Fed does not tightly control the monetary base because it does not completely
control
A) open market purchases
B) open market sales
C) borrowed reserves
D) the discount rate
10) Which of the following is not an advantage to exchange-rate targeting?
A) It provides a strong nominal anchor to keep inflation under control
B) It provides an automatic rule for policy to help avoid the time-inconsistency problem
C) It is simple and clear so that the public can easily understand it
D) It increases the accountability of policymakers
11) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets
include
A) failure of the Mexican oil monopoly
B) the ratification of the North American Free Trade Agreement
C) increased uncertainty from political shocks
D) decline in interest rates
12) Under the current managed float exchange rate regime, countries with balance of
payments deficits frequently do not want to see their currencies depreciate because it
makes ________ goods more expensive for ________ consumers and can stimulate
inflation
A) foreign; foreign
B) foreign; domestic
C) domestic; foreign
D) domestic; domestic
13) The global financial crisis showed the need for increased financial regulation,
however, too much or poorly designed regulation could
A) choke off financial innovation
B) increase the efficiency of the financial system
C) increase economic growth
D) increase international financial integration
14) The decade during which the growth rates of monetary aggregates diverged the
most is
A) the 1960s
B) the 1970s
C) the 1980s
D) the 1990s
15) The discount rate is kept ________ the federal funds rate because the Fed prefers
that
A) below ; banks can monitor each other for credit risk
B) below; the Fed can monitor banks for credit risk
C) above ; banks can monitor each other for credit risk
D) above; the Fed can monitor banks for credit risk
