1) If Treasury deposits at the Fed are predicted to ________, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves
A) increase; defensive; inject
B) decrease; defensive; inject
C) increase; dynamic; inject
D) decrease; dynamic; drain
2) Franco Modigliani has found that an expansionary monetary policy can cause stock
market prices to ________ and consumption to ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
3) The theory of portfolio choice indicates that factors affecting the demand for money
include
A) income
B) nominal interest rate
C) liquidity of other assets
D) all the above
4) Everything else held constant, an expansionary ________ policy will cause the
interest rate to rise, while an expansionary ________ policy will cause the interest rate
to fall
A) monetary; monetary
B) monetary; fiscal
C) fiscal; monetary
D) fiscal; fiscal
5) Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender’s relative lack of information about the borrower’s potential returns and
risks of his investment activities
B) the lender’s inability to legally require sufficient collateral to cover a 100% loss if
the borrower defaults
C) the borrower’s lack of incentive to seek a loan for highly risky investments
D) the lender’s inability to restrict the borrower from changing his behavior once given
a loan
6) An autonomous rise in ________ shifts the LM curve to the ________, everything
else held constant
A) net exports; right
B) net exports; left
C) money demand; right
D) money demand; left
7) Everything else held constant, when actual output exceeds the natural rate of output
________ aggregate supply ________
A) short-run; decreases
B) short-run; increases
C) long-run; increases
D) long-run; decreases
8) The classical economists’ conclusion that nominal income is determined by
movements in the money supply rested on their belief that ________ could be treated as
________ in the short run
A) velocity; constant
B) velocity; variable
C) money; constant
D) money; variable
9) The money multiplier is
A) negatively related to high-powered money
B) positively related to the excess reserves ratio
C) negatively related to the required reserve ratio
D) positively related to holdings of excess reserves
10) In the equation of exchange, the concept that provides the link between M and PY is
called
A) the velocity of money
B) aggregate demand
C) aggregate supply
D) the money multiplier
11) Under the Bretton Woods system, if IMF loans were insufficient to prevent
________ of a currency, then the country was allowed to devalue its currency by setting
a new, ________ exchange rate
A) depreciation; lower
B) depreciation; higher
C) appreciation; lower
D) appreciation; higher
12) Everything else held constant, an increase in the time deposit ratio will result in
________ in the M1 money multiplier and ________ in the M2 money multiplier
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
13) If the government finances its spending by selling bonds to the central bank, the
monetary base will ________ and the money supply will ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) not change; not change
14) The ________ is below the coupon rate when the bond price is ________ its par
value
A) yield to maturity; above
B) yield to maturity; below
C) discount rate; above
D) discount rate; below
15) The components of the US M1 money supply are demand and checkable deposits
plus
A) currency
B) currency plus savings deposits
C) currency plus travelers checks
D) currency plus travelers checks plus money market deposits
16) The interest rate on secondary credit is set ________ basis points ________ the
primary credit rate
A) 100; above
B) 100; below
C) 50; above
D) 50; below
17) If peanuts serve as a medium of exchange, a unit of account, and a store of value,
then peanuts are
A) bank deposits
B) reserves
C) money
D) loanable funds
18) According to aggregate demand and supply analysis, the favorable supply shock of
1995-1999 had the effect of
A) increasing aggregate output, lowering unemployment, and raising inflation
B) decreasing aggregate output, raising unemployment, and raising inflation
C) increasing aggregate output, lowering unemployment, and lowering inflation
D) decreasing aggregate output, raising unemployment, and lowering inflation
19) A bank’s commitment to provide a firm with loans up to pre-specified limit at an
interest rate that is tied to a market interest rate is called
A) an adjustable gap loan
B) an adjustable portfolio loan
C) loan commitment
D) pre-credit loan line