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1) If float is predicted to decrease because of good weather, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
2) Bank capital is equal to ________ minus ________
A) total assets; total liabilities
B) total liabilities; total assets
C) total assets; total reserves
D) total liabilities; total borrowings
3) In the Governing Council, the decision of what policy to implement is made by
A) majority vote of the Executive Board members
B) majority vote of the heads of the National Banks
C) consensus
D) majority vote of all members of the Governing Council
4) If the deficit is financed by selling bonds to the ________, the money supply will
________, increasing aggregate demand, and leading to a rise in the price level
A) public; rise
B) public; fall
C) central bank; rise
D) central bank; fall
5) A central bank's attempt to prevent an appreciation of its currency can stimulate
domestic inflation if the ________ of its currency leads to ________ international
reserves which ________ the monetary base
A) purchase; higher; increases
B) purchase; lower; decreases
C) sale; lower; decreases
D) sale; higher; increases
6) The condition that states that the domestic interest rate equals the foreign interest rate
minus the expected appreciation of the domestic currency is called
A) the purchasing power parity condition
B) the interest parity condition
C) money neutrality
D) the theory of foreign capital mobility
7) The formula linking the money supply to the monetary base is
A) M = m/MB
B) M = m MB
C) m = M MB
D) MB = M m
E) M = m + MB
8) During the boom years of the 1920s, bank failures were quite
A) uncommon, averaging less than 30 per year
B) uncommon, averaging less than 100 per year
C) common, averaging about 600 per year
D) common, averaging about 1000 per year
9) Because sterilized interventions mean offsetting open market operations, there is no
impact on the monetary base and the money supply, and therefore a sterilized
intervention
A) causes the exchange rate to overshoot in the short run
B) causes the exchange rate to undershoot in the short run
C) causes the exchange rate to depreciate in the short run, but has no effect on the
exchange rate in the long run
D) has no effect on the exchange rate
10) Everything else held constant, if the expected return on US 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 US Treasury
bonds and the demand for corporate bonds ________
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
11) Everything else held constant, an increase in autonomous consumer spending will
cause the IS curve to shift to the ________ and aggregate demand will ________
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
12) Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds
B) assuring that the swings in the business cycle are less pronounced
C) assuring that governments need never resort to printing money
D) providing a risk-free repository of spending power
13) The primary purpose of deposit insurance is to
A) improve the flow of information to investors
B) prevent banking panics
C) protect bank shareholders against losses
D) protect bank employees from unemployment
14) When Americans or foreigners expect the return on ________ assets to be high
relative to the return on ________ assets, there is a higher demand for dollar assets and
a correspondingly lower demand for foreign assets
A) dollar; dollar
B) dollar; foreign
C) foreign; dollar
D) foreign; foreign
15) An appreciation of the US dollar makes foreign goods cheaper relative to American
goods, resulting in a ________ in net exports in the US and a ________ shift of the IS
curve in the US, everything else held constant
A) fall; leftward
B) rise; leftward
C) fall; rightward
D) rise; rightward
