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1) Everything else held constant, when the government has higher budget deficits
A) the demand curve for bonds shifts to the left and the interest rate rises
B) the demand curve for bonds shifts to the left and the interest rate falls
C) the supply curve for bonds shifts to the right and the interest rate falls
D) the supply curve for bonds shifts to the right and the interest rate rises
2) In the model of the money supply process for M2, the relationship between
checkable deposits and the M2 money supply is represented by
A) D = M2
B) D = (1 + c + t + mm) M2
C) M2 = D
D) M2 =
3) The upward and downward movement of aggregate output produced in the economy
is referred to as the
A) roller coaster
B) see saw
C) business cycle
D) shock wave
4) Everything else held constant, if a central bank makes a sterilized sale of foreign
assets, then the domestic currency will
A) appreciate
B) depreciate
C) either appreciate, depreciate, or remain constant
D) not be affected
5) If the Fed wants to permanently lower interest rates, then it should raise the rate of
money growth if
A) there is fast adjustment of expected inflation
B) there is slow adjustment of expected inflation
C) the liquidity effect is smaller than the expected inflation effect
D) the liquidity effect is larger than the other effects
6) Keynes argued that when interest rates were high relative to some normal value,
people would expect bond prices to ________, so the quantity of money demanded
would ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
7) When the expected inflation rate increases, the demand for bonds ________, the
supply of bonds ________, and the interest rate ________, everything else held
constant
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
8) Which of the following statements concerning bank regulation in the United States is
true?
A) The Office of the Comptroller of the Currency has the primary responsibility for
state banks that are members of the Federal Reserve System
B) The Federal Reserve and the state banking authorities jointly have responsibility for
the 900 state banks that are members of the Federal Reserve System
C) The Office of the Comptroller of the Currency has sole regulatory responsibility
over bank holding companies
D) The state banking authorities have sole regulatory responsibility for all state banks
9) The Lucas critique indicates that
A) advocates of discretionary policies' criticisms of rational expectations models are
well-founded
B) advocates of discretionary policies' criticisms of rational expectations models are not
well-founded
C) expectations are important in determining the outcome of a discretionary policy
D) expectations are not important in determining the outcome of a discretionary policy
10) Since 1974, commercial banks importance as a source of funds for nonfinancial
borrowers
A) has shrunk dramatically, from around 40 percent of total credit advanced to around
25 percent by 2011
B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50
percent by 2011
C) has expanded dramatically, from around 50 percent of total credit advanced to above
70 percent by 2011
D) has expanded dramatically, from around 30 percent of total credit advanced to above
50 percent by 2011
11) ________ are short-term loans in which Treasury bills serve as collateral
A) Repurchase agreements
B) Negotiable certificates of deposit
C) Federal funds
D) US government agency securities
12) Suppose that there is a negative aggregate demand shock and the central bank
commits to an inflation rate target If the commitment is credible, then
A) the public's expected inflation will remain unchanged
B) the short-run aggregate supply curve will rise
C) over time inflation will fall
D) all of the above
E) both A and C
13) If expectations are formed adaptively, then people
A) use more information than just past data on a single variable to form their
expectations of that variable
B) often change their expectations quickly when faced with new information
C) use only the information from past data on a single variable to form their
expectations of that variable
D) never change their expectations once they have been made
