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1) Recent research indicates that inflation performance (low inflation) has been found
to be best in countries with
A) the most independent central banks
B) political control of monetary policy
C) money financing of budget deficits
D) a policy of always keeping interest rates low
2) Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent Given this information, we can say First
National Bank has ________ million dollars in vault cash
A) one
B) two
C) nine
D) ten
3) Rational expectations forecast errors will on average be ________ and therefore
________ be predicted ahead of time
A) positive; can
B) positive; cannot
C) negative; can
D) zero; cannot
4) Which of the following is least likely to lead to inflationary monetary policy?
A) Rising unemployment
B) Expanding federal budget deficits
C) Declining oil prices
D) Conflict in the Middle East
5) The equation of exchange is
A) M P = V Y
B) M + V = P + Y
C) M + Y = V + P
D) M V = P Y
6) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the right and the domestic currency to ________, everything
else held constant
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
7) Which of the following are transaction deposits?
A) Savings accounts
B) Small-denomination time deposits
C) Negotiable order of withdraw accounts
D) Certificates of deposit
8) Government regulations designed to reduce the moral hazard problem include
A) laws that force firms to adhere to standard accounting principles
B) light sentences for those who commit the fraud of hiding and stealing profits
C) state verification subsidies
D) state licensing restrictions
9) The inaccurate ratings provided by credit-rating agencies
A) meant that investors did not have the information they needed to make informed
choices about their investments
B) were irrelevant since no one pays any attention to them anyway
C) meant that investors actually took on less risk
D) will not be a problem when determining capital requirements under Basel 2
10) Keynes hypothesized that the speculative component of money demand was
primarily determined by the level of
A) interest rates
B) velocity
C) income
D) stock market prices
11) The Federal Reserve has had the authority to vary reserve requirements since the
A) 1920s
B) 1930s
C) 1940s
D) 1950s
12) Monetary policy is considered time-inconsistent because
A) of the lag times associated with the implementation of monetary policy and its effect
on the economy
B) policymakers are tempted to pursue discretionary policy that is more contractionary
in the short run
C) policymakers are tempted to pursue discretionary policy that is more expansionary
in the short run
D) of the lag times associated with the recognition of a potential economic problem and
the implementation of monetary policy
13) Suppose that the European Central Bank conducts a main refinancing sale
Everything else held constant, this would cause the demand for US assets to ________
and the US dollar will ________
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
