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1) In the Gordon growth model, a decrease in the required rate of return on equity
A) increases the current stock price
B) increases the future stock price
C) reduces the future stock price
D) reduces the current stock price
2) On paper, the Bank of Canada has ________ instrument independence and ________
goal independence when compared to the Federal Reserve System
A) less; less
B) less; more
C) more; less
D) more; more
3) The effect of an open market purchase on reserves differs depending on how the
seller of the bonds keeps the proceeds If the proceeds are kept in ________, the open
market purchase has no effect on reserves; if the proceeds are kept as ________,
reserves increase by the amount of the open market purchase
A) deposits; deposits
B) deposits; currency
C) currency; deposits
D) currency; currency
4) Between 1950 and 1980 in the US, interest rates trended upward During this same
time period,
A) the rate of money growth declined
B) the rate of money growth increased
C) the government budget deficit (expressed as a percentage of GNP) trended
downward
D) the aggregate price level declined quite dramatically
5) In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10
B) $100
C) $100 times the reciprocal of the required reserve ratio
D) $100 times the required reserve ratio
6) The financial intermediaries that the average person interacts with most frequently
are
A) exchanges
B) over-the-counter markets
C) finance companies
D) banks
7) The rate of inflation tends to remain constant when
A) the unemployment rate is above the NAIRU
B) the unemployment rate equals the NAIRU
C) the unemployment rate is below the NAIRU
D) the unemployment rate increases faster than the NAIRU increases
8) When financial institutions go on a lending spree and expand their lending at a rapid
pace they are participating in a
A) credit boom
B) credit bust
C) deleveraging
D) market race
9) When banks involved in trading activities attempt to outguess markets, they are
A) forecasting
B) diversifying
C) speculating
D) engaging in riskless arbitrage
10) The demand for houses decreases, all else equal, when
A) wealth increases
B) real estate prices are expected to increase
C) stock prices become more volatile
D) gold prices are expected to increase
11) Under the Bretton Woods system, the United States was designated as the
A) reserve-currency country
B) fixed-rate country
C) par-standard country
D) dollar-standard country
12) Factors that influenced planned investment spending include:
A) real interest rates
B) financial frictions
C) emotional waves of optimism and pessimism
D) all of the above
E) A and C
13) The most important advantage of discount policy is that the Fed can use it to
A) precisely control the monetary base
B) perform its role as lender of last resort
C) control the money supply
D) punish banks that have deficient reserves
