1) Bonds that are sold in a foreign country and are denominated in the country’s
currency in which they are sold are known as
A) foreign bonds
B) Eurobonds
C) equity bonds
D) country bonds
2) The actual execution of open market operations is done at
A) the Board of Governors in Washington, DC
B) the Federal Reserve Bank of New York
C) the Federal Reserve Bank of Philadelphia
D) the Federal Reserve Bank of Boston
3) For small investors, the best way to pursue a “buy and hold” strategy is to
A) buy and sell individual stocks frequently
B) buy no-load mutual funds with high management fees
C) buy no-load mutual funds with low management fees
D) buy load mutual funds
4) An advantage to exchange-rate targeting is it helps keep inflation under control by
tying the inflation rate for ________ traded goods to what is found in the ________
country
A) domestically; anchor
B) domestically, domestic
C) internationally; anchor
D) internationally; domestic
5) The decline in stock prices from 2000 through 2002
A) increased individuals’ willingness to spend
B) had no effect on individual spending
C) reduced individuals’ willingness to spend
D) increased individual wealth
6) If an economy has aggregate output of $20 trillion, then aggregate income is
A) $10 trillion
B) $20 trillion
C) $30 trillion
D) $40 trillion
7) The Fed accidentally discovered open market operations in the early
A) 1920s
B) 1910s
C) 1900s
D) 1890s
8) Prices of money market instruments undergo the least price fluctuations because of
A) the short terms to maturity for the securities
B) the heavy regulations in the industry
C) the price ceiling imposed by government regulators
D) the lack of competition in the market
9) When money prices are used to facilitate comparisons of value, money is said to
function as a
A) unit of account
B) medium of exchange
C) store of value
D) payments-system ruler
10) When the domestic currency is initially overvalued in a fixed exchange rate regime,
the central bank must intervene in the foreign exchange market to ________ the
domestic currency, thereby allowing the money supply to ________
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
11) Everything else held constant, an increase in net exports ________ aggregate
________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
12) The primary indicator of the Fed’s stance on monetary policy is
A) the discount rate
B) the federal funds rate
C) the growth rate of the monetary base
D) the growth rate of M2
13) Milton Friedman called the response of lower interest rates resulting from an
increase in the money supply the ________ effect
A) liquidity
B) price level
C) expected-inflation
D) income
14) Explain the law of one price and the theory of purchasing power parity Why doesn’t
purchasing power parity explain all exchange rate movements? What factors determine
long-run exchange rates?
15) Using the ISLM model, explain and show graphically the effect of a fiscal
expansion when the demand for money is completely insensitive to changes in the
interest rate What is this effect called?
16) Explain two concepts of central bank independence Is the Fed politically
independent? Why do economists think central bank independence is important?
17) Explain and show graphically the effect of an increase in the expected future
exchange rate on the equilibrium exchange rate, everything else held constant
18) Suppose Barbara looks out in the morning and sees a clear sky so decides that a
picnic for lunch is a good idea Last night the weather forecast included a 100% chance
of rain by midday but Barbara did not watch the local news program Is Barbara’s
prediction of good weather at lunch time rational? Why or why not?
19) From 1980-1985, the dollar strengthened in value against other currencies Who was
helped and who was hurt by this strong dollar?
20) Explain the principal-agent problem as it pertains to equity contracts
21) Banking crises have occurred throughout the world What similarities do we find
when we look at the different countries?
22) Explain the Keynesian theory of money demand What motives did Keynes think
determined money demand? What are the two reasons why Keynes thought velocity
could not be treated as a constant?
23) Discuss three channels by which monetary policy affects stock prices and aggregate
spending