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1) In the Keynesian cross diagram, an increase in investment spending because
companies become more optimistic about investment profitability causes the aggregate
demand function to shift up, the equilibrium level of aggregate output to ________, and
the IS curve to shift to the ________, everything else held constant
A) rise; left
B) rise; right
C) fall; left
D) fall; right
2) If the interest rate on a bond is above the equilibrium interest rate, there is an excess
________ for bonds and the bond price will ________
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
3) Instrument independence is the ability of ________ to set monetary policy ________
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
4) Everything else held constant, which of the following does not cause aggregate
demand to increase?
A) An increase in net exports
B) An increase in government spending
C) An increase in taxes
D) An increase in consumer optimism
5) The finance of government spending through a Treasury sale of bonds which are then
purchased by the Fed
A) causes both reserves and the monetary base to rise
B) causes both reserves and the monetary base to decline
C) causes reserves to rise, but the monetary base to decline
D) has no net effect on the monetary base
6) Acquiring information on a bank's activities in order to determine a bank's risk is
difficult for depositors and is another argument for government
A) regulation
B) ownership
C) recall
D) forbearance
7) ________ in the foreign interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to depreciate, everything else held constant
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
8) An expansionary monetary policy may cause asset prices to rise, thereby reducing
the likelihood of financial distress and causing consumer durable and housing
expenditures to rise This monetary transmission mechanism is referred to as
A) the household liquidity effect
B) the wealth effect
C) Tobin's q theory
D) the cash flow effect
9) The yield to maturity for a perpetuity is a useful approximation for the yield to
maturity on long-term coupon bonds It is called the ________ when approximating the
yield for a coupon bond
A) current yield
B) discount yield
C) future yield
D) star yield
10) Everything else held constant, an increase in net taxes 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
11) If the money supply is $20 trillion and velocity is 2, then nominal GDP is
A) $2 trillion
B) $10 trillion
C) $20 trillion
D) $40 trillion
12) When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate demand curve shifts leftward
B) aggregate demand curve shifts rightward
C) output will be unchanged
D) both A and C
13) As the banking system in the United States evolves, it is expected that
A) the number and importance of small banks will increase
B) the number and importance of large banks will decrease
C) small banks will grow at the expense of large banks
D) the number and importance of large banks will increase
14) Which of the following is a potential operating instrument for the central bank?
A) The monetary base
B) The M1 money supply
C) Nominal GDP
D) The discount rate
15) Everything else held constant, an increase in government spending will cause
A) aggregate demand to increase
B) aggregate demand to decrease
C) the quantity of aggregate demand to increase
D) the quantity of aggregate demand to decrease
16) If the consumption function is expressed as C = a + mpc YD, then "mpc" represents
A) autonomous consumer expenditure
B) the marginal propensity to consume
C) the expenditure multiplier
D) disposable income
17) If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
A) 254
B) 267
C) 235
D) 0551
18) Keynes's model of the demand for money suggests that velocity is ________ related
to ________
A) positively; interest rates
B) negatively; interest rates
C) positively; bond values
D) positively; stock prices
19) The major provisions of the Competitive Equality Banking Act of 1987 include
A) expanding the responsibilities of the FDIC, which is now the sole administrator of
the federal deposit insurance system
B) the establishment of the Resolution Trust Corporation to manage and resolve
insolvent thrifts placed in conservatorship or receivership
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory
forbearance
D) prompt corrective action when a bank gets in trouble
20) Everything else held constant, an increase in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
