Archives: Quiz

An increase in the quantity of money supplied shifts the money supply curve to the ________ and the LM curve to the ________, everything else held constant. A) right; left B) right; right C) left; left D) left; right Answer: […]

If a central bank does not want to allow the domestic currency to depreciate, it will ________ international reserves by purchasing its currency, thereby ________ the monetary base and increasing the risk of higher unemployment. A) lose; decreasing B) lose; […]

Of the three motives for holding money suggested by Keynes, which did he believe to be the most sensitive to interest rates? A) The transactions motive. B) The precautionary motive. C) The speculative motive. D) The altruistic motive. Answer: In […]

The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope. A) IS; upward B) IS; downward C) LM; downward D) LM; upward Answer: The major provisions of the Competitive Equality Banking […]

In Keynes’s liquidity preference framework, if there is excess demand for money, there is A) an excess demand for bonds. B) equilibrium in the bond market. C) an excess supply of bonds. D) too much money. Answer: Everything else held […]

A problem with barter exchange when there are many goods is that in a barter system A) transactions costs are minimized. B) there exists a multiple number of prices for each good. C) there is only one store of value. […]

Holding many risky assets and thus reducing the overall risk an investor faces is called A) diversification. B) foolishness. C) risk acceptance. D) capitalization. Answer: Everything else held constant, aggregate demand increases when A) taxes are cut. B) government spending […]

Arguments for discretionary policies include A) policy rules can be too rigid because they cannot foresee every contingency. B) the time-inconsistency problem can lead to poor economic outcomes. C) discretionary policies pursue overly expansionary monetary policies to boost employment in […]

Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run, but in the long-run the only […]

Both the CAPM and APT suggest that an asset should be priced so that it has a higher expected return A) when it has a greater systematic risk. B) when it has a greater risk in isolation. C) when it […]

Because policies in the United States were too expansionary from 1965 through 1973, the U.S. suffered A) demand-pull inflation. B) cost-push inflation, as workers sought higher wages in order to keep up with inflation. C) both demand-pull and cost-push inflation. […]

If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a ________ slope. A) steep upward B) slight upward C) flat D) downward Answer: An $8,000 […]

Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks. A) reduce; screen B) increase; screen C) reduce; increase D) increase; increase Answer: Only when budget deficits are financed by money creation does […]

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. Answer: In the […]

Everything else held constant, a decrease in net exports ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply Answer: The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from A) issuing equity […]

In a one-period valuation model, a decrease in the required return on investments in equity causes a(n) ________ in the ________ price of a stock. A) increase; current B) increase; expected sales C) decrease; current D) decrease; expected sales Answer: […]

The quantity interest income minus interest expenses divided by assets is a measure of bank performance known as A) operating income. B) net interest margin. C) return on assets. D) return on equity. Answer: The primary difference between the “payoff” […]

Two reasons for an industrialized country to adopt an exchange-rate targeting regime are if the country ________ conduct successful monetary policy on its own, and if the country wants to ________ integration of the domestic economy with its neighbors. A) […]

A budget ________ occurs when government expenditures exceed tax revenues for a particular time period. A) deficit B) surplus C) surge D) surfeit Answer: Keynes argued that when interest rates were low relative to some normal value, people would expect […]

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as A) M = m × (MBn – BR). B) M = m × (MBn + BR). C) M = m + (MBn […]

The velocity of money is A) the average number of times that a dollar is spent in buying the total amount of final goods and services. B) the ratio of the money stock to high-powered money. C) the ratio of […]

Savings and loan regulators allowed S&Ls to include in their capital calculations a high value for intangible capital called A) goodwill. B) salvation. C) kindness. D) retribution. Answer: When the Fed buys $100 worth of bonds from First National Bank, […]

Tobin’s model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________. A) medium of exchange; transaction costs B) medium of exchange; risk C) store of wealth; transaction costs D) […]

The ________ is defined as the payments to the owner plus the change in a security’s value expressed as a fraction of the security’s purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate […]

Keynes’s liquidity preference theory indicates that the demand for money is ________ related to ________. A) negatively; interest rates B) positively; interest rates C) negatively; income D) negatively; wealth Answer: An increase in interest rates might ________ saving because more […]

In the figure above, the decrease in the interest rate from i1 to i2 can be explained by A) a decrease in money growth. B) a decline in the expected price level. C) an increase in income. D) an increase […]

According to the liquidity preference theory, the demand for money is ________ related to aggregate output and ________ related to interest rates. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively Answer: Under the European System of […]

The Lucas critique is an attack on the usefulness of A) conventional econometric models as forecasting tools. B) conventional econometric models as indicators of the potential impacts on the economy of particular policies. C) rational expectations models of macroeconomic activity. […]

Money market mutual fund shares function like A) checking accounts that pay interest. B) bonds. C) stocks. D) currency. Answer: The Governing Council usually meets ________ times a year. A) four B) six C) eight D) twelve Answer: D Everything […]

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets. A) reduces; reduces B) increases; increases […]

In the generalized dividend model, the current stock price is the sum of A) the actual value of the future dividend stream. B) the present value of the future dividend stream. C) the present value of the future dividend stream […]

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant? A) wealth B) expected returns C) risk D) liquidity Answer: First National Bank If […]

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant. A) depreciate; lower B) appreciate; lower C) depreciate; higher D) appreciate; higher Answer: The […]

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________. A) decreases; decreases; increases B) decreases; decreases; decreases C) increases; decreases; increases D) increases; increases; […]

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is A) -10 percent. B) -5 percent. C) 0 percent. D) 5 percent. Answer: Using the Gordon growth model, a stock’s […]

When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is ________ than the other money supply effects and there is ________ adjustment of expected inflation. A) larger; fast B) larger; […]

The monetary base consists of A) currency in circulation and Federal Reserve notes. B) currency in circulation and the U.S. Treasury’s monetary liabilities. C) currency in circulation and reserves. D) reserves and Federal Reserve Notes. Answer: A ________ pays out […]

A decrease in unplanned inventory investment for the entire economy equals the excess of A) output over aggregate supply. B) output over aggregate demand. C) aggregate supply over output. D) aggregate demand over output. Answer: If your nominal income in […]

Money market mutual funds A) function as interest-earning checking accounts. B) are legally deposits. C) are subject to reserve requirements. D) have an interest-rate ceiling. Answer: The high growth rate in China in the last twenty years has similarities to […]

Because the United States was the reserve-currency country under the Bretton Woods system, it could run large balance of payments ________ without ________ significant amounts of international reserves. A) deficits; losing B) deficits; gaining C) surpluses; losing D) surpluses; gaining […]

Which of the following are true for discount bonds? A) A discount bond is bought at par. B) The purchaser receives the face value of the bond at the maturity date. C) U.S. Treasury bonds and notes are examples of […]

The elimination of unexploited profit opportunities requires that ________ market participants be well informed. A) all B) a few C) zero D) many Answer: As information technology improves, the lending role of financial institutions such as banks should A) increase […]

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? A) A bond with one year to maturity B) A bond with […]

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 ________, the equilibrium level of aggregate output to rise, and the IS curve to shift […]

If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 5 percent. B) 10 percent. C) 50 percent. D) 100 percent. Answer: In which of the following situations would […]

State whether the following statement is true or false AND explain why: “A decrease in the discount rate will always cause a decrease in the federal reserve funds rate.” Answer: State whether the following statement is true or false AND […]

A small open economy (a) is unable to affect the world real interest rate by its borrowing and lending decisions. (b) will always be a net borrower from abroad. (c) will always be a net lender abroad. (d) is almost […]

In the bond market, the buyer is considered to be (a) the lender. (b) the borrower. (c) the lender or the borrower depending upon the use to which the funds are put. (d) the lender or the borrower depending upon […]

Many economists believe that changes in the money supply (a) affect the real economy in the short run, but not in the long run. (b) affect the real economy in the long run, but not in the short run. (c) […]

Bank holding companies are supervised by (a) state banking authorities in the state in which the holding company is chartered. (b) the Office of the Comptroller of the Currency. (c) the Federal Reserve System. (d) the Office of Thrift Supervision. […]