Assignment
Question 1
Which of the following is NOT considered to be a goal of monetary policy?
a. fair wages
b. high employment
c. economic growth
d. price stability
Question 2
Inflation is an economic problem because it
a. leads inevitably to unemployment.
b. makes prices less useful as signals for resource allocation.
c. leads to recession.
d. results in rapid increases in the money supply.
Question 3
An open market purchase
a. decreases the price of Treasury securities and also decreases their yield.
b. increases the price of Treasury securities and decreases their yield.
c. increases the price of Treasury securities and also increases their yield.
d. decreases the price of Treasury securities and increases their yield.
Question 4
The Fed can implement open market operations
a. more rapidly than changes in reserve requirements, but less rapidly than changes in the discount rate.
b. more rapidly than changes in the discount rate, but less rapidly than changes in reserve requirements.
c. less rapidly than either changes in the discount rate or changes in reserve requirements.
d. more rapidly than either changes in the discount rate or changes in reserve requirements.
Question 5
The Fed pledged to continue QE3 until:
a. inflation got out of control
b. real GDP and employment returned to more normal levels
c. the financial crisis was over
d. it was time to begin QE4
Question 6
Deliberate actions by a central bank to influence the exchange rate are known as
a. current account actions.
b. foreign-exchange market interventions.
c. dollar-value operations.
d. foreign-commerce maneuvers.
Question 7
An important problem facing the Fed is that
a. the goals for economic growth and price stability may conflict in the short run.
b. it lost effective control over the monetary base.
c. it has been given responsibility for meeting policy goals, but true control over monetary policy remains with Congress.
d. it has been given responsibility for meeting policy goals, but true control over monetary policy remains with the President.
Question 8
The impact lag facing the Fed is
a. the delay before open market operations are able to affect the monetary base.
b. the delay before the Fed's announcement of a new policy has an impact on the decisions of the public.
c. the time required for monetary policy changes to affect output, employment, and prices.
d. the delay before the impact of a recession on output and prices becomes clear to the Fed.
Question 9
International financial transactions are most likely to affect the U.S. monetary base when
a. the United States is in recession.
b. the United States is experiencing a severe inflation.
c. the Fed tries to influence the foreign-exchange value of the dollar.
d. interest rates in the United States are highly variable.
Question 10
If the U.S. current account balance is negative,
a. its financial account is likely to be positive.
b. its financial account is likely to be negative
c. it must use official settlements to balance its payments.
d. its balance of payments cannot be zero
Question 11
Which of the following expressions is correct?
a. AE = C + I + G - NX.
b. AE = C + I + G + NX.
c. AE = C + I + (G - T) + NX.
d. AE = C + I + (G - T) - NX.
Question 12
The aggregate demand curve illustrates the relationship between
a. the aggregate expenditure for goods and services, and the real interest rate.
b. the aggregate expenditure for goods and services, and the level of current output.
c. the level of current output and the real interest rate.
d. the aggregate expenditure for goods and services, and the price level.
Question 13
Which of the following will NOT shift the short-run aggregate supply function?
a. changes in labor costs
b. changes in the costs of non-labor inputs
c. changes in the price level
d. changes in the expected price level
Question 14
An increase in oil prices will
a. shift the short-run aggregate supply curve up and to the left.
b. shift the short-run aggregate supply curve down and to the right.
c. cause a movement along the short-run aggregate supply curve.
d. not affect the short-run aggregate supply curve.
Question 15
Which of the following would cause the long-run aggregate supply curve to shift?
a. an increase in the price level
b. a decrease in the expected price level
c. an increase in labor productivity
d. an autonomous increase in consumption spending
Question 16
Some economists have predicted that recent developments in energy production in the United States are estimated to result in all of the following EXCEPT:
a. millions of new jobs
b. the United States having the lowest energy costs of any country in the industrialized world
c. a substantial increase in GDP over time
d. significant increases in pollution
Question 17
Which of the following is most likely to have an impact on the growth of productivity?
a. a decrease in the price level
b. a decrease in real money balances
c. a decrease in the labor supply
d. an increase in the capital stock available to workers
Question 18
Monetary neutrality refers to the fact that changes in the money supply
a. affect output more in the long run than in the short run.
b. have no effect on output in the long run.
c. affect only output in the long run.
d. have a greater effect on prices in the short run than in the long run.
Question 19
The result of the supply shocks of 1973-1974 was to
a. reduce aggregate output and raise the price level.
b. reduce the price level and raise aggregate output.
c. reduce both aggregate output and the price level.
d. raise both aggregate output and the price level.
Question 20
The automatic mechanism can best be described as:
a. the process of the economy adjusting back to potential GDP without any action taken by the government
b. the result of monetary policy implemented by the Fed restoring full employment
c. how fiscal policy is used to return the economy to its potential
d. using rule-based policies to stabilize the economy
Question 21
If you buy a bond issued by Intel, the bond is a(n):
a. liability to Intel and an asset to you.
b. liability to you and an asset to Intel.
c. liability to both you and Intel.
d. asset to both you and Intel.
Question 22
In the United States, the lender of last resort is
a. Fannie Mae.
b. the Federal Reserve.
c. the Federal Deposit Insurance Corporation.
d. Securities and Exchange Commission.
Question 23
Money is a medium of exchange in that
a. money is generally accepted for buying and selling goods and services.
b. currency may be exchanged for gold at any national bank.
c. other assets may be better or worse in facilitating exchange than money.
d. it must maintain most of its value over time.
Question 24
Why has M2 grown more quickly than M1 in recent decades?
a. Currency in circulation has declined.
b. People own more shares of stock than in the past.
c. The amount of funds in CDs and money market mutual funds shares has grown faster than currency or checking deposits.
d. Most people use debit cards instead of checking accounts.
Question 25
A debt instrument represents
a. an ownership claim by the purchaser on the issuer.
b. a promise by a borrower to repay principal plus interest to a lender.
c. an attempt by a borrower in default to restore his or her credit.
d. a nontaxable asset, owned primarily by large corporations.
Question 26
A capital gain occurs when the
a. coupon rate increases.
b. current yield increases.
c. price of an asset increases.
d. yield to maturity increases.
Question 27
How is the interest rate that prevails in the bond market determined?
a. by the interaction of stock prices and bond prices
b. by the decision of the president, in consultation with Congress
c. by the demand for and supply of bonds
d. by the Board of Governors of the New York Stock Exchange
Question 28
How can a global savings glut affect the United States?
a. It can reduce the world real interest rate, thus encouraging borrowing by Americans.
b. It can increase the world real interest rate, thus encouraging saving by Americans.
c. It can reduce the supply of loanable funds for the United States.
d. It can reduce the demand for loanable funds for the United States.
Question 29
Hyperinflations are usually caused by large budget deficits financed by
a. selling bonds to private investors.
b. selling bonds to the central bank.
c. raising taxes.
d. borrowing from commercial banks.
Question 30
If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?
a. rise by 2%
b. fall by 2%
c. be cut in half
d. double in size
Question 31
When market participants have rational expectations,
a. they use all information available to them.
b. they only slowly adjust their expectations to news which could affect prices or returns.
c. they are less likely to make accurate forecasts than if they have adaptive expectations.
d. they are able to forecast interest rates more accurately than inflation rates.
Question 32
The efficient markets hypothesis implies that stock investments should have the same expected return after adjusting for
a. risk.
b. information costs.
c. liquidity.
d. all of the above.
Question 33
A bubble occurs when
a. the price of a stock is above its fundamental value.
b. inside information is used to make profits from trading a company's stock.
c. a company reports profits that are significantly above or below the expectations of financial analysts.
d. the futures price is greater than the price of the underlying asset.
Question 34
If the British pound depreciates against the U.S. dollar,
a. British businesses gain by an increase in the dollar price of exports to the United States.
b. British consumers gain by a decrease in the pound price of U.S. exports to Britain.
c. British consumers lose by an increase in the pound price of U.S. exports Britain.
d. U.S. consumers lose by an increase in the dollar price of British exports to the United States.
Question 35
In what way is a stronger yen/weaker dollar a burden for Japanese exporters?
a. They received dollars when they sell goods but most of their costs of production are in yen.
b. They receive yen when they sell goods but most of their costs of production are in dollars.
c. The price of their exports will decline, resulting in lower profits.
d. The stronger yen is likely to increase Japanese inflation, resulting in lower profits.
Question 36
When it takes more euros to purchase a dollar, the dollars is said to have:
a. depreciated
b. appreciated
c. it depends on whether one is using direct or indirect quotations
d. it depends on whether one is considering cross rates or exchange rates
Question 37
Financial intermediaries emerged
a. to make loans to governments.
b. to provide a market for municipal bonds.
c. to reduce transactions costs for small savers and borrowers.
d. to reduce transactions costs for traders in stocks and bonds.
Question 38
Economies of scale are
a. charges to savers and borrowers imposed by banks in exchange for reducing transactions costs.
b. the reduction in costs per unit that accompanies an increase in volume.
c. decreases in transactions costs that occur as information costs increase.
d. decreases in information costs that occur as transactions costs increase.
Question 39
Which of the following is an example of adverse selection?
a. A homeowner with a large fire insurance policy allows the wiring in her house to deteriorate.
b. A woman with a large life insurance policy takes up sky diving.
c. Your brother-in-law borrows $20,000 from you to open a pizza parlor, but spends it gambling at the racetrack instead.
d. A man with a bad heart condition buys a large life insurance policy.
Question 40
Which of the following is most likely to lead to an increase in the value of the dollar?
a. decline in U.S. interest rates
b. increase in imports to the United States
c. decrease in exports from the United States
d. increase in U.S. interest rates compared to foreign interest rates
Question 41
Which of the following things do banks do with the funds they acquire from savers?
a. invest in corporate stock
b. invest in corporate bonds
c. make loans to individuals
d. all of the above
Question 42
Bank borrowing from the Fed is referred to as:
a. federal funds
b. discount loans
c. repurchase agreements
d. reverse repurchase agreements
Question 43
Congress created the Federal Reserve System
a. to serve as a lender of last resort.
b. to process the receipt of taxes received by the Internal Revenue Service.
c. to regulate the value of the U.S. dollar against foreign currencies.
d. to provide a source of mortgage loans to the residential housing market.
Question 44
The original intention of the Fed's role as lender of last resort was to make loans to banks that were
a. not illiquid nor insolvent.
b. illiquid, but not insolvent.
c. insolvent, but not illiquid.
d. both illiquid and insolvent.
Question 45
Why might a nation seek to maintain a pegged exchange rate?
a. It makes business planning easier for firms involved in the global economy.
b. It removes the need to intervene in the foreign exchange market.
c. It ensures that the exchange rate will remain at its equilibrium.
d. It makes their currency more attractive on the foreign exchange market.
Question 46
The Fed does not have to go through the normal congressional appropriations process because
a. its expenses are very small.
b. it was given enough funds at the time of its founding to provide for its expenses indefinitely.
c. it is self financing.
d. it is not part of the legislative branch of the federal government.
Question 47
The main argument in favor of Fed independence is that
a. interest rates would probably be lower if Congress controlled the Fed; thus hurting savers.
b. the Constitution requires it.
c. monetary policy is too important and too technical to be determined in the political arena.
d. congressional control of the Fed was tried during the 1960s and did not work well.
Question 48
Which of the following is the most common goal for central banks of industrialized countries?
a. high employment
b. high economic growth
c. low interest rates
d. low inflation
Question 49
What is the maximum amount a bank can lend?
a. its total reserves
b. its excess reserves
c. its excess reserves divided by the required reserve ratio
d. the value of its checkable deposits times the required reserve ratio
Question 50
If the Fed purchases $1 million worth of securities and the required reserve ratio is 8%, by how much will deposits increase (assuming no change in excess reserves or the public's currency holdings)?
a. rise by $1 million
b. decline by $1 million
c. rise by $8 million
d. rise by $12.5 million.