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Banking
Q:
If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.
Q:
If a household invests in corporate securities and does not supervise how the funds are invested or used by the corporation, the risk of not earning the desired return or not having the funds returned increase.
Q:
Financial institutions act as intermediaries between suppliers and demanders of money.
Q:
As of 2012, U.S. FIs held assets totaling over $27 trillion
Q:
Currently (2012) J.P. Morgan Chase is the largest bank holding company in the world and operations in 60 countries.
Q:
In the basic closed-economy ISLM model, the IS curve can be described by an equation where
A. output is a function of consumption.
B. money is a function of interest rates.
C. output is a function of money.
D. output is a function of interest rates.
Q:
In the basic closed-economy ISLM model, the money demand is a function of
A. output.
B. money supply.
C. interest rates.
D. both A and C.
Q:
In the basic closed-economy ISLM model, the goods market equilibrium condition is
A. output = consumption + investment + government spending.
B. output = consumption + investment + government spending - tax.
C. output = consumption + investment + government spending + net export.
D. output = potential output.
Q:
Which of the followings does NOT describe the money market in the ISLM model?
A. money demand function
B. investment function
C. money market equilibrium condition
D. money supply
Q:
Which of the followings does NOT describe the goods market in the ISLM model?
A. consumption function
B. investment function
C. government spending and tax
D. money supply
Q:
Which of the followings does NOT describe the goods market in the ISLM model?
A. consumption function
B. investment function
C. government spending and tax
D. money demand function
Q:
In the basic closed-economy ISLM model, the money market can be described by the
A. money demand function.
B. money supply.
C. money market equilibrium condition.
D. all of the above.
Q:
In the basic closed-economy ISLM model, the goods market can be described by the
A. consumption function.
B. investment function.
C. government spending and tax.
D. goods market equilibrium condition.
E. all of the above.
Q:
Using the long-run ISLM model, explain and demonstrate graphically the neutrality of money, for the case of an increase in the money supply.
Q:
If the price level increases, everything else held constant, the ________ curve shifts to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Q:
In the long-run the ISLM model predicts that ________ can change real output.
A. only monetary policy
B. only fiscal policy
C. both monetary and fiscal policy
D. neither monetary nor fiscal policy
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of an autonomous fall in consumption expenditure is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of a fall in net exports is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of an autonomous increase in investment is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of a tax cut is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of a cut in government spending is to ________ real output and ________ the interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of a contractionary fiscal policy is to ________ real output and ________ the interest rate.
A. not change; not change
B. decrease; decrease
C. decrease; not change
D. not change; decrease
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of an expansionary fiscal policy is to ________ real output and ________ the interest rate.
A. increase; increase
B. not change; not change
C. increase; not change
D. not change; increase
Q:
The long-run neutrality of money refers to the fact that in the long run, monetary policy
A. changes only real output.
B. changes only the real interest rate.
C. changes both real output and the real interest rate.
D. has no effect on either real output or the real interest rate.
Q:
In the long-run ISLM model and with everything else held constant, the long-run effect of an expansionary monetary policy is to
A. increase real output and the interest rate.
B. not change either real output or the interest rate.
C. increase real output and leave the interest rate unchanged.
D. increase the interest rate and leave real output unchanged.
Q:
In the long-run ISLM model and with everything else held constant, an increase in the money supply leaves the level of output and interest rates unchanged, an outcome called
A. interest rate overshooting.
B. long-run money neutrality.
C. long-run crowding out.
D. the long-run Phillips curve.
Q:
In the long-run ISLM model and with everything else held constant, as long as the level of output ________ the natural rate level, the price level will continue to ________, shifting the LM curve to the ________, until finally output is back at the natural rate level.
A. exceeds; rise; right
B. exceeds; fall; left
C. remains below; fall; right
D. remains below; rise; left
Q:
An autonomous rise in ________ shifts the LM curve to the ________, everything else held constant.
A. net exports; right
B. net exports; left
C. money demand; right
D. money demand; left
Q:
As bonds become a riskier asset, the demand for money ________ and, all else constant, the equilibrium interest rate ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Q:
An autonomous increase in money demand, other things equal, shifts the ________ curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Q:
An autonomous decrease in money demand, other things equal, shifts the ________ curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Q:
When the central bank ________ the money supply, the LM curve shifts to the right, interest rates ________, and equilibrium aggregate output ________, everything else held constant.
A. increases; fall; increases
B. increases; rise; decreases
C. decreases; rise; decreases
D. decreases; fall; increases
Q:
An increase in the money supply shifts the LM curve to the right, causing the interest rate to ________ and output to ________, everything else held constant.
A. rise; rise
B. rise; fall
C. fall; rise
D. fall; fall
Q:
An increase in the money ________ shifts the LM curve to the ________, causing the interest rate to fall and output to rise, everything else held constant.
A. demand; right
B. demand; left
C. supply; right
D. supply; left
Q:
A decline in the money supply shifts the LM curve to the left, causing the interest rate to ________ and output to ________, everything else held constant.
A. rise; rise
B. rise; fall
C. fall; rise
D. fall; fall
Q:
A decline in the money ________ shifts the LM curve to the ________, causing the interest rate to rise and output to fall, everything else held constant.
A. demand; right
B. demand; left
C. supply; right
D. supply; left
Q:
A decrease 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
Q:
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
Q:
________ imposes a conceptual structure and inherent discipline on policy makers, but without eliminating all flexibility.
A. Constrained discretion
B. A policy rule
C. A discretionary policy
D. The Taylor rule
Q:
Arguments for discretionary policies include
A. policy rules can be too rigid because they cannot foresee every contingency.
B. policy rules do not easily incorporate the use of judgment.
C. discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.
D. discretion enables policy makers to change policy settings when an economy undergoes structural changes.
E. all of the above.
Q:
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 the short run but generate higher inflation in the long run.
D. all of the above.
Q:
Arguments for adopting a policy rule include
A. discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.
B. discretion enables policy makers to change policy settings when an economy undergoes structural changes.
C. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
D. all of the above.
Q:
Arguments for adopting a policy rule include
A. the time-inconsistency problem can lead to poor economic outcomes.
B. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
C. policy makers and politicians cannot be trusted.
D. all of the above.
Q:
A policy in which the money supply is kept growing at a constant rate regardless of the state of the economy is
A. a Taylor rule.
B. a discretionary policy.
C. a policy rule advocated by monetarists.
D. advocated by activists.
Q:
According to the Lucas critique, if past increases in the short-term interest rate have always been temporary, thenA. the term-structure relationship using past data will then show only a weak effect of changes in the short-term interest rate on the long-term rate.B. the term-structure relationship using past data will show no effect of changes in the short-term interest rate on the long-term rate.C. one cannot predict the term-structure relationship as it depends on expectations.D. the term-structure relationship using past data will nevertheless show a strong effect of changes in the short-term interest rate on the long-term rate because of a change in the way expectations are formed.
Q:
A rise in short-term interest rates that is believed to be only temporary
A. is likely to have a significant effect on long-term interest rates.
B. will have a bigger impact on long-term interest rates than if the rise in short-term rates had been permanent.
C. is likely to have only a small impact on long-term interest rates.
D. cannot possibly affect long-term interest rates.
Q:
The interest rate thought to have the most important impact on aggregate demand is the
A. short-term interest rate.
B. T-bill rate.
C. rate on 90-day CDs.
D. long-term interest rate.
Q:
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.
D. the relationship between the quantity theory of money and aggregate demand.
Q:
The Lucas critique indicates that
A. advocates of discretionary policies' criticisms of rational expectations models are well-founded.
B. advocates of discretionary policies' criticisms of rational expectations models are not well-founded.
C. expectations are important in determining the outcome of a discretionary policy.
D. expectations are not important in determining the outcome of a discretionary policy.
Q:
The rational expectations hypothesis implies that when macroeconomic policy changes
A. the economy will become highly unstable.
B. the way expectations are formed will change.
C. people will be slow to catch on to the change.
D. people will make systematic mistakes.
Q:
Lucas argues that when policies change, expectations will change thereby
A. changing the relationships in econometric models.
B. causing the government to abandon its discretionary stance.
C. forcing the Fed to keep its deliberations secret.
D. making it easier to predict the effects of policy changes.
Q:
The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as
A. the monetarist revolution.
B. the Lucas critique.
C. public choice theory.
D. new Keynesian theory.
Q:
Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies, most economists agree that
A. stabilization policies proved more difficult in practice than many economists had expected.
B. stabilization policies proved not to be inflationary.
C. the nondiscretionary policymakers were right in believing that the private economy is inherently stable.
D. the discretionary policymakers were right in believing that the private economy is inherently stable.
Q:
Everything else held constant, an increase in autonomous consumer spending 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
Q:
Everything else held constant, an autonomous easing of monetary policy 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.
Q:
Everything else held constant, an autonomous tightening of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to increase.
D. aggregate demand to decrease.
Q:
Everything else held constant, an autonomous easing of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to decrease.
D. aggregate demand to increase.
Q:
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.
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A. raise; lowering
B. raise; raising
C. reduce; lowering
D. reduce; raising
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A. real; lowering
B. real; raising
C. nominal; lowering
D. nominal; raising
Q:
In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output.
A. higher; raise; lowering
B. lower; raise; lowering
C. higher; lower; lowering
D. higher; lower; raising
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A. there was an upward movement along the monetary policy curve.
B. there was a downward movement along the monetary policy curve.
C. the monetary policy curve shifted upward.
D. the monetary policy curve shifted downward.
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A. the Fed pursued an autonomous monetary policy tightening.
B. the Fed pursued an autonomous monetary policy easing.
C. the Fed had an automatic negative response to inflation based on the Taylor rule.
D. the Fed had an automatic positive response to inflation based on the Taylor rule.
Q:
The Fed's policy actions of reacting to higher inflation by raising the real interest rate during 2004-2006 were
A. upward movements along the monetary policy curve.
B. downward movement along the monetary policy curve.
C. upward shifts of the monetary policy curve.
D. downward shifts of the monetary policy curve.
Q:
Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a percentage point in June 2004, and by exactly the same amount at every subsequent FOMC meeting through June of Theses actions
A. caused an upward movement along the monetary policy curve.
B. caused a downward movement along the monetary policy curve.
C. shifted the monetary policy curve upward.
D. shifted the monetary policy curve downward.
Q:
Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
Based on the Taylor Principle, a central bank's endogenous response of raising interest rates when inflation rises
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
An autonomous easing of monetary policy
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
An autonomous tightening of monetary policy
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
A. less; rise
B. more; fall
C. less; fall
D. more; rise
Q:
The upward slope of the MP curve indicates that
A. the central bank lowers real interest rates when inflation rises.
B. the central bank raises real interest rates when inflation falls.
C. the central bank raises nominal interest rates when inflation rises.
D. the central bank raises real interest rates when inflation rises.
Q:
If young business professionals in America suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant.
A. fall; fall
B. fall; rise
C. rise; fall
D. rise; rise
Q:
If American college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant.
A. fall; LM
B. fall; IS
C. rise; LM
D. rise; IS
Q:
A tax cut ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.
A. increases; increases; right
B. increases; decreases; right
C. decreases; increases; left
D. decreases; decreases; left
Q:
A tax increase ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.
A. increases; increases; right
B. increases; decreases; left
C. decreases; increases; left
D. decreases; decreases; left
Q:
A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant.
A. raises; LM; right
B. lowers; IS; left
C. raises; IS; right
D. lowers; LM; left
Q:
The IS curve shifts to the left when
A. taxes increase.
B. government spending increases.
C. the money supply increases.
D. autonomous planned investment spending increases.
Q:
A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. fall; IS; left
C. fall; LM; left
D. rise; IS; right
Q:
An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Q:
A decrease in autonomous planned investment spending, other things equal, shifts the ________ curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right