You are on page 1of 3

K thi: MIDTERM LTTCTT2

Mn thi: MIDTERM EXAM THEORY OF FINANCE AND MONEY 2




Cu 0 (0001): The most common definition that monetary policymakers use for price stability is
A. <low and stable deflation.> B. <an inflation rate of zero percent.>
C. < high and stable inflation.> D. < low and stable inflation.>
Cu 0 (0002): A central feature of monetary policy strategies in all countries is the use of a nominal variable
that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability.
Such a variable is called a nominal
A. < anchor.> B. <benchmark.> C. < tether.> D. < guideline.>
Cu 0 (0003): A central feature of monetary policy strategies in all countries is the use of a nominal anchor,
which is a nominal variable that monetary policymakers use as an
A. < operating target, such as the federal funds interest rate.>
B. < intermediate target, such as the federal funds interest rate.>
C. < intermediate target to achieve an ultimate goal such as price stability.>
D. < operating target to achieve an ultimate goal such as exchange rate stability.>
Cu 0 (0004): Monetary policy is considered time-inconsistent because
A. < of the lag times associated with the implementation of monetary policy and its effect on the economy.>
B. < policymakers are tempted to pursue discretionary policy that is more contractionary in the short run.>
C. < policymakers are tempted to pursue discretionary policy that is more expansionary in the short run.>
D. < of the lag times associated with the recognition of a potential economic problem and the
implementation of monetary policy.>
Cu 0 (0005): Foreign exchange rate stability is important because a decline in the value of the domestic
currency will ________ the inflation rate, and an increase in the value of the domestic currency makes
domestic industries ________ competitive with competing foreign industries.
A. < increase; more> B. < increase; less> C. < decrease; more> D. < decrease; less>
Cu 0 (0006): The nine directors of the Federal Reserve Banks are split into three categories: ________ are
professional bankers, ________ are leaders from industry, and ________ are to represent the public interest
and are not allowed to be officers, employees, or stockholders of banks.
A. < 5; 2; 2> B. < 2; 5; 2> C. < 4; 2; 3> D. < 3; 3; 3>
Cu 0 (0007): High-powered money minus reserves equals
A. < reserves.> B. < currency in circulation.>
C. < the monetary base.> D. < the nonborrowed base.>
Cu 0 (0008): When a bank buys a government bond from the Federal Reserve, reserves in the banking system
________ and the monetary base ________, everything else held constant.
A. < increase; increases> B. < increase; decreases>
C. < decrease; increases> D. < decrease; decreases>
Cu 0 (0009): The effect of an open market purchase on reserves differs depending on how the seller of the
bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on
reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase.
A. < deposits; deposits> B. < deposits; currency>
C. < currency; deposits> D. < currency; currency>
Cu 0 (0010): When the Fed supplies the banking system with an extra dollar of reserves, deposits ________
by ________ than one dol
A. < increase; less> B. < increase; more> C. < decrease; less> D. < decrease; more>
Cu 0 (0011): Decisions by depositors to increase their holdings of ________, or of banks to hold excess
reserves will result in a ________ expansion of deposits than the simple model predicts.
A. < deposits; smaller> B. < deposits; larger> C. < currency; smaller> D. < currency; larger>
Cu 0 (0012): The amount of borrowed reserves is ________ related to the discount rate, and is ________
related to the market interest rate.
A. < negatively; negatively> B. < negatively; positively>
C. < positively; negatively> D. < positively; positively>
Cu 0 (0013): Models describing the determination of the money supply and the Feds role in this process
normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the
former.
A. < reserves; the monetary base> B. < reserves; high-powered money>
C. < the monetary base; high-powered money> D. < the monetary base; reserves>
Cu 0 (0014): An increase in the monetary base that goes into ________ is not multiplied, while an increase
that goes into ________ is multiplied.
A. < deposits; currency> B. < excess reserves; currency>
C. < currency; excess reserves> D. < currency; deposits>
Cu 0 (0015): If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion.
A. < $8000> B. < $1200> C. < $1200.8> D. < $8400>
Cu 0 (0016): If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $1000 billion, and excess reserves total $1 billion, then the currency ratio is
A. < 0.25.> B. < 0.50.> C. < 0.40.> D. < 0.05.>
Cu 0 (0017): The money supply is ________ related to expected deposit outflows, and is ________ related to
the market interest rate.
A. < negatively; negatively> B. < negatively; positively>
C. < positively; negatively> D. < positively; positively>
Cu 0 (0018): The Fed uses three policy tools to manipulate the money supply: open market operations, which
affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve
requirements, which affect the ________.
A. < money multiplier; monetary base; monetary base>
B. < monetary base; money multiplier; monetary base>
C. < monetary base; monetary base; money multiplier>
D. < money multiplier; money multiplier; monetary base>
Cu 0 (0019): Everything else held constant, when the federal funds rate is ________ the interest rate paid on
reserves, the quantity of reserves demanded rises when the federal funds rate ________.
A. < above, rises> B. < above, falls> C. <below, rises> D. <below, falls>
Cu 0 (0020): In the market for reserves, if the federal funds rate is above the interest rate paid on excess
reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to
fall, everything else held constant.
A. < increases; supply> B. < increases; demand> C. < decreases; supply> D. < decreases; demand>
Cu 0 (0021): Open market purchases ________ reserves and the monetary base thereby ________ the money
supply.
A. < raise; lowering> B. < raise; raising> C. < lower; lowering> D. < lower; raising>
Cu 0 (0022): If the banking system has a large amount of reserves, many banks will have excess reserves to
lend and the federal funds rate will probably ________; if the level of reserves is low, few banks will have
excess reserves to lend and the federal funds rate will probably ________.
A. < fall; fall> B. < fall; rise> C. < rise; fall> D. < rise; rise>
Cu 0 (0023): The Feds discount lending is of three types: ________is the most common category;
________is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks
that have experienced severe liquidity problems.
A. < seasonal credit; secondary credit; primary credit>
B. < secondary credit; seasonal credit; primary credit>
C. < primary credit; seasonal credit; secondary credit>
D. < seasonal credit; primary credit; secondary credit>
Cu 0 (0024): According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation
________ the Feds inflation target or when real GDP ________ the Feds output target.
A. < rises above; drops below> B. < drops below; drops below>
C. < rises above; rises above> D. < drops below; rises above>
Cu 0 (0025): Using Taylors rule, when the equilibrium real federal funds rate is 3 percent, the positive
output gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the
nominal federal funds rate target should be
A. < 5 percent.> B. < 5.5 percent.> C. < 6 percent.> D. < 6.5 percent.>
Cu 0 (0026): If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S. dollar
depreciates from ________ per dollar to ________ per dollar.
A. < 2; 2.5> B. < 2; 1.33> C. < 2; 1.5> D. < 2; 1.25>
Cu 0 (0027): When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound,
then, holding everything else constant, the pound has ________ and ________ expensive.
A. < appreciated; British cars sold in the United States become more>
B. < appreciated; British cars sold in the United States become less>
C. < depreciated; American wheat sold in Britain becomes more>
D. < depreciated; American wheat sold in Britain becomes less>
Cu 0 (0028): In the long run, a rise in a countrys price level (relative to the foreign price level) causes its
currency to ________, while a fall in the countrys relative price level causes its currency to ________.
A. < appreciate; appreciate> B. < appreciate; depreciate>
C. < depreciate; appreciate> D. < depreciate; depreciate>
Cu 0 (0029): Higher tariffs and quotas cause a countrys currency to ________ in the ________ run,
everything else held constant.
A. < depreciate; short> B. < appreciate; short> C. < depreciate; long> D. < appreciate; long>
Cu 0 (0030): Everything else held constant, increased demand for a countrys exports causes its currency to
________ in the long run, while increased demand for imports causes its currency to ________.
A. < appreciate; appreciate> B. < appreciate; depreciate>
C. < depreciate; appreciate> D. < depreciate; depreciate>
Cu 0 (0031): When Americans or foreigners expect the return on ________ assets to be high relative to the
return on ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for
foreign assets.
A. < dollar; dollar> B. < dollar; foreign> C. < foreign; dollar> D. < foreign; foreign>
Cu 0 (0032): A decrease in the domestic interest rate causes the demand for domestic assets to ________ and
the domestic currency to ________, everything else held constant.
A. < increase; appreciate> B. < increase; depreciate>
C. < decrease; appreciate> D. < decrease; depreciate>

You might also like