Chapter 11&12
According to the Board of Governors in August 2008, reserves equaled $44 billion, currency in circulation equaled $777 billion, and checking deposits were $300 billion. What was the monetary base? A) $821 billion B) $1,077 billion C) $344 billion D) There is not enough information provided to answer the question.
A
According to the Board of Governors in August 2008, the money multiplier was 1.31, reserves were $44 billion, and currency in circulation was $777 billion. What was the money supply? A) $1,077 billion B) $1,019 billion C) $625.85 billion D) There is not enough information provided to answer the question.
A
According to the Phillips Curve, during a time when output is above potential output, inflation is: A) higher than expected inflation. B) equal to expected inflation. C) lower than expected inflation. D) There is not enough information to answer the question.
A
As the real interest rate rises: I. consumption rises. II. net exports fall. III. investment rises. A) II only B) I only C) I and III D) III only
A
Because the ________ rate is higher than the ________ rate, there is an incentive for banks to borrow from ________ rather than from the Fed. A) discount; federal funds; other banks B) federal funds; prime interest; other banks C) repo interest; discount; depositors D) inflation; discount; Board of Governors
A
Between 1979 and 1982, the Fed experimented with: A) money targeting. B) interest rate targeting. C) credit rationing. D) a 50% reserve requirement.
A
Discount loans are generally: A) made only in emergency circumstances. B) made on a daily basis under normal circumstances. C) required by the rules of the Federal Reserve. D) made only to investment banks.
A
Formally, a Federal Reserve Bank is owned by the: A) commercial banks in its district. B) federal government. C) Treasury Department. D) Department of Commerce
A
From 1960 to 2007, the NBER has identified ________ recessions. A) seven B) three C) twelve D) nine
A
Household consumption includes: I. purchases of goods. II. home purchases. III. purchases of services. A) I and III B) I only C) II only D) I and II
A
If the Fed increases the reserve requirement, the monetary base ________ and the money supply ________. A) stays the same; falls B) rises; falls C) falls; falls D) falls; stays the same
A
If the Federal Reserve raises the ________, the amount of discount loans ________ and the money supply ________. A) discount rate; falls; falls B) discount rate; rises; rises C) federal funds rate; falls; falls D) reserve rate; rises; rises
A
If the rate of unemployment is at NAIRU, then U equals ________ and ________. A) U*; dpi = 0 B) zero; Y=Y* C) U*; pi = 0 D) zero; (Y-Y*)/Y*=0
A
In the Phillips curve inflation=expected infaltion + alpha(Y-Y*)/Y* +v, v is: A) a supply shock. B) a demand shock. C) a permanent price trend. D) fiscal policy shock.
A
Okun's law demonstrates: A) how firms hire more workers during economic booms, and lay off workers during recessions. B) the tradeoff between inflation and unemployment. C) that when inflation is expected to rise, nominal interest rates will also rise. D) that when * U U= , the output gap is positive.
A
Okun's law states that the output gap is ________ and the economy is ________. A) 0%; at its potential B) - 2%; in a recession C) 1%; in an economic boom D) 0.5%; in a recession
A
Potential output depends on ________ and ________. A) available resources; the level of technology B) labor; capital stocks only C) the current level of technology; labor only D) the unemployment; inflation rates
A
Term Auction Facility loans were offered to banks that were ________, which is often interpreted as ________. A) concerned about borrowing from the discount window; a sign of weakness B) unable to borrow at the discount window; a sign of low liquidity C) insolvent; a sign of a bank close in the near future D) seeking low interest loans; bank health.
A
The ________ gave the Fed the power to set bank reserve requirements. A) Banking Act of 1933 B) Glass-Steagall Act C) President of the United States, Franklin Roosevelt, D) Federal Reserve Act of 1913
A
The bank panics of the early 1930s caused an increase in both the ________, which pushed the ________ down. A) currency-deposit and reserve-deposit ratios; money multiplier B) monetary base and the money supply; interest rate C) federal funds and discount rate; money market interest rate D) monetary base and the discount rate; money multiplier
A
The monetary base is: A) currency + reserves. B) currency + checkable deposits. C) checkable deposits + reserves. D) currency + monetary base.
A
To maintain the target federal funds rate, the Fed conducts ________ to ensure that the supply of ________ equals demand. A) open-market operations; overnight loans B) discount loans; deposits C) discount loans; reserves D) sterilized intervention; dollars
A
Using the liquidity preference model of the money market, if the Fed targets ________ and the economy goes into an expansion, the Fed will ________ the nominal interest rate and ________. A) interest rates; increase; the money supply will fall B) interest rates; increase; inflation rises C) money; decrease; the nominal interest rate will fall D) money; increase; the nominal interest rate will fall
A
When the Fed sells a government bond to a member bank, reserves ________ and the monetary base ________. A) decrease; decreases B) increase; increases C) increase; stays the same D) stay the same; decreases
A
Which of the following equations is Okun's Law? A) Y-Y*/Y* = -2(U-U*) B) Y-Y*/Y* = -(1/2) (U-U*) C) Y-Y* = -2 (U-U*) D) Y-Y*/Y* = 2(U-U*)
A
Which of the following equations is the output gap? A) output gap = Y - Y* / Y* B) output gap = Y - Y* C) output gap = Y / Y* D) output gap = Y* - Y / Y
A
Which of the following would shift the aggregate expenditure curve for Mexico to the left? A) an increase in the nominal interest rate by the U.S. central bank B) a U.S. expansion C) an increase in the nominal interest rate by the Mexican central bank D) an increase in confidence of Mexican consumers
A
Why does the natural rate of unemployment change over time? I. changing age of workers II. productivity growth III. changing oil prices A) I and II B) I and III C) II only D) III only
A
________ has eliminated reserve requirements. A) Canada B) France C) China D) The U.S.
A
A rise in the ________ rate encourages banks to borrow in the ________ market. A) federal funds; money B) discount; federal funds C) discount; Term Auction Facility D) inflation; money
B
According to the Board of Governors in August 2008, reserves equaled $44 billion, currency in circulation equaled $777 billion, and checking deposits were $300 billion. What was the money multiplier? A) about 2.59 B) about 1.31 C) about 0.76 D) about 17.7
B
Aggregate expenditure equals: A) Consumption + Investment + Government purchases + Transfers B) Consumption + Investment + Government purchases + Net exports C) Consumption + Investment + Federal government purchases + Exports D) Consumption + Government purchases - Net exports
B
Aggregate expenditure: A) is the same thing as aggregate demand. B) is the amount of spending on goods and services for a given real interest rate. C) is how much it costs firms to produce the goods and services they sell. D) is always equal to potential output.
B
Each Federal Reserve bank has nine directors; ________ are appointed by the member banks and ________ are appointed by the Board of Governors. A) three; six B) six; three C) four; five D) two; seven
B
Holding interest rates constant, an increase in government spending would have what effect? A) cause a movement along the AE curve, decreasing output B) cause the AE curve to shift out, to the right, increasing output C) cause a movement along the AE curve, increasing unemployment D) cause the AE curve to shift back, to the left, increasing unemployment
B
If actual output is less than potential output, the Central Bank should choose to: A) increase the interest rate because that would reduce unemployment. B) decrease the interest rate because that would increase output. C) increase the interest rate because that would decrease inflation. D) decrease the interest rate because that would decrease output.
B
If consumer confidence falls, the AE curve would shift to the ________, and it is likely the central bank would ________. A) right; increase interest rates to cause an increase in output B) left; decrease interest rates to keep output constant C) left; reduce household income taxes D) right; wait a year and see if another expenditure shock shifts the AE curve back
B
If the Fed targets the interest rate, an increase in money demand will: A) prompt the Fed to decrease money supply to maintain the interest rate. B) prompt the Fed to increase money supply to maintain the interest rate. C) allow the Fed keep the money supply fixed to maintain the target. D) prompt the Fed to decrease money supply to reduce the interest rate.
B
If the Fed wishes to keep the money supply constant when the money multiplier decreases, it will ________. This is called a ________. A) lower the discount rate; defensive open-market operation B) conduct open-market purchases; defensive open-market operation C) conduct open-market sales; defensive open-market operation D) conduct closed market sales; money market sterilization
B
If the Fed wishes to keep the money supply constant when the money multiplier increases, it will ________. This is called a ________. A) conduct open-market purchases; defensive open-market operation B) conduct open-market sales; defensive open-market operation C) lower the discount rate; defensive open-market operation D) conduct open-market sales; money market sterilization
B
If the natural rate of unemployment is 4% and the actual rate of unemployment is 5%, Okun's law states that the output gap is ________ and the economy is in a(n)________. A) 2%; economic boom B) - 2%; recession C) - 0.5%; recession D) - 1%; recession
B
Long-run monetary neutrality implies that changes in the money supply: A) have no impact on potential real GDP. B) will only affect prices in the long run. C) have no impact on the natural rate of unemployment. D) All of the answers are correct.
B
One reason a disinflation policy can be costly is that: A) the economy adjusts quickly to potential output. B) it takes time for inflation expectations to adjust to the policy. C) the unemployment rate stays below the natural rate of unemployment. D) expectations are rational.
B
Term Auction Facility loans were introduced in ________ in reaction to unease in financial markets, which started with ________. A) 1930; a bank panic B) 2007; the subprime mortgage crisis C) 1990; the collapse of the savings and loan industry D) 2001; the September 11 attacks
B
The "official dates" of a recession are determined by the: A) Board of Governors of the Federal Reserve. B) Business Cycle Dating Committee. C) Treasury Secretary. D) Chancellor of the Exchequer.
B
The FOMC has ________ members: the ________ members of the Board of Governors and the presidents of ________ of the Federal Reserve Banks. A) ten; seven; three B) twelve; seven; five C) three; two; one D) seven; seven; zero
B
The Fed is blamed for the sharp recession in 1938 because it: A) increased the discount rate. B) increased the reserve requirement. C) reduced the monetary base. D) printed too much money.
B
The NBER defines a recession as: A) the period when actual output is below potential output. B) a period when output falls a substantial amount. C) two consecutive years of 1% or less economic growth. D) a period when the natural rate of unemployment is above 6%.
B
The acronym NAIRU stands for the: A) nonaccelerating interest rate of unemployment. B) nonaccelerating inflation rate of unemployment. C) natural aggregate inflation rate of unemployment. D) nonaccruing investment relative to unemployment.
B
The aggregate expenditure curve is the ________ relationship between ________ and ________. A) positive; inflation; the output gap B) negative; the real interest rate; output C) negative; the unemployment rate; inflation D) negative; the unemployment rate; the output gap
B
The term of the Fed chair is ________ year(s). A) 1 B) 4 C) 12 D) 14
B
To expand the monetary base, the Fed will: A) conduct open-market sales. B) conduct open-market purchases. C) raise the discount rate. D) lower the required reserve rate.
B
Using the liquidity preference model of the money market, if the Fed targets ________ and the economy goes into a slump, the Fed will ________ the money supply and ________. A) interest rates; decrease; inflation rises B) money; increase; the nominal interest rate falls C) money; decrease; the nominal interest rate falls D) interest rates; increase; the nominal interest rate rises
B
Which of the following can the Fed use to control the money supply? A) directly change the money multiplier B) open-market operations C) print money D) increase bank capital
B
Which of the following is an example of rational expectations? A) It rained yesterday, so you will carry an umbrella today. B) Even though it has not rained all week, the weather forecaster said it will rain tomorrow, so you will carry an umbrella tomorrow. C) You flip a coin to determine if you should carry an umbrella today. D) It never rains where you live, but you carry an umbrella anyway.
B
________ is(are) the monetary tool used most by the Fed. A) Changing the reserve rate B) Open-market operations C) Changing the discount rate D) Offering larger discount loans
B
According to the Board of Governors in August 2008, reserves equaled $44 billion, currency in circulation equaled $777 billion, and checking deposits were $300 billion. The monetary base was ________ and M1 money supply was ________. A) $1,077 billion; $821 billion B) $1,077 billion; $344 billion C) $821 billion; $1,077 billion D) $821 billion; $821 billion
C
According to the Board of Governors in August 2008, reserves equaled $44 billion, currency in circulation equaled $777 billion, and checking deposits were $300 billion. What was the money supply? A) $344 billion B) $821 billion C) $1,077 billion D) There is not enough information provided to answer the question.
C
Along the aggregate expenditure curve, the level of output in the short run is determined by: A) expectations. B) the inflation rate. C) the real interest rate. D) supply shocks.
C
An unexpected decrease in oil prices will shift the Phillips Curve _______. A) up B) no change C) down D) There is not enough information provided to answer the question.
C
Banks that are members of the Fed purchase stock in the Federal Reserve banks in their district and receive a dividend equal to: A) 2 percent annually. B) the discount rate. C) 6 percent annually. D) the federal funds rate.
C
Economic growth is the ________ change in ________. A) start-run; maximum output B) short-run; potential output C) long-run; potential output long-run D) short-run; carrying capacity
C
If a bank has $1,000 in checking deposits, $10,000 in nontransaction deposits, and $10,000 in eurocurrency deposits, and if the reserve requirement is 10%, the bank must hold ________ in reserve. A) $1,000 B) $1,100 C) $100 D) $2,100
C
If the Fed targets money supply, an increase in money demand will: A) increase the interest rate as money supply adjusts. B) reduce the nominal interest rate because money supply will rise more then the change in demand. C) reduce the interest rate because the money supply is fixed. D) increase the money supply.
C
If the natural rate of unemployment is 4% and the actual rate of unemployment is 3%, Okun's law states that the output gap is ________ and the economy is in a(n) ________. A) - 0.5%; recession B) - 2%; recession C) 2%; economic boom D) 1%; economic boom
C
If the real interest rate rises in the US, there is an incentive for a ________ and this makes the dollar to ________, which causes net exports________. A) increase in net capital outflows; appreciate; falls B) decrease in net capital outflows; depreciate; rises C) decrease in net capital outflows; appreciate; falls D) decrease in new capital investments; depreciate; falls
C
If there is an adverse supply shock and the Fed chooses to accommodate the shock, the Fed would: A) reduce the real interest rate. B) increase the real interest rate. C) do nothing to the federal funds rate. D) increase taxes.
C
In the aftermath of the downturn in the early 1930s, private banks ________; between 1936 and 1937 the Fed raised the ________, which ________ the GreatDepression. A) increased their holdings of risky securities; risk assessment parameters; shortened B) reduced their holdings of excess reserves; discount rate; shortened C) increased their holdings of excess reserves; reserve requirements; prolonged D) reduced their excess reserves; reserve requirements; prolonged
C
Many economists say that, while the ________ in the money supply during the Great Depression was not the deliberate policy of the Fed, they do fault the Fed for NOT recognizing ________. A) rise; the bank panic B) rise; the relationship between money and inflation C) drop; the relationship between money and output D) drop; the effects of the "dust bowl"
C
Members of the Board of Governors of the Federal Reserve are ________ and serve for ________ years. A) elected by the Federal Reserve bank presidents; 6 B) elected by the U.S. Senate; 4 C) appointed by the President; 14 D) appointed by the Speaker of the House; 12
C
One way of reconciling the different definitions of the business cycle is that NBER recessions would be: A) the opposite of a recessionary output gap. B) the same as a recessionary output gap. C) a deep recession using the output gap. D) There is no connection.
C
Open-market operations are conducted ________ at the open-market desk at the ________. A) monthly; Bank of America B) weekly; FOMC headquarters in Washington, DC C) daily; Federal Reserve Bank of New York. D) daily; Treasury Department
C
Suppose you have the following information: the monetary base is 600, currency in circulation is 400, reserves are 200, deposits are 800, and the money supply is 1,200. What is the money multiplier? A) 4 B) 0.5 C) 2 D) 0.75
C
The Great Depression was the result of: A) high inflation. B) a fall in potential output. C) a fall in aggregate expenditure. D) low unemployment.
C
The Volcker disinflation policies of the early 1980s: A) shifted the aggregate expenditure curve to the right. B) were designed primarily to lower the unemployment rate, with the hope of also lowering the inflation rate. C) resulted in an unemployment rate over 10%, and the nominal fed funds rate over 17%. D) were ineffective since we still have inflation today.
C
The difference between a bank's actual reserves and required reserves is called ________ reserves. A) safety B) surplus C) excess D) risk-adjusted
C
The ex ante real interest is given by: A) r =i - pi B) r= i + pi^e C) r= i - pi^e D) r = pi^e
C
The federal funds rate is the: A) percentage of total deposits that must be held as a federal fund. B) interest rate that the Fed charges member commercial banks. C) interest rate that banks charge each other for overnight loans. D) the percentage of total loans a bank has that are made to the Fed.
C
The magnification of income changes on aggregate expenditure is called the: A) interest rate multiplier. B) real interest rate. C) consumption multiplier. D) marginal propensity to consume.
C
The reason most economists believe that the Fed targets ________ is because of constant shifts in ________ caused by changes in transaction technologies. A) interest rates; the money supply B) the money supply; money demand C) interest rates; money demand D) the money supply; interest rates
C
The relationship between the output gap and unemployment is called: A) the Fisher Relation B) the Phillips Curve C) Okun's Law D) the unemployment boom effect
C
We can interpret the monetary base as the: A) total value of bonds in an economy. B) total value of assets in an economy. C) liabilities of the Fed to the private sector. D) value of bank reserves.
C
When the Fed reduces the federal funds rate, output ________, which ________ and ________. A) rises along the AE curve; reduces unemployment; accelerates inflation B) falls along the AE curve; increases unemployment; accelerates inflation C) shifts the AE curve right; reduces unemployment; accelerates inflation D) has no effect on the AE curve; reduces unemployment; accelerates inflation
C
When the federal government reduces infrastructure expenditures, aggregate expenditure ________, and holding the real interest rate constant, inflation will ________. A) shifts right; increase by shifting the Phillips curve upward B) shifts left; remain constant C) shifts left; decrease by moving downward along the Phillips curve D) shifts right; increase by moving upward along the Phillips curve
C
Which of the following is NOT an adverse supply shock? A) a terrorist attack B) a hurricane knocks out oil refineries in the Gulf of Mexico C) a new method for producing ethanol D) increased regulations
C
Which of the following is NOT an expenditure shock? A) a change in consumer sentiment B) a tax increase C) a change in the nominal interest rate D) foreign business cycles
C
Which of the following is an example of adaptive expectations? A) You flip a coin to determine if you should carry an umbrella today. B) Even though it has not rained all week, the weather forecaster said it will rain tomorrow, so you will carry an umbrella tomorrow. C) It rained yesterday, so you will carry an umbrella today. D) It never rains where you live, but you carry an umbrella anyway.
C
Adaptive expectations is characterized by: A) = ( 1) e p p - . B) knowledge of past levels of inflation. C) the continuation of current levels of inflation. D) All of the answers are correct.
D
During the Great Depression, to counter the ________ in the money multiplier the Fed should have ________ to maintain a constant money supply. A) fall; increased the discount rate B) rise; increased the monetary base C) rise; decrease the federal funds rate D) fall; increased the monetary base
D
If the economy is in recession, which of the following is true about the output gap? A) Y*/Y < 0 B) Y-Y* < 0 C) Y - Y*/Y* > 0 D) Y-Y*/Y* < 0
D
Most economists believe that if the Fed targets money supply, constant shifts in money demand would cause ________, which in turn ________. A) interest rates to fluctuate; stabilizes output B) inflation to rise; increases unemployment C) income to rise; reduces demand expenditures D) interest rates to fluctuate; destabilizes output
D
The components of aggregate expenditure do NOT include purchases by: A) households. B) firms. C) the rest of the world. D) All of the answers are correct.
D
The reason(s) for banks to voluntarily increase their excess reserves is(are) the: A) use of sweep programs. B) growth of ATMs. C) reduction of reserve requirements. D) All of the answers explain the reason.
D
Which of the following influences the Business Cycle A) firms. B) households. C) local, state, and federal governments. D) All of the answers are correct.
D
Which of the following is NOT correct with respect to the definition of a recession as used by the NBER? A) A recession is characterized by lower levels of economic activity. B) The exact length of time needed for a downturn to be declared a recession is not specified. C) Many key economic indicators are used, some of which may move in opposite directions. D) A recession occurs when there is a dip in the growth rate.
D
