1)

If the Fed imposed a 100% reserve requirement, it would imply that

Group of answer choices

the Fed had no control over money supply

the Fed would no longer be able to conduct any open market operations

the money multiplier would be equal to one

the money multiplier would be equal to zero

banks would become completely obsolete

2)

Assume that the Fed's goal is to stabilize national income. Under what conditions would a money supply target be more desirable than an interest rate target?

Group of answer choices

when money demand is very interest inelastic and investment is very interest elastic

when money demand is very interest elastic and investment is very interest inelastic

when consumer spending is very predictable

when uncertainties and fluctuations are coming mainly from the expenditure sector

when uncertainties and fluctuations are coming mainly from changes in money demand

3)

Assume money supply is $1,200 billion, bank deposits are $800 billion, and the reserve-deposit ratio is 10%. By how much is the money supply likely to change if the Fed conducts an open market sale valued at $40 million?

Group of answer choices

-$100 billion

-$60 billion

$40 billion

$60 billion

$100 billion

4)

Between 1990 and 1992, the Fed conducted monetary policy almost entirely with reference to interest rates since

Group of answer choices

banks rationed credit

the economy grew at a very fast pace

the growth rates of different monetary aggregates diverged widely

the objective was to increase the profitability of banks

the objective was to keep money supply stable

5)

Over which of the following does the Fed have the most control?

Group of answer choices

the stock of money

the stock of bank reserves

the amount of excess reserves held by banks

the size of the money multiplier

the currency-deposit ratio

6)

There is considerable discussion of whether an activist policy approach is preferred over a strict rule approach. In this discussion, which of the following has been established?

Group of answer choices

active policy is not impossible, but a full-employment bias may create too much inflation

no activist policy rule has ever been created

no exceptions to the imposed rule should ever be made even under extreme circumstances, otherwise policy makers lose credibility

the economy can successfully be fine-tuned as long as monetary policy decisions are announced in advance

none of the above

7)

Economists who believe that a large unemployment-inflation tradeoff exists are likely to advocate

Group of answer choices

real GDP targeting

nominal GDP targeting

inflation targeting

a strict monetary growth rule

none of the above

8)

Economic forecasts tend to be

Group of answer choices

difficult to make since the structure of the economy is not well-known

inaccurate since economic data are hard to come by

accurate since major economic disturbances can be easily predicted

fairly accurate since consumer expectations can be easily predicted

inaccurate since forecasters most often misread the economy

9)

If a central bank employs policies that seem appropriate for the short run but may endanger its long-run goals, then

Group of answer choices

its actions involve dynamic inconsistency

it should never announce its intentions, because financial markets have a tendency to respond slowly to new information

it should not announce which indicators it is using to assess the success of the policy action

people cannot profit from anticipating the central bank's policy actions

none of the above

10)

A central bank that is independent of the administration is desirable since

Group of answer choices

independence decreases the likelihood of political cycles

countries with independent central banks tend to have lower inflation rates

independence mitigates the problem of dynamic inconsistency

independence lends more credibility to monetary policy

all of the above

11)

Trying to stabilize the economy through discretionary policy

Group of answer choices

is easier using fiscal policy, since its effects are better understood than those of monetary policy

is easier using monetary policy, since its outside lag is shorter than that of fiscal policy

is easier using monetary policy, since its inside lag is shorter than that of fiscal policy

is not necessary, since automatic stabilizers always provide enough built-in stability

is virtually impossible, since neither fiscal nor monetary policy affects the unemployment rate in the short run

12)

Between 2000 and 2009, on an average, the total U.S. government outlays were

Group of answer choices

12 percent of GDP

14 percent of GDP

18 percent of GDP

20 percent of GDP

25 percent of GDP

13)

Why is so much of the U.S. federal debt owned by foreigners?

Group of answer choices

U.S. government bonds tend to pay higher yields than the securities of other governments

U.S. domestic savings are insufficient to support the national debt

it is difficult for international investors to cash in their U.S. government bonds

international investors believe that the U.S. dollar will never lose any of its value

none of the above

14)

Which of the following is FALSE about long-term interest rates in Europe?

Group of answer choices

they decreased in most countries in the mid- and late-1990s

they were similar in many countries from 2001-2006

they increased sharply in all countries after 2006

they increased for some but not all countries after 2009

all of the above

15)

What was primarily responsible for the most recent debt crisis in Spain?

Group of answer choices

the Spanish government had borrowed too much, so its debt-to-GDP ratio was very high

the Spanish government cut spending in an effort to free funds for private investments

political instability

Spanish banks held too many unsound mortgage loans and mortgage-backed securities

all of the above

16)

Most debt issues by the Treasury are made to

Group of answer choices

refinance parts of the national debt that are maturing

finance entitlement programs

finance defense spending

provide more liquidity for financial markets

monetize the debt

17)

Who was estimated to own the largest portion of the U.S. public debt in 2016?

Group of answer choices

private domestic investors

international investors

state and local governments

the Federal Reserve

the Social Security administration

18)

From 2000 to 2009, average U.S. federal government outlays on national defense totaled

Group of answer choices

1.2 percent of GDP

2.4 percent of GDP

3.8 percent of GDP

4.9 percent of GDP

6.9 percent of GDP

19)

For most of the time after World War II, interest payments on the national debt were around 1.5 percent of GDP. However, in the 1980s and 1990s, they increased to around

Group of answer choices

1.8 percent of GDP

2.2 percent of GDP

3.0 percent of GDP

4.8 percent of GDP

5.2 percent of GDP

20)

From 1962-1969, defense spending was, on an average, about 8.7 percent of GDP, but by 2000-2009 this average percentage had changed to

Group of answer choices

12.8 percent of GDP

10.2 percent of GDP

5.6 percent of GDP

4.9 percent of GDP

3.8 percent of GDP

21)

If we compare spending as a percentage of GDP by local and state governments and by the federal government from 1960 to 2010, we realize that

Group of answer choices

federal government spending was more volatile than local and state government spending

local and state government spending was more volatile than federal government spending

total spending by local and state governments exceeded federal government spending over the fifty year period

federal government spending was at least three times as much as spending by local and state governments over the fifty year period

spending by local and state governments followed the pattern of total government spending more closely than federal government spending did

22)

Under a system of flexible exchange rates and perfect capital mobility, restrictive monetary policy will in the long run

Group of answer choices

lower the nominal exchange rate while leaving real output, relative prices, and the real exchange rate the same

increase the real interest rate

lower inflation, the exchange rate, and the real interest rate

leave output the same while lowering the real interest rate and the real exchange rate

reduce real money balances, domestic prices, and the real exchange rate

23)

Which of the following policy measures CANNOT be used to reduce a current account deficit?

Group of answer choices

a tariff on imported goods

a devaluation of the currency

restrictive monetary policy

expansionary fiscal policy

a combination of A) and C)

24)

If we have perfect capital mobility and financial markets expect the domestic currency to appreciate in value, then

Group of answer choices

there will be an outflow of capital to countries abroad

we can expect a decrease in domestic unemployment

we can expect a loss in competitiveness

people are only willing to hold domestic assets at an interest rate that is higher than the world interest rate

all of the above

25)

If exchange rates are flexible and capital is perfectly mobile, a monetary expansion will lead to

Group of answer choices

an immediate adjustment in the exchange rate, but it will lead to a gradual adjustment in prices

an immediate change in competitiveness

a decrease in interest rates and a capital outflow in the short run

a proportionate increase in money, prices, and the exchange rate in the long run, leaving output and real money balances unchanged

all of the above

26)

If a central bank conducts open market purchases in the domestic market at the same time as it intervenes in the foreign exchange market by selling foreign currency, it is

Group of answer choices

conducting an ad hoc joint intervention

sterilizing the foreign exchange intervention

implementing an expenditure reducing policy

depreciating its currency while increasing domestic money supply

appreciating its currency while decreasing domestic money supply

27)

The J-curve effect explains that after a currency depreciates in value

Group of answer choices

the price effects are stronger in the short run and the volume effects are stronger in the long run

the price effects are outweighed by the volume effects in both the short and long runs

the volume effects are outweighed by the price effects in the long run but not in the short run

net exports do not suffer as the price and volume effects offset each other in the long run

net exports suffer in the long run as the price effects become zero

28)

Under a system of flexible exchange rates, the long-run outcome of expansionary monetary policy will be

Group of answer choices

a depreciation of the domestic currency

an appreciation of the domestic currency

a lower level of frictional unemployment

lower real interest rates

a higher level of real output

29)

In a model with flexible exchange rates and capital mobility, monetary contraction in the U.S. is likely to cause

Group of answer choices

an appreciation of the U.S. dollar

an increase in the GDP of other countries

a decrease in the U.S. inflation rate

all of the above

none of the above

30)

Under a system of flexible exchange rates, monetary expansion is entirely neutral in the long run. In other words, the long-run effect of monetary expansion is that

Group of answer choices

nominal money supply, prices, and the nominal exchange rate all increase proportionally

real money balances are not affected

relative prices, including the real exchange rate, are not affected

real output and the level of unemployment are not affected

all of the above

31)

Under a system of fixed exchange rates, a country experiencing unemployment and a balance of payments surplus should employ

Group of answer choices

expansionary monetary policy

expansionary fiscal policy

an income tax cut combined with a devaluation of the currency

open market sales combined with a devaluation of the currency

a combination of restrictive fiscal and expansionary monetary policy