Econ Final Part 2

60 Questions | Total Attempts: 45

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Econ Quizzes & Trivia

Econ test 2


Questions and Answers
  • 1. 
    Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?
    • A. 

      Liquidity

    • B. 

      Risk

    • C. 

      Wealth

    • D. 

      Expected Returns

  • 2. 
    When the price of a bond is above the equilibrium price, there is an excess  bonds, price will , and interest rate will .
    • A. 

      Supply of; rise; fall

    • B. 

      Supply of; fall; rise

    • C. 

      Demand for; rise; fall

    • D. 

      Damn for: fall, rise

  • 3. 
    When the inflation rate is expected to increase, the  for bonds falls, while the curve shifts to the right, everything else held constant.
    • A. 

      Demand , demand

    • B. 

      Demand, supply

    • C. 

      Supply, demand

    • D. 

      Supply, supply

  • 4. 
    The bond supply and demand framework is easier to use when analyzing the effects of changes in  , while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level and the supply of .
    • A. 

      Government budget deficits, bonds

    • B. 

      Government budget deficits, money

    • C. 

      Expected inflation, bonds

    • D. 

      Expected inflation, money

  • 5. 
    Milton Friedman contends that it is entirely possible that when the money supply rises, interest rates may  if the effect is more than offset by changes in income, the price level, and expected inflation.
    • A. 

      Rise, liquidity

    • B. 

      Fall, liquidity

    • C. 

      Fall, risk

    • D. 

      Rise, risk

  • 6. 
    Municipal bonds have default risk, yet their interest rates are lower than the rates on default-free treasury bonds. This suggest that ......
    • A. 

      The benefit from the tax-exempt status of municipal bonds is less than their default risk

    • B. 

      The benefit from the tax-exempt status of municipal bonds exceeds their default risk

    • C. 

      Treasury bonds are not default-free

    • D. 

      The benefit from the tax-exempt status of municipal bonds equals their default risk

  • 7. 
    According to the liquidity premium theory of the term structure..... 
    • A. 

      Because of the positive term premium, the yield curve will not be observed to be downward sloping

    • B. 

      The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium

    • C. 

      The interest rate for each maturity bond is determined by supply and demand for that maturity bond

    • D. 

      Because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time

  • 8. 
    Which of the following is NOT and entity of the Federal Reserve Systems? 
    • A. 

      The Comptroller of the Currency

    • B. 

      The Federal Open Market Committee

    • C. 

      Federal Reserve Banks

    • D. 

      The Board of Governors

  • 9. 
    The federal Reserve Bank of  plays a special role in the Federal Reserve Systems because it houses the open market desk.
    • A. 

      San Francisco

    • B. 

      Boston

    • C. 

      New York

    • D. 

      Chicago

  • 10. 
    Banks Subject to reserve requirements set by the Federal Reserve System include
    • A. 

      All banks whether or not they are members of the Federal reserve system

    • B. 

      Only Nationally chartered banks

    • C. 

      Only banks with assets less than $500 Million

    • D. 

      Only banks with assets less than $100 million

  • 11. 
    Members of the Board of Governors are .....
    • A. 

      Chosen by the Federal Reserve Bank presidents

    • B. 

      Never allowed to serve more than 7 year terms

    • C. 

      Appointed by the president of United States and confirmed by the Senate as members resign

    • D. 

      Appointed by the newly elected president of the united states, as are cabinet positions

  • 12. 
    The Federal Open Market Committee consists of the .....
    • A. 

      Seven members of the Board of Governors and seven presidents of the regional Fed banks

    • B. 

      Seven Members of the board of Governors and five presidents of the regional Fed Banks

    • C. 

      Five senior members of the seven- member board of governors

    • D. 

      Twelve regional Fed bank presidents and the chairman of the Board of Governors

  • 13. 
    Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to ...
    • A. 

      Propose legislation that would force the fed to submit budget requests to Congress, as must other government agencies.

    • B. 

      Instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve

    • C. 

      Withhold appropriations from the Board of Governors.

    • D. 

      Withhold appropriations from the Federal Open Market Committee

  • 14. 
    The trend in recent years is that more and more governments ....
    • A. 

      Have been granting greater independence to their central banks.

    • B. 

      Have been reducing the independence of their central banks to make them more accountable for poor economic performance

    • C. 

      Have required their central banks to cooperate more with their Ministers of Finance

    • D. 

      Have mandated that their central banks focus on controlling inflation

  • 15. 
    The Federal Reserve independence does not include the idea that .... 
    • A. 

      A policy is always performed better by an elite group such as the Fed.

    • B. 

      Political pressure would impart an inflationary bias to monetary policy

    • C. 

      A politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level

    • D. 

      A Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced

  • 16. 
    Recent research indicates that inflation performance (low inflation) has been found to be best in countries with ..... 
    • A. 

      The most independent central banks.

    • B. 

      Political control of monetary policy

    • C. 

      A policy of always keeping interest rates low

    • D. 

      Money financing of budget deficits

  • 17. 
    The four players in the money supply process include ..... 
    • A. 

      Banks, depositors, the central bank, and borrowers

    • B. 

      Banks, depositors, the central bank, and the U.S Treasury

    • C. 

      Banks, borrowers, the central bank, and the U.S Treasury

    • D. 

      Banks, depositors, borrowers, and the U.S Treasuries

  • 18. 
    The sum of the Fed's monetary liabilities and the U.S Treasury's monetary liabilities is called ...
    • A. 

      The money supply

    • B. 

      Bank reserves

    • C. 

      Currency in circulation

    • D. 

      The money base

  • 19. 
    the Federal Reserve earn income while the Federal Reserve cost nothing.
    • A. 

      Assets of; liabilities of

    • B. 

      Reserves of; assets of

    • C. 

      Liabilities of; assets of

    • D. 

      Currency in circulation by; assets of

  • 20. 
    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. 

      Currency; currency

    • B. 

      Deposits ; deposits

    • C. 

      Currency; deposits

    • D. 

      Deposits; currency

  • 21. 
    There are two ways in which the Fed can provide additional reserves to the banking system; it can  government bonds or it can discount loans to commercial banks.
    • A. 

      Sell; call in

    • B. 

      Purchase ; extend

    • C. 

      Purchase; call in

    • D. 

      Sell; extend

  • 22. 
    In the simple deposit expansion model, if the requiredreserve ration is 20 percent and the Fed increase reservesby $100, checkable deposits can potentially expand by ...
    • A. 

      $500

    • B. 

      $100

    • C. 

      $1,000

    • D. 

      $250

  • 23. 
    Decisions by depositors to increase their holdings of  , or of banks to hold will result in a smaller expansion of deposits than the simple model predicts.
    • A. 

      Currency , required reserves

    • B. 

      Deposits, required reserves

    • C. 

      Currency, excess reserves

    • D. 

      Deposits, excess reserves

  • 24. 
    If the required reserve ration 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..
    • A. 

      $8400

    • B. 

      $8000

    • C. 

      $1200.8

    • D. 

      $1200

  • 25. 
    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...
    • A. 

      0.601

    • B. 

      1.67

    • C. 

      2.5

    • D. 

      2.0

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