Question 1

The existence of a ________ means that the interest rate on a two-year bond will exceed the average interest rate on two successive one-year bonds.

Accepted Answer

A) risky asset. 
B) securitization premium. 
C) term structure. 
D) risk premium. 
A) risky asset. 
B) securitization premium. 
C) term structure. 
D) risk premium. D

Question 2

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Accepted Answer

A) 3)0%. 
B) 5)0%. 
C) 5)5%. 
D) 6)0%. 
A) 3)0%. 
B) 5)0%. 
C) 5)5%. 
D) 6)0%. D

Question 3

Why do people keep currency in their pockets when bank deposits pay interest?

Accepted Answer

A) Because banks might steal your money. 
B) Because currency is more liquid. 
C) Because bank deposits lose value due to inflation. 
D) Because bank deposits lose value due to changes in interest rates. 
A) Because banks might steal your money. 
B) Because currency is more liquid. 
C) Because bank deposits lose value due to inflation. 
D) Because bank deposits lose value due to changes in interest rates. B

Question 4

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

Accepted Answer

A) store of value. 
B) unit of account. 
C) medium of exchange. 
D) standard of deferred payment. 
A) store of value. 
B) unit of account. 
C) medium of exchange. 
D) standard of deferred payment.

Question 5

M2 does not include

Accepted Answer

A) Treasury bonds. 
B) passbook savings accounts. 
C) small-denomination time deposits. 
D) M1. 
A) Treasury bonds. 
B) passbook savings accounts. 
C) small-denomination time deposits. 
D) M1.

Question 6

Which of the following statements about M1 and M2 is true?

Accepted Answer

A) Demand deposits are not part of M1. 
B) M2 is more liquid than M1. 
C) M1 is larger than M2. 
D) Savings deposits are part of M2. 
A) Demand deposits are not part of M1. 
B) M2 is more liquid than M1. 
C) M1 is larger than M2. 
D) Savings deposits are part of M2.

Question 7

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

Accepted Answer

A) printing more currency and distributing it. 
B) purchasing government bonds from the public. 
C) selling government bonds to the public. 
D) buying newly issued government bonds directly from the government itself. 
A) printing more currency and distributing it. 
B) purchasing government bonds from the public. 
C) selling government bonds to the public. 
D) buying newly issued government bonds directly from the government itself.

Question 8

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

Accepted Answer

A) Money demand declines first, then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines. 
A) Money demand declines first, then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines.

Question 9

In economics,money refers to

Accepted Answer

A) income. 
B) wealth. 
C) assets used and accepted as payment. 
D) currency. 
A) income. 
B) wealth. 
C) assets used and accepted as payment. 
D) currency.

Question 10

If the income elasticity of money demand is 3/4 and income increases 8%,by about how much does the price level change?

Accepted Answer

A) Falls by 6% 
B) Unchanged 
C) Rises by 6% 
D) Rises by 8% 
A) Falls by 6% 
B) Unchanged 
C) Rises by 6% 
D) Rises by 8%

Question 11

For something to satisfy the medium-of-exchange function of money,it must be

Accepted Answer

A) backed by gold. 
B) readily exchangeable for other goods. 
C) issued by a central bank. 
D) an inherently valuable commodity. 
A) backed by gold. 
B) readily exchangeable for other goods. 
C) issued by a central bank. 
D) an inherently valuable commodity.

Question 12

If the quantity of money demanded exceeds the quantity of money supplied,then

Accepted Answer

A) the quantity of nonmonetary assets demanded exceeds the quantity supplied. 
B) the quantity of nonmonetary assets supplied exceeds the quantity demanded. 
C) the quantity of nonmonetary assets demanded will still equal the quantity supplied, all else being equal. 
D) you can make no conclusions about the relative supply and demand of nonmonetary assets. 
A) the quantity of nonmonetary assets demanded exceeds the quantity supplied. 
B) the quantity of nonmonetary assets supplied exceeds the quantity demanded. 
C) the quantity of nonmonetary assets demanded will still equal the quantity supplied, all else being equal. 
D) you can make no conclusions about the relative supply and demand of nonmonetary assets.

Question 13

How does the break-even inflation rate differ from the expected inflation rate as measured in surveys?

Accepted Answer

A) They are very close to each other. 
B) The break-even inflation rate varies less than the expected inflation rate from surveys. 
C) The break-even inflation rate varies more than the expected inflation rate from surveys. 
D) The break-even inflation rate is always several percentage points higher than the expected inflation rate from surveys. 
A) They are very close to each other. 
B) The break-even inflation rate varies less than the expected inflation rate from surveys. 
C) The break-even inflation rate varies more than the expected inflation rate from surveys. 
D) The break-even inflation rate is always several percentage points higher than the expected inflation rate from surveys.

Question 14

The opportunity cost of holding currency decreases when

Accepted Answer

A) income decreases. 
B) the interest rate on bonds decreases. 
C) the interest rate on money decreases. 
D) wealth decreases. 
A) income decreases. 
B) the interest rate on bonds decreases. 
C) the interest rate on money decreases. 
D) wealth decreases.

Question 15

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

Accepted Answer

A) goods market equilibrium. 
B) asset market equilibrium. 
C) monetary neutrality. 
D) money illusion. 
A) goods market equilibrium. 
B) asset market equilibrium. 
C) monetary neutrality. 
D) money illusion.

Question 16

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

Accepted Answer

A) risk. 
B) time to maturity. 
C) velocity. 
D) liquidity. 
A) risk. 
B) time to maturity. 
C) velocity. 
D) liquidity.

Question 17

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

Accepted Answer

A) the expectations theory doesn't account for taxes. 
B) a risk premium exists. 
C) an inflation premium must be added to long-term bonds. 
D) the Fed can only control short-term interest rates. 
A) the expectations theory doesn't account for taxes. 
B) a risk premium exists. 
C) an inflation premium must be added to long-term bonds. 
D) the Fed can only control short-term interest rates.

Question 18

The excess of the nominal interest rate over the TIPS interest rate is known as the

Accepted Answer

A) interest-rate differential. 
B) break-even inflation rate. 
C) yield spread. 
D) term structure. 
A) interest-rate differential. 
B) break-even inflation rate. 
C) yield spread. 
D) term structure.

Question 19

An increase in expected inflation is likely to cause

Accepted Answer

A) a decline in the demand for real balances. 
B) an increase in the demand for real balances. 
C) no change in the demand for real balances. 
D) no change in the demand for real balances only if the income elasticity of real money demand is zero. 
A) a decline in the demand for real balances. 
B) an increase in the demand for real balances. 
C) no change in the demand for real balances. 
D) no change in the demand for real balances only if the income elasticity of real money demand is zero.

Question 20

Under a situation of asset market equilibrium,

Accepted Answer

A) the quantity of money supplied equals the quantity of money demanded. 
B) the quantity of money supplied equals the quantity of nonmonetary assets demanded. 
C) the quantity of nonmonetary assets supplied equals the quantity of monetary assets demanded. 
D) the quantity of money supplied equals the quantity of nonmonetary assets supplied. 
A) the quantity of money supplied equals the quantity of money demanded. 
B) the quantity of money supplied equals the quantity of nonmonetary assets demanded. 
C) the quantity of nonmonetary assets supplied equals the quantity of monetary assets demanded. 
D) the quantity of money supplied equals the quantity of nonmonetary assets supplied.

The existence of a ________ means that the interest rate on a two-year bond will exceed the average interest rate on two successive one-year bonds.

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Why do people keep currency in their pockets when bank deposits pay interest?

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

M2 does not include

Which of the following statements about M1 and M2 is true?

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

In economics,money refers to

If the income elasticity of money demand is 3/4 and income increases 8%,by about how much does the price level change?

For something to satisfy the medium-of-exchange function of money,it must be

If the quantity of money demanded exceeds the quantity of money supplied,then

How does the break-even inflation rate differ from the expected inflation rate as measured in surveys?

The opportunity cost of holding currency decreases when

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

The excess of the nominal interest rate over the TIPS interest rate is known as the

An increase in expected inflation is likely to cause

Under a situation of asset market equilibrium,

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

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Exam 7: The Asset Market, money, and Prices

The existence of a ________ means that the interest rate on a two-year bond will exceed the average interest rate on two successive one-year bonds.

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Why do people keep currency in their pockets when bank deposits pay interest?

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

M2 does not include

Which of the following statements about M1 and M2 is true?

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

In economics,money refers to

If the income elasticity of money demand is 3/4 and income increases 8%,by about how much does the price level change?

For something to satisfy the medium-of-exchange function of money,it must be

If the quantity of money demanded exceeds the quantity of money supplied,then

How does the break-even inflation rate differ from the expected inflation rate as measured in surveys?

The opportunity cost of holding currency decreases when

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

The excess of the nominal interest rate over the TIPS interest rate is known as the

An increase in expected inflation is likely to cause

Under a situation of asset market equilibrium,

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters