An overvalued fixed exchange rate can be maintained only as long as: A) the country’s central bank reserves are available to support currency intervention in the foreign exchange market. B) the country’s central bank can increase the domestic money supply. C) the country’s government increases debt financing. D) none of the above. ANSWER A
Contractionary monetary policy increases the federal funds rate. Indicate whether the statement is true or false ANSWER TRUE
According to the liquidity premium theory of the term structure A) 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. B) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to […]
If an individual moves money from a small-denomination time deposit to a demand deposit account A) M1 increases and M2 stays the same. B) M1 stays the same and M2 increases. C) M1 stays the same and M2 stays the same. D) M1 increases and M2 decreases. ANSWER A
If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in A) deposits and reserves. B) deposits and loans. C) capital and reserves. D) capital and loans. ANSWER A
A key assumption in the segmented markets theory is that bonds of different maturities A) are not substitutes at all. B) are perfect substitutes. C) are substitutes only if the investor is given a premium incentive. D) are substitutes but not perfect substitutes. ANSWER A
If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending, there will be: A) upward pressure on a country’s exchange rate. B) downward pressure on a country’s exchange rate. C) no pressure on a country’s exchange rate. D) none of the above. ANSWER B
The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee? A) Philadelphia B) Boston C) San Francisco D) New York ANSWER D
The GDP deflator: A) measures the price changes of a fixed basket of goods and services. B) measures the price changes of all final goods and services produced. C) measures the price changes of just goods consumed by the household sector. D) none of the above. ANSWER B
If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $50,000. B) $40,000. C) $30,000. D) $25,000. ANSWER A
