Exam 2

Front 1

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base, everything else held constant.

Back 1

sale; purchase

Front 2

If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.

Back 2

increase; defensive; inject

Front 3

An autonomous tightening of monetary policy

Back 3

shifts the monetary policy curve upward.

Front 4

The demand for money as a cushion against unexpected contingencies is called the

Back 4

precautionary motive.

Front 5

In the 1990s this agency has acted like an international lender of last resort to cope with financial instability.

Back 5

IMF

Front 6

Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.

Back 6

left; decrease

Front 7

Between May and July 1997, concerns about the large current account deficit in Thailand and the weakness in the Thai financial system caused speculators to suspect that Thailand might be forced to

Back 7

devalue its currency.

Front 8

The type of monetary policy that is used in Canada, New Zealand, and the United Kingdom is

Back 8

inflation targeting.

Front 9

To keep from running out of international reserves under the Bretton Woods system, a country had to implement ________ monetary policy to ________ its currency.

Back 9

contractionary; strengthen

Front 10

In the liquidity trap, monetary policy

Back 10

has no impact on interest rates.

Front 11

When the federal funds rate equals the interest rate paid on excess reserves

Back 11

the demand curve for reserves is horizontal.

Front 12

If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the real depreciates from ________ per real to ________ per real.

Back 12

$0.67; $0.50

Front 13

Suppose interest rates are kept very low for a long time such that there is a spike in the amount of lending. Everything else held constant, this could cause ________ bubble.

Back 13

a credit -driven

Front 14

Everything else held constant, in the market for reserves, when the federal funds rate is 1%, increasing the interest rate paid on excess reserves from 1% to 2%

Back 14

raises the federal funds rate.

Front 15

Using Taylor's rule, when the equilibrium real federal funds rate is 2 percent, there is no output gap, the actual inflation rate is zero, and the target inflation rate is 2 percent, the nominal federal funds rate should be

Back 15

1 percent.

Front 16

The primary goal of the European Central Bank is

Back 16

price stability

Front 17

In the Keynesian cross diagram, an increase in investment spending because companies become
more optimistic about investment profitability causes the aggregate demand function to shift up,
the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Back 17

rise; right

Front 18

Everything else held constant, if a central bank makes a sterilized sale of foreign assets, then the domestic currency will

Back 18

not be affected.

Front 19

A central bank has ________ chance to identify a credit -driven bubble compared to an irrational exuberance bubble.

Back 19

a greater

Front 20

The equivalent to the Federal Reserve's discount rate in the European System of Central Banks is the

Back 20

marginal lending rate

Front 21

The Fed accidentally discovered open market operations in the early

Back 21

1920s

Front 22

The view that velocity is constant in the short run transfor ms the equation of exchange into the
quantity theory of money. According to the quantity theory of money, when the money supply doubles

Back 22

nominal income doubles

Front 23

If actual output is greater than equilibrium output, firms will ________ output to keep from ________ inventories.

Back 23

decrease; accumulating

Front 24

When compared to the Fed's ________ anchor approach, ________ targeting can make the institutional framework for the conduct of monetary policy more consistent with democratic principles.

Back 24

implicit; inflation

Front 25

In the market for reserves, if the federal funds rate is between the discount rate and the interest
rate paid on excess reserves, an increase in the reserve requirement ________ the demand for
reserves, ________ the federal funds rate, everything else held constant.

Back 25

increases; raising

Front 26

With a 10 percent interest r ate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the dollar is

Back 26

10 percent

Front 27

When the level of unplanned inventory investment is equal to zero, the economy is

Back 27

in equilibrium

Front 28

Everything else held constant, in the market for reserves, when the demand for federal funds
intersects the reserve supply curve on the vertical section, increasing the discount rate

Back 28

has no effect on federal funds rate

Front 29

Everything else held constant, the vertical section of the supply curve of reserves is shortened when the

Back 29

discount rate decreases

Front 30

A depreciation of the U.S. dollar makes American goods cheaper relative to foreign goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant.

Back 30

rise; rightward

Front 31

The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the

Back 31

Term Auction Facility

Front 32

The Fed is considering eliminating

Back 32

seasonal credit lending

Front 33

Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant

Back 33

dynamic; purchase

Front 34

According to the Taylor Principle, when the inflation rate rises, the nominal interest rate should be ________ by ________ than the inflation rate increase.

Back 34

increased; more

Front 35

The monetary policy strategy that directly ties down the price of internationally traded goods is

Back 35

exchange-rate targeting

Front 36

Higher tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant.

Back 36

appreciate; long

Front 37

When the value of the dollar changes from £0.75 to £0.5, then the British pound has ________ and the U.S. dollar has ________.

Back 37

appreciated; depreciated

Front 38

There are two types of investment: ________ investment —the spending by business firms on
equipment and structures, and planned spending on residential houses—and ________ investment—spending by business firms on additional holdings of raw materials, parts, and finished goods.

Back 38

fixed; inventory

Front 39

Under a fixed exchange rate system, countries that ra n large, persistent balance of payments deficits would ________ international reserves, thereby pressuring them into ________ their exchange rate

Back 39

lose; devaluing

Front 40

Because prices are slow to move in the short -run, when the Federal Reserve lowers the federal funds rate,

Back 40

real interest rates fall

Front 41

If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is

Back 41

5

Front 42

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s, with M2 velocity moving ________ with the opportunity cost of holding M2.

Back 42

well; closely

Front 43

A fall in inventories is synonymous with ________ investment.

Back 43

negative inventory

Front 44

The Fed was committed to keeping interest rates low to assist Treasury financing of budget deficits

Back 44

during World War I and World War II

Front 45

Policymakers in a country with a balance of payments surplus may not want to see their country's currency appreciate because this would

Back 45

hurt domestic businesses by making foreign goods cheaper in their country

Front 46

When the value of the British pound changes from $1.50 to $1.25, then the pound has ________
and the U.S. dollar has ________.

Back 46

depreciated; appreciated

Front 47

In the market for reserves, a lower interest rate paid on excess reserves

Back 47

decreases the effective floor for the federal funds rate

Front 48

________ in the foreign interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant.

Back 48

A decrease; appreciate

Front 49

Of the following, the one that appears in the current account of the balance of payments is

Back 49

income earned by U.S. subsidiaries of Barclay's Bank of London.

Front 50

In the simple Keynesian model, equilibrium aggregate output is determined by

Back 50

aggregate demand.