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Question
Why is adverse selection more likely in financial markets when interest rates rise?A) The remaining borrowers are more likely to be risky.
B) Higher interest rates are likely to hurt the economy.
C) If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended.
D) Banks eliminate risky borrowers by raising interest rates.
Answer
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Related questions
Q:
The money multiplier
A) equals 1 over the required reserve ratio.
B) is an expression that converts the monetary base to the money supply.
C) is larger than the simple deposit multiplier.
D) is completely controlled by the Fed.
Q:
Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic?
A) The Fed sets the required reserve ratio.
B) The Fed is able to affect the level of reserves in the banking system.
C) Banks loan out all of their excess reserves.
D) The simple deposit multiplier is equal to 1 divided by the required reserve ratio.
Q:
The LM curve is the combinations of
A) the output gap and the real interest rate for which the money market is in equilibrium.
B) the inflation rate and nominal interest rate for which the money market is in equilibrium.
C) the inflation rate and real interest rate for which the money market is in equilibrium.
D) the inflation rate and real interest rate for which the goods market is in equilibrium.
Q:
A decline in the output gap causes the demand for real balances
A) to rise and the interest rate to fall.
B) to fall and the interest rate to rise.
C) and the interest rate to fall.
D) and the interest rate to rise.
Q:
Which of the following is NOT generally recognized as a channel for monetary policy?
A) interest rate channel
B) balance sheet channel
C) financial market channel
D) bank lending channel
Q:
Monetary policy can have substantial effects on the economy even when nominal interest rates are very low
A) since real rates are what affects borrowing and spending decisions.
B) by improving borrower and bank balance sheets.
C) by reducing transactions costs.
D) only when the policy is substantial.
Q:
What limited the effectiveness of monetary policy during the Financial Crisis of 2007-2009?
Q:
In a closed economy, the total quantity of goods demanded equals the sum of
A) consumption spending, investment spending, and government spending.
B) consumption spending, national saving, and taxes.
C) consumption spending, government spending, and taxes.
D) investment spending, national saving, and taxes.
Q:
Which of the following is NOT a reason given by economists for the failure of Okun's law to account for the rise in unemployment during the recession of 2007-2009?
A) increased willingness among firms to lay off workers during recessions
B) a surge in productivity during the recession
C) the unusual severity of the recession
D) it does not take into account the effect of the stimulus
Q:
The relationship between the output gap and the cyclical rate of unemployment is known as
A) the Phillips curve.
B) the LM curve.
C) Murphy's law.
D) Okun's law.
Q:
When the Fed reduces the real interest rate, which of the following does NOT increase?
A) consumption
B) investment
C) government purchases
D) net exports
Q:
All of the following help provide the basis for the Fed controlling the real interest rate in the IS-MP model EXCEPT
A) the Fed controls the federal funds rate through open market operations.
B) if expected future inflation remains stable, changes in nominal interest rates reflect changes in real interest rates.
C) short-term and long-term interest rates tend to move together.
D) the Fed's increased use of TIPS in conducting monetary policy.
Q:
What three parts of the economy are represented in the IS-MP model?
Q:
An autonomous expenditure is one that does not depend on:
A) government policy
B) the automobile sector
C) interest rates
D) GDP
Q:
The aggregate expenditure line is upward sloping since as GDP increases,
A) consumption increases
B) investment increases
C) government purchases increase
D) net exports increase
Q:
An increase in the real interest rate causes
A) the IS curve to shift to the right.
B) the IS curve to shift to the left.
C) a movement up the IS curve.
D) a movement down the IS curve.
Q:
What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S. economy?
A) IS shifts to the right
B) IS shifts to the left
C) potential GDP increases
D) potential GDP decreases
Q:
If a $10 billion increase in investment leads to a $20 billion increase in GDP, the multiplier isA) 0.5B) 2C) 10D) 30
Q:
Which of the following does NOT lead to an increase in potential GDP?
A) labor force grows
B) technological change takes place
C) new machinery and equipment are installed
D) aggregate expenditures increase
Q:
Which of the following would NOT cause the IS curve to shift to the left?
A) a decrease in government purchases
B) an increase in consumer confidence
C) a decrease in foreign demand for domestic products
D) a decrease in the expected future profitability of capital
Q:
Which of the following would NOT cause a shift in the IS curve?
A) an increase in the domestic real interest rate
B) an increase in consumer confidence
C) a decrease in the expected future profitability of capital
D) a decrease in government purchases
Q:
In a move up the IS curve,
A) investment rises.
B) output falls.
C) the real interest rate falls.
D) saving rises.
Q:
According to the new classical view, when the actual price level is greater than the expected price level
A) aggregate output is above the full employment level.
B) aggregate output is below the full employment level.
C) the aggregate supply curve will slope downward.
D) the coefficient a is equal to zero.
Q:
If the coefficient a in the new classical expression for short-run aggregate supply were equal to zero,
A) aggregate output would always be at its full-employment level.
B) the short-run aggregate supply curve would slope down.
C) the short-run aggregate supply curve would be a horizontal line.
D) aggregate output would only differ from its full-employment level if the actual price level did not equal the expected price level.
Q:
Which of the following will NOT shift the aggregate demand curve to the right?
A) a decline in the price level
B) an increase in government expenditures
C) an increase in investment
D) an increase in the money supply
Q:
A rise in the real interest rate will cause which of the components of aggregate demand to decline?
A) Only C
B) Only C and I
C) Only C, I, and NX
D) C, I, G, and NX
Q:
Which of the following expressions is correct?
A) AE = C + I + G - NX.
B) AE = C + I + G + NX.
C) AE = C + I + (G - T) + NX.
D) AE = C + I + (G - T) - NX.
Q:
A purchase of foreign assets by a central bank has the same impact on the monetary base as:
A) an open market purchase of government securities
B) an open market sale of government securities
C) an increase in the discount rate
D) a reduction in the interest on reserves
Q:
When the Fed allows the monetary base to respond to the purchase or sale of domestic currency in the foreign exchange market, the process is called
A) open market operations.
B) hedging.
C) sterilized intervention.
D) unsterilized intervention.
Q:
If the Fed sells foreign assets, the monetary base will
A) fall by the amount of the sale, only if the Fed buys domestic bank deposits with the proceeds.
B) fall by the amount of the sale, only if the Fed buys domestic currency with the proceeds.
C) fall by the amount of the sale, whether the Fed buys domestic bank deposits or domestic currency with the proceeds.
D) rise by the amount of the sale.