1- When the Fed decreases the money supply, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.
Left; rises
2- A business cycle expansion increases income, causing money demand to ________ and interest rates to ________, everything else held constant
Increase: Increase
3- Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts
Decrease: Left
4- Everything else held constant, when prices in the art market become more uncertain
the demand curve for bonds shifts to the right and the interest rate falls
5- Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion.
Right: right
6- Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate
Left: rises
7- When an economy is recovering from a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.
Increase: increase
8- If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will
Decrease: Increase
9- Everything else held constant, when the government has higher budget deficits
the supply curve for bonds shifts to the right and the interest rate rises
10- A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant
Decrease: Left
11- If the interest rate on a bond is below the equilibrium interest rate, there is an excess ________ of bonds and the bond price will
Supply; fall
12- An increase in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant.
Supply of: fall
13- A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant
Increase; increase
14- In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall and interest rate to
Falls, Money, falls
15- A lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant
Decrease: decrease
16- If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant
Increase: increase
17- When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will
Below: rises
18- In the money market, an interest rate above equilibrium results in an excess ________ money and the interest rate will
supply for; rise
19- During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant
Decrease: left
20- In the 1990s Japan had the lowest interest rates in the world due to a combination of
Deflation and recession
21- If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds
Decrease: increase
22- An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant.
Increase: right
23- If there is an excess supply of money
Individuals buy bonds, causing interest rates to fall
24- Interest rates increased continuously during the 1970s. The most likely explanation is
Increasing expected rates of inflation
25- Factors that can cause the supply curve for bonds to shift to the right include
An expansion in overall economic activity
26- Which policy measure makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit
Sarbanes-Oxley Act of 2002
27- Conflicts of interest is a type of ________ problem that occurs when a person or institution has multiple objectives that are in conflict with each other.
Moral Hazard
28- Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to supervise accounting firms is an example of
supervisory of functions.
29- Evidence suggests that credit-rating agencies ________ exploited conflicts of interest because ________.
Have not; it would cause their ratings to lose credibility and thus have a lower value in the marketplace
30- Under the Global Legal Settlement of 2002, the provision that requires investment banking firms to sever the link between underwriting and research is an example of
Separation of functions.
31- Which of the following policy measures prohibited compliance officers from being involved in producing or selling credit ratings
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
32- which policy measure bans spinning?
Global Legal Settlement of 2002
33- which policy measure increased the SEC budget to supervise securities markets
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Sarbanes-Oxley Act of 2002
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34- Which of the following policy measures required the SEC to prevent issuers of asset-backed securities from choosing the credit-rating agencies that will give them the highest rating and supported earlier initiatives by the SEC
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
35- which of the following is not a conflict of interest in accounting firms
The firm provides consulting as well as rating creditworthiness
36- Which of the following policy measures forced credit-rating agencies to provide reports to the SEC when their employees go to work for a company that has been rated by them in the last twelve months?
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
37- One problem with conflicts of interest is that they can reduce the ________ in financial markets, thereby increasing
Quality of information; asymmetric information
38- Which policy measure requires investment banks to sever the links between research and securities underwriting?
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Global Legal Settlement of 2002
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39- Under the Sarbanes-Oxley Act of 2002, the clause that makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit is an example of which remedy of conflicts of interest?
Separation of functions
40- Conflicts of interest may arise within the credit rating agencies because
The issuers of debt securities pay the credit agencies for ratings
41- the subprime financial crisis caused a recession because of the ________ in adverse selection and moral hazard problems and the ________ in housing prices.
Increase; decrease
42- According to the traditional interest-rate channel, expansionary monetary policy lowers the real interest rate, thereby raising expenditure on
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Business fixed investment
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43- Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include the following.
Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.
44- According to Tobin's q theory, if q is ________, new plant and equipment capital is ________ relative to the market value of business firms, so companies can buy a lot of new investment goods with only a ________ issue of stock
high; cheap; small
45- Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending
rise; reduces; encouraging
46- Economic theory suggests that ________ interest rates are ________ important than ________ interest rates in explaining investment behavior.
real; more; nominal
47- An expansionary monetary policy raises firms' cash flows by ________ interest rates
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Lowering nominal
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48- Tobin's q is defined as the market value of firms ________ the replacement cost of capital.
Divided by
49- According to Tobin's q theory, ________ policy can affect ________ spending through its effect on the prices of common stock.
Monetary; investment
50- In the late 1990s, the stock market bubble ________ the value of Tobin's q, and caused ________ in business equipment.
Increased; overinvestment
51- If a contractionary monetary policy lowers the price level by more than expected, it raises the real value of consumer debt. This reduces consumer expenditure through
The household liquidity effect.
52- Movements of ________ interest rates indicate that, contrary to the early Keynesians' beliefs, monetary policy was ________ during the Great Depression
Real: tight
53- As a result of recent empirical research, there has been a convergence of Keynesian and monetarist opinion to the view that
Money does matter.
54- Monetarists contend that the channels of monetary influence in Keynesian structural models are too ________ defined, ________ the importance of monetary policy
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Narrowly; understating
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55- The monetarist statistical evidence examines the correlations between both ________ and ________ with
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Money; autonomous expenditures; aggregate spending
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56- An expansionary monetary policy lowers the real interest rate, causing the domestic currency to ________, thereby ________ net exports.
Depreciate; raising
57- The monetarist-Keynesian debate on the importance of monetary policy is unresolved because monetarists and Keynesians focus on two different types of evidence that generate conflicting conclusions. Monetarists tend to focus on
Reduced-form evidence, while Keynesians focus on structural-model evidence.
58- if the aggregate price level adjusts slowly over time, then an expansionary monetary policy lowers.
The short-term nominal, the short-term real, and the long-term real interest rates.
59- According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers
Feel more secure about their financial position
60- Franco Modigliani has found that an expansionary monetary policy can cause stock market prices to ________ and consumption to _
Increase; increase
61- When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing
Reduced-form evidence
62- Real business cycle theory states that the most important cause of business cycles is
Shocks to tastes and technology
63- In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the ________ decreased before ________ decreased
Money supply; output
64- Which of the following is NOT an advantage of a correctly specified structural model?
A structural model imposes no restrictions on the way monetary policy affects the economy.
65- By the standard of low-grade bonds, interest rates were ________ and monetary policy was ________ during the Great Depression
High; tight
66- A model that is composed of many equations that show the channels through which monetary and fiscal policy affect aggregate output and spending is called a
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Structural model.
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67- A contractionary monetary policy raises the real interest rate, causing the domestic currency to ________, thereby ________ net exports.
Appreciate; lowering
68- From the earlier 1990s until 2012, the Japanese monetary was ________ and stock and real estate prices were
Tight; falling.
69- Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and
Nominal interest rates; investment spending
70- A rise in stock prices ________ the net worth of firms and so leads to ________ investment spending because of the reduction in moral hazard.
Raises; higher
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