Series 52: Chapter 7 Practice Questions

Chapter 7 Practice Questions

1. 1. A recession is a protracted period of decline in the national economy, typically defined as:
2. A. Two quarters or more of economic contraction
3. B. Two quarters or more of decline in the housing market
4. C. Two quarters or mores of shrinking M1
5. D. Two quarters or more of a falling PPI
6. 2. Which of the following might cause the Federal Reserve to take action to stimulate the economy?
7. A. A rise in the CPI
8. B. A rise in the PPI
9. C. A drop in housing starts
10. D. A drop in unemployment
11. 3. Which of the following may lead the Fed to loosen the money supply?
12. A. A rise in commodity prices
13. B. A drop in the strength of the dollar
14. C. A decline in GDP
15. D. M1 has risen sharply
16. 4. All of the following might lead to the tightening of the money supply, except:
17. A. A rise in the CPI
18. B. A rise in non-farm payroll in a fully employed economy
19. C. A widening in credit spreads
20. D. A rise in the trade deficit
21. 5. A situation in which short-term securities pay higher yields than long-term securities is considered a(n) _____ yield curve.
22. A. Normal
23. B. Inverted
24. C. Flat
25. D. Barbell
26. 6. All of the following are true of yield spreads, except:
27. A. Spreads widen during recessionary periods.
28. B. Spreads narrow during periods of economic prosperity.
29. C. Compression of bond yields in general usually means the economy is declining.
30. D. A bond with a large credit spread means bondholders require a large risk premium.
31. 7. All of the following are tools that the Federal Reserve uses to implement monetary policy, except:
32. A. Open market operations
33. B. Discount window lending
34. C. Altering bank reserve requirements
35. D. Altering tax rates
36. 8. Which of the following is a fiscal policy that may slow down the economy?
37. A. Reducing government spending
38. B. Cutting taxes
39. C. Decreasing the money supply
40. D. Raising the CPI
41. 9. M1, the narrowest measur