Chapter 1 Practice Questions
1. A recession is a protracted period of decline in the national economy, typically defined as:
A. More than two quarters of decreasing GDP
B. More than two quarters of decline in the housing market
C. More than two quarters of shrinking M1
D. More than two quarters of a falling PPI
2. Which of the following actions might the Federal Reserve take if it wishes to stimulate the economy?
A. Buy Treasuries
B. Raise the discount rate
C. Raise the bank reserve requirements
D. Raise the margin requirements
3. All of the following are tools that the Federal Reserve uses to implement monetary policy except:
A. Open market operations
B. Discount window lending
C. Altering bank reserve requirements
D. Altering the value of the dollar
4. Which of the following might cause the Federal Reserve to take action to stimulate the economy?
A. A rise in the CPI
B. A rise in the PPI
C. A drop in housing starts
D. A drop in unemployment
5. Which of the following may lead the Fed to loosen the money supply?
A. A rise in commodity prices
B. A drop in the strength of the dollar
C. A decline in GDP
D. MI has risen sharply
6. All of the following might lead to the tightening of the money supply except:
A. A rise in the CPI
B. A rise in non-farm payroll in a fully-employed economy
C. A widening in credit spreads
D. A rise in the trade deficit
7. A situation in which short-term securities pay higher yields than long-term securities is considered a(n) _____ yield curve.
A. Normal
B. Inverted
C. Flat
D. Barbell
8. All of the following are true of yield spreads except:
A. Spreads widen during recessionary periods.
B. Spreads narrow during periods of economic prosperity.
C. Compression of bond yields in general usually means that the economy is declining.
D. A bond with a large credit spread means that bondholde