1) A decrease in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the interest rate of Treasury bonds, everything else held constant.

A.

decrease; decrease

B.

increase; increase

C.

decrease; increase

D.

increase; decrease

2) When you deposit a $500 bill in the Abu Dhabi National Bank.

A.

Its assets increase by $500.

B.

Its reserves decrease by $500.

C.

Its cash items in the process of collection increase by $500.

D.

Its liabilities decrease by $500.

3)The Central Bank does not tightly control the monetary base because it does not completely control

A.

Borrowed reserves.

B.

The discount rate.

C.

Open market sales.

D.

Open market purchases.

4) When the Central Bank purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

A.

Increase; decreases.

B.

Increase; increases.

C.

Decrease; increases.

D.

Decrease; decreases.