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A nation running a persistent balance of payments surplus while part of a fixed exchange rate system would be required to __________ international reserves in an effort to prevent its currency from __________. A) amass; appreciating B) amass; depreciating C) […]

As of the end of 1994 the country in our survey with the smallest stock market in dollar terms was A) the United States. B) the United Kingdom. C) Japan. D) Germany. The two major types of financial systems are […]

An increase in housing starts, typically due to __________ interest rates, is often thought to precede __________. A) rising; an expansion B) rising; a recession C) falling; an expansion D) falling; a recession When the U.S. Treasury sells gold, the […]

A reduction in housing starts, typically due to __________ interest rates, is often thought to precede __________. A) rising; an expansion B) rising; a recession C) falling; an expansion D) falling; a recession If the Treasury borrows from the public […]

If banks borrowed from the Fed when the federal funds rate was below its target level A) the supply of reserves would decrease and the federal funds rate could fall even further. B) the supply of reserves would increase and […]

Which of the following situations is likely to lead to dynamic open market operations? A) A recession B) An increase in Federal Reserve float C) An increase in Treasury cash holdings D) An increase in currency outstanding Since the founding […]

Which of the following is a correct statement regarding the balance sheet of the Federal Reserve? A) Fed assets = Fed liabilities + Federal Reserve notes B) Fed assets = Fed liabilities + Fed capital accounts C) Fed assets = […]

The ex ante real interest rate is __________, while the ex post real rate is __________. A) the nominal interest rate minus expected inflation; the nominal interest rate minus actual inflation B) the nominal interest rate minus actual inflation; the […]

An indication to the Open Market Account Manager that commercial banks are experiencing a liquidity shortage would be a A) falling federal funds rate. B) rising federal funds rate. C) falling discount rate. D) rising discount rate. “Bad news” about […]

An investor pays $1,230 for a bond with a face value of $1,000 and an annual coupon rate of 9 percent. The investor plans to hold the bond until its maturity date in eight years. The bond has a yield […]

What economist in the early 20th century refined the use of the equation of exchange? A) Jean-Baptiste Say B) Irving Fisher C) Thomas Malthus D) Adam Smith A graphic depiction of the relationship between yield and maturity is A) the […]

Which theory of the term structure is usually criticized for underestimating the substitutability of different maturities of securities? A) The expectations theory B) The supply and demand approach C) The liquidity premium theory D) The preferred habitat approach A change […]

If the federal funds rate is above the equilibrium federal funds rate, then the supply of reserves would be __________ than the demand for reserves and the banks would try to __________ reserves causing the federal funds rate to fall. […]

Drexel Burnham Lambert pioneered the widespread issuance of A) junk bonds. B) commercial paper. C) callable bonds. D) convertible bonds. The prepayment uncertainty associated with __________ makes the maturity of these securities uncertain. A) corporate bonds B) corporate stocks C) […]

Any decrease in autonomous spending will A) shift the IS curve to the left. B) shift the IS curve to the right. C) cause a movement down along an IS curve. D) cause a movement up along an IS curve. […]

Which of the following futures contracts is available on the various commodity exchanges in the United States? A) Treasury bond futures B) Investment-grade bonds C) Over-the-counter stocks D) U.S. savings bonds Assume an asset has a 50 percent probability of […]

According to the bank reserve equation, the largest factor supplying reserves to the banking system is A) Federal Reserve purchases of government securities. B) Treasury currency outstanding. C) float. D) currency in circulation. Federal Reserve policy appears to be A) […]

Which of the following will cause the LM curve to shift to the left? A) A decrease in investment B) A decrease in money demand C) An increase in velocity D) A decrease in the money supply A vertical Phillips […]

In the Keynesian model, a decline in interest rates will cause investment to A) increase. B) decline. C) remain unchanged. D) move erratically, depending on the interest rate effect on saving. In a liquidity trap, expansionary monetary policy has __________ […]

Deposits with the Federal Reserve Bank are part of a commercial bank’s A) capital. B) reserves. C) loans. D) liabilities. The behavior of many savings-and-loans in the 1980s appears to be evidence __________ the existence of __________ problem in deposit […]

Assume that the yield on a security has two possible outcomes. There is a 60 percent chance it will yield 10 percent and a 40 percent chance it will yield 5 percent. The expected yield for this security is A) […]

Monetarists tend to think that the aggregate demand curve is A) stable. B) vertical. C) horizontal. D) sensitive to changes in investment spending. If all future expected short-term interest rates are equal to the current short-term interest rate, the expectations […]

According to the pure expectations approach to term structure, investors view securities with different maturities as A) close substitutes. B) complements. C) inversely related. D) independent. Savings-and-loans were originally federally insured through the A) FDIC. B) FSLIC. C) NCUSIF. D) […]

When currency outstanding increases, A) gold certificates rise. B) the money supply increases. C) Fed assets increase. D) bank deposits at the Fed decrease. Good news about an economic indicator __________ the denominator of a bond’s valuation formula, __________ the […]

Immediately after being collected, taxes are deposited in A) tax and loan accounts. B) the Federal Reserve Bank of New York. C) Federal Reserve district banks around the country. D) the Congressional Vault. Which of these indicators is probably the […]

Small firms borrow from “monitoring-intensive” financial intermediaries in __________ financial systems. A) banking-oriented B) markets-oriented C) banking- and markets-oriented D) socialist Which of the following is likely to have the widest bid-asked spread? A) A U.S Treasury bill B) A […]

The price the United States and the United Kingdom pay for having rather liquid securities markets is A) fluctuations in securities prices. B) unresolved stockholder-lender and manager-stockholder conflicts. C) allowing banks to hold substantial ownership shares in large firms. D) […]

The two cornerstones of Classical economics are the Quantity Theory and A) Liquidity Preference Theory. B) disequilibrium analysis. C) Say’s Law. D) the Phillips Curve. In the Keynesian model when desired investment exceeds desired saving, A) inventories rise. B) inventories […]

A tradeoff between inflation and unemployment is shown directly by the __________ curve. A) Fisher B) Phillips C) Friedman D) aggregate demand Suppose that IS and LM intersect at full-employment output. A leftward shift of IS will be followed by […]

Each regional Federal Reserve Bank is owned by A) the member banks in its district. B) the Federal Deposit Insurance Corporation. C) those who purchase its stock on the open market. D) the taxpayers in its district. With respect to […]

The Gramm-Leach-Bliley Act of 1999 A) allowed the creating of financial holding companies. B) set conditions under which an FHC can set up a merchant bank. C) brings the U.S. closer to the universal banking model. D) does all of […]

Underwriting spreads on equity issues are much __________ than on debt issues because stock prices are so __________ relative to bond prices. A) smaller; steady B) smaller; volatile C) larger; steady D) larger; volatile The United States has a balance […]

Which type of financing requires the largest minimum size of the borrower? A) mezzanine funds B) public debt C) venture capital funds D) public equity Property and casualty insurance companies tend to invest heavily in municipal bonds because A) the […]

Assume that excess reserves are $35 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is A) .07. B) .2. C) .25. D) .27. The annual dollar interest payment of a security is […]

The expenditure multiplier is greatest when the A) LM curve is positively sloped. B) LM curve is horizontal. C) IS curve is vertical. D) LM curve is vertical. An unexpected fall in durable goods orders should send bond prices __________ […]

Among state member and national banks, __________ have federal deposit insurance through the FDIC. A) all B) virtually all C) a minority D) none of them Regulation Q was responsible for the drop in importance of __________ as a source […]

Financial markets serve as the A) primary source of funds for financial intermediaries. B) means of converting cash into tangible assets. C) transmission mechanism between savers and borrowers. D) economic system’s ultimate source of funds. Which of the following appears […]

Adaptive expectations are “__________” according to the New Classical economists because they __________ information it is possible to use in making a forecast. A) rational; include all B) rational; exclude some C) irrational; include all D) irrational; exclude some When […]

The expenditure multiplier in the ISLM framework is smaller than that derived from the simple Keynesian model because A) velocity is always assumed to be constant. B) the economy is assumed to be in the liquidity trap. C) the aggregate […]

With a surplus in our balance of payments, there is an excess __________ dollars in the foreign exchange market, causing the dollar to __________. A) demand for; appreciate B) demand for; depreciate C) supply of; appreciate D) supply of; depreciate […]

Which of the following best describes the ideal quantity of money? A) It equals the amount of spending. B) It equals the level of GDP. C) It equals the price level. D) It stabilizes prices while allowing a high level […]

In a world of rational expectations, A) an anticipated increase in money supply leads immediately to higher nominal interest rates. B) an anticipated increase in money supply leads immediately to lower nominal interest rates. C) an unanticipated increase in money […]

Which of the following investments does not make interest payments annually but is sold at a discount, with the face value of the security paid at maturity? A) Preferred stock B) Preferred bonds C) Zero-coupon bonds D) Convertible preferred stock […]

A resilient market is one in which A) wide price swings occur when orders decline. B) volume picks up quickly when prices change. C) bid-asked spreads are large. D) volume is large. In a __________ plan, employees may choose __________. […]

If the inflation rate is 5 percent and the real rate of interest is 3 percent, the nominal interest rate is A) 8 percent. B) 5 percent. C) 3 percent. D) 2 percent. A speculator may choose to buy a […]

Which of the following is not a permanent member of the FOMC? A) The president of the New York Fed B) The president of the Philadelphia Fed C) The chairman of the board of governors D) All of the above […]

A decrease in aggregate demand in the Classical model leads to A) lower prices and lower output. B) lower prices and higher output. C) lower prices and unchanged output. D) unchanged prices and output. Portfolio diversification is ineffective when A) […]

In the ISLM framework, a declining price level causes A) interest rates to rise. B) income to fall. C) saving to rise. D) the LM curve to shift to the right. The Federal Reserve econometric model estimates that it takes […]

Financial intermediaries are specialists in the production of A) market failure. B) information. C) traded assets. D) commercial paper. Firm ownership in the United Kingdom is largest for A) individuals. B) financial institutions ‘ agents. C) financial institutions ‘ ownership/control. […]

When the economy is in the liquidity trap, A) velocity is constant. B) monetary policy is impotent. C) fiscal policy is impotent. D) income is zero In markets-oriented systems, handling of the manager-stockholder conflict in large firms is through A) […]

At __________ income levels on the LM curve, the interest rate must be __________. A) higher; lower B) lower; higher C) higher; unchanged D) higher; higher A bond has a face value of $1,000 and an annual coupon rate of […]

The most widely used measure of interest rates in bond markets is the A) coupon rate. B) discount rate. C) yield to maturity. D) current yield. An effective way to restore credibility to monetary authorities after a period of hyperinflation […]

A good example of using the discount rate to serve the lender of last resort role for the financial system occurred during the A) savings and loan crisis of the 1980s. B) stock market crash of 1987. C) sharp rise […]

If the yield on short-term securities is greater than the yield on comparable long-term securities, the yield curve will have a A) positive slope. B) negative slope. C) constant slope. D) zero slope. With a rise in government expenditure we […]

Which of these government financing methods is generally the least inflationary? A) Printing currency B) Borrowing from the banking system C) Borrowing from the central bank D) Borrowing from the non-bank public Factors supplying and absorbing bank reserves constitute the […]

__________ argue that any exogenous decrease in investment spending would be countered automatically by either increased consumption or interest-sensitive investment spending. A) Monetarists B) Keynesians C) Classical economists D) None of the above. Most economists believe the LM curve to […]

The proportion of the money supply that is held in the form of currency is ultimately determined by A) the Federal Reserve. B) the public. C) the U.S. Congress. D) commercial banks. Long-term bonds are __________ than short-term bonds, and […]

Since 1970 there has been a clear increase in the proportion of the banking industry assets made up of A) mortgage loans. B) state and local government securities. C) cash. D) business loans. A President who favors the use of […]

If the required reserve ratio is .2 and reserves initially decline by $25, demand deposits can decline by A) $125. B) $50. C) $25. D) $5. In the Keynesian model, money demand is positively related to A) income. B) interest […]

For long-term stopgap financing of large projects, city governments can issue A) tax-anticipation notes. B) bond-anticipation notes. C) general obligation bonds. D) revenue bonds. According to the Keynesian view of the demand for money, an increase in uncertainty will cause […]

A sudden expectation of future depreciation of the dollar causes funds to flow __________ the United States and the dollar to actually __________. A) out of; depreciate B) out of; appreciate C) into; depreciate D) into; appreciate According to the […]

If the federal funds rate is __________ the equilibrium interest rate, banks would try to __________ in the federal funds market. A) above; borrow B) below; lend C) below; borrow D) None of the above. Which of the following groups […]

“Good news” about an expenditure-related indicator drives bond prices __________ and stock prices __________. A) up; up B) up; down C) down; up D) down; down Monetarists differ from Classical economists in that they argue that A) changes in the […]

The existence of a “bought deal” in public offerings of bonds came about as a result of A) shelf registration. B) a narrow underwriting spread. C) the need of investment banks to form syndicates before underwriting an issue. D) the […]

Monetarists assume that there is a powerful direct link between aggregate demand and A) velocity. B) real money balances. C) wage rates. D) interest rates. In actual financial markets, securities are __________ divisible, which __________ a type of market imperfection. […]

This basic pattern emerges in the United States: financial institutions are more heavily regulated A) the smaller is their typical contributor. B) the larger is their typical contributor. C) the riskier are their assets. D) the larger they are in […]

As part of the “exchange rate effect of monetary policy,” a higher money supply causes __________ of the domestic currency and thus __________ net exports. A) appreciation; rising B) appreciation; falling C) depreciation; rising D) depreciation; falling Suppose the IS […]

The problem of vesting and funding are avoided by __________ pension plans. A) both defined benefit and defined contribution B) defined benefit C) defined contribution D) neither defined benefit nor defined contribution Which of the following is likely to have […]

In Keynes’ concept of the liquidity trap, A) monetary policy becomes more effective as interest rates fall below normal. B) people wish to hold more bonds as interest rates fall below normal. C) people wish to hold fewer bonds as […]

Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. Then the central bank increases money growth as a result of an announced policy change. Under the assumption […]

__________ occurs because firm owners have an incentive to understate their true riskiness to borrow on a more favorable basis. A) Moral hazard B) Adverse selection C) Manager-stockholder conflict D) Manager-lender conflict Suppose that during a given month 500,000 persons […]

An inflation forecast developed in a Monetarist framework is likely to focus on A) Federal Reserve policy. B) interest rate movements. C) household and business spending decisions. D) the velocity of money. Moral hazard is a problem A) peculiar to […]

Which of these will cause the equilibrium interest rate to rise? A) A decrease in the supply of loanable funds B) A decrease in the demand for loanable funds C) An increase in the supply of loanable funds D) A […]

An unexpected rise in Capacity Utilization should send bond prices __________ and stock prices __________. A) up; up B) up; down C) down; up D) down; down A decrease in money demand will shift the A) IS curve to the […]

The ultimate source of liquidity in a modern industrial economy is the A) government Treasury. B) central bank. C) capital market. D) liquidity market. “A rise in government expenditures raised output in the short run, but left output unaffected in […]

Which of the following is not responsible for the post-World War II rise in M1 velocity? A) The relatively wide historical definition of M1 B) The increasing attractiveness of other categories of financial assets C) Attractive yield on financial assets […]

The bid-asked spread is likely to be greater on securities that are A) issued in larger denominations. B) have low market risk. C) less liquid. D) traded in a deep market. Securities dealers reduce the uncertainty associated with mortgage debt […]

An unexpected rise in the LEI should send bond prices __________ and stock prices __________. A) up; up B) up; down C) down; up D) down; down According to Keynes, it is __________ to have __________ holding money. A) possible; […]

An unexpected rise in Housing Starts should send bond prices __________ and stock prices __________. A) up; up B) up; down C) down; up D) down; down The distinction between a ‘secured” lender and an “unsecured” lender is that in […]

Assume that there are no excess reserves, no savings accounts, and no currency held by the public. If the demand deposit expansion multiplier is 4, the required reserve ratio must be A) also 4. B) .2. C) .25. D) .5. […]

One-year securities are currently yielding 8 percent. You expect one-year securities to yield 10 percent next year. Currently, two-year securities are yielding 9.5 percent. Given this situation, portfolio managers would __________ two-year securities, pushing their yield __________. A) buy; up […]

According to Classical interest rate theory, which of the following will increase the equilibrium interest rate? A) An increase in investment B) An increase in saving C) An increase in real output D) A decrease in real output If an […]

__________ the required reserve ratio will __________ the potential for multiple expansion. A) Raising; increase B) Lowering; decrease C) Raising; decrease D) None of the above. If inflation becomes a serious problem, a Monetarist-oriented President is likely to favor a […]

The portfolios of property and casualty insurance companies are generally concentrated in A) liquid assets. B) mutual funds. C) primary securities. D) U.S. Treasury bonds. Paul Oldy just purchased a $2,000 face value bond with. The bond pays $45 in […]

Which of the following financial institutions is likely to have a preferred habitat in long-term securities? A) Commercial banks B) Money market mutual funds C) Life insurance companies D) Credit unions In terms of the aggregate demand and supply framework, […]

The most popular floating rate in swaps is A) LIBOR. B) the Treasury note rate. C) the prime rate. D) the six-month Treasury bill rate. For banks, net interest income is becoming a __________ proportion of their total operating income […]

A repurchase agreement of government securities by the Fed A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. “Institutionalization” refers to the fact that a(n) __________ percentage of funds […]

Funds that used to flow through intermediated markets and now flow through financial markets are A) intermediated. B) indirectly financed. C) securitized. D) saved. If the government collects taxes to pay for expenditures of an equal amount, bank reserves A) […]

The largest component of the money supply (M is A) time deposits. B) large CDs. C) demand deposits. D) coin and currency. Which of these financial institutions is the most likely to have a portfolio very similar to those of […]

Real wages will decline if A) money supply growth exceeds expectations. B) real interest rates rise. C) aggregate demand exceeds aggregate supply. D) money supply growth exceeds the inflation rate. An unexpected fall in the Purchasing Managers’ Index should send […]

Along an IS curve as income levels __________, saving is larger, so the interest rate must be __________ to expand the level of investment so it will be equal to saving. A) increase; higher B) increase; lower C) decrease; higher […]

The __________ is always larger than the __________. A) yield on a discount basis; coupon equivalent yield B) yield on a discount basis; bond equivalent yield C) coupon equivalent yield; yield on a discount basis D) None of the above. […]

The LM curve automatically shifts to the left when the intersection point of the IS and LM curves occurs at a point A) beyond full-employment income. B) in the liquidity trap. C) less than full-employment income. D) where planned saving […]