Checks and currency function similarly, however:
A. currency is a more effective means of payment.
B. carrying currency entails greater risk, because it cannot be replaced if lost or stolen.
C. currency is a better store of value than checking deposits.
D. checks are not included in measures of money, whereas currency is.
Answer:
One thing that is true about economic policy in the U.S. is:
A. fiscal and monetary policy never conflict.
B. monetary and fiscal policy need not, but may conflict.
C. monetary policy ultimately controls fiscal policy since the Fed controls the money
supply.
D. fiscal policy ultimately controls monetary policy since Congress can control the
Fed’s budget.
Answer:
Hedge funds can be described as:
A. low risk.
B. moderate risk.
C. very high risk.
D. only as risky as the entire stock market as measured by an index such as the S&P
500.
Answer:
Once the FOMC meetings adjourn, the public is made aware of the FOMC’s decision:
A. immediately after the meeting.
B. forty-eight hours after the meeting adjourns.
C. within five business days.
D. twenty-four hours after the meeting adjourns.
Answer:
To minimize the cost of holding reserves for small banks, the:
A. required reserve rate decreases as the amount of deposits increases.
B. required reserve rate is constant.
C. required reserve rate is not applied for transaction deposits less than $100 million.
D. first few million of transactions deposits are exempt from reserve requirements.
Answer:
M1 has decreased in its usefulness in understanding inflation due to:
A. the increased use of checks in the economy.
B. the introduction of money market mutual fund shares and similar checking
substitutes.
C. more reliance on the use of currency.
D. the increased use of electronic payments.
Answer:
The best way for a government to stop the failure of one bank from turning into a bank
panic is to:
A. make sure solvent institutions can meet the withdrawal demands of depositors.
B. declare a bank holiday until solvent banks can acquire adequate liquidity.
C. limit the withdrawals of depositors.
D. provide zero-interest rate loans to all banks regardless of net worth.
Answer:
Doubling the future value will cause:
A. the present value to fall by half.
B. the interest rate i, to double.
C. no change to present value, only the interest rate.
D. the present value to double.
Answer:
When the Fed forecasts a sustained increase in the demand for the monetary base, the
staff of the Fed is likely to meet this demand through:
A. discount loans.
B. repurchase agreements.
C. an outright purchase of U.S. Treasury Securities.
D. an outright sale of U.S. Treasury Securities.
Answer:
In the long run the inflation rate equals the level implied by:
A. the rate of money growth.
B. aggregate demand.
C. the exchange rate.
D. fiscal policy.
Answer:
The tool the Fed uses to keep the federal funds rate close to the target is:
A. the required reserve rate.
B. discount lending.
C. open market operations.
D. they can set the rate by law.
Answer:
Following the consolidation that resulted from the 2007-2009 financial crisis in the
U.S., the 4 largest commercial banks share of total deposits was:
A. 75%.
B. 50%.
C. 40%.
D. 25%.
Answer:
Which of the following is not a part of aggregate expenditure?
A. Consumption
B. The nominal interest rate
C. Government purchases
D. Net exports
Answer:
The U.S. Treasury issues bonds where the return is indexed to the consumer price
index. We should expect that these bonds, relative to other U.S. Treasury bonds, will
have:
A. lower price and lower return due to the decreased risk.
B. lower price and a lower fixed return since the demand for them should be higher.
C. higher price and higher fixed return since we always seem to have some inflation.
D. higher price and lower return due to the decreased risk from inflation in holding
these bonds.
Answer:
Which of the following individuals is least likely to use value at risk as an important
factor in his/her investment decision?
A. An individual considering a mortgage to buy his first home.
B. A family considering purchasing health insurance.
C. A policy maker considering regulation of depository institutions.
D. A mutual fund manager choosing the allocation of investments in the fund’s
portfolio.
Answer:
The statement “risk requires compensation” implies that people:
A. do not take risk.
B. only accept risk when they absolutely have to.
C. will only accept risk when they are rewarded for doing so.
D. avoid risk at all cost.
Answer:
The process of marking to market:
A. is done by the clearing corporation to reduce risk in futures contracts.
B. involves the margin accounts of only the buyers of future contracts.
C. involves the margin accounts of only the sellers of future contracts.
D. usually requires margin accounts to be adjusted weekly by the clearing corporation.
Answer:
An increase in the nation’s wealth, all other factors constant, would cause the:
A. bond supply curve to shift left.
B. bond demand curve to shift left.
C. bond supply curve to shift right.
D. bond demand curve to shift right.
Answer:
A bank’s Return on Assets (ROA) is calculated by dividing:
A. the bank’s assets by its net worth.
B. the bank’s net profits after taxes by its assets.
C. the bank’s net worth by its assets.
D. the bank’s assets less its net profit after taxes by its net worth.
Answer:
The Federal Reserve’s surveys of bank loan officers contain questions about:
A. the interest rates being charged.
B. the supply of and demand for loans.
C. the quantity and quality of loans.
D. all of the answers given are correct.
Answer:
What should be the impact on aggregate expenditures from an increase in the real
interest rate?
A. It should increase
B. It should decrease
C. It should remain constant
D. The impact is indeterminate
Answer:
Liabilities of commercial banks show up on the Fed’s balance sheet as part of its:
A. liabilities.
B. securities.
C. foreign exchange reserves.
D. loans.
Answer:
Harry gets $1000 in currency from his grandfather when he graduates from college. He
deposits these funds into his checking account. What is the impact on the monetary base
of Harry’s deposit?
A. The monetary base did not change
B. The monetary base increased by $1000
C. The monetary base decreased by $1000
D. The monetary base increases by more than a $1000
Answer:
A monthly interest rate of 1% is a compounded annual rate of:
A. 12.68%
B. 10.00%
C. 14.11%
D. 6.00%
Answer:
The price (P) of a consol offering an annual coupon payment (C) is best expressed by:
A. F/C
B. C(1 + i)
C. C/(1 + i)
D. C/i
Answer:
Under the Expectations Hypothesis, bonds of different maturities are assumed to be
perfect substitutes because:
A. the risk premium is assumed to be negative.
B. market forces would always have long-term interest rates equal the average of the
current and expected short-term rate.
C. expectations of future interest rates are uncertain and therefore cannot be included in
the analysis.
D. bond markets are very liquid.
Answer:
A coupon bond is a bond that:
A. always sells at a price that is less than the face value.
B. provides the owner with regular payments.
C. pays the owner the sum of the coupons at the bond’s maturity.
D. pays a variable coupon rate depending on the bond’s price.
Answer:
The answer to the question of whether or not a U.S. dollar will buy more in the U.S. or
in a foreign country is determined by:
A. the nominal exchange rate.
B. the real exchange rate.
C. whether the nominal exchange rate is > or < than 1.
D. you cannot determine the answer until you travel to the foreign country and convert
U.S. dollars to the foreign currency.
Answer:
If interest rates are expected to fall, bond prices will:
A. fall as the demand for bonds decreases.
B. remain constant until interest rates actually change.
C. fall as people fear capital losses in the future.
D. increase due to the demand for bonds increasing.
Answer:
Comparing an option to a futures contract it would be correct to say:
A. the risk involved in each is equal.
B. a futures contract carries more risk than the option contract.
C. an option contract carries more risk than the futures contract.
D. neither involves risk; they are tools to eliminate risk.
Answer:
Which of the following would be most likely to earn an AAA rating from Standard &
Poor’s?
A. A 10-year bond issued by Canada
B. A bond issue by a new vegetarian fast-food chain
C. A 10-year bond issued by a state or municipality
D. Shares of stock in Coca-Cola
Answer:
A problem with currency boards is that the central bank loses:
A. control over the government budget.
B. a flexible exchange rate is always preferred to a pegged exchange rate.
C. influence over interest rates.
D. the ability to supervise banks.
Answer:
Increases in the real interest rate in the U.S. will cause net exports to:
A. decrease, because the dollar depreciates.
B. increase, because the dollar depreciates.
C. decrease, because the dollar appreciates.
D. increase, because the dollar appreciates.
Answer: