A credit crunch
a. is a sharp decrease in banks’ willingness to lend
b. often results from restrictive Federal Reserve actions
c. is accurately represented by both of the above
d. is accurately represented by neither of the above
Answer:
When the dollar appreciates in foreign exchange markets,
a. the dollar cost of imports into America declines
b. the cost of U.S. exports to the rest of the world rises
c. each dollar buys more units of foreign currency
d. all of the above are true
Answer:
Efforts to reduce long-run interest expenditures of the federal government through
shortening of the average maturity of the federal debt are most likely to be successful if
which theory of term structure is valid?
a. liquidity premium theory
b. pure expectations theory
c. segmented markets theory
d. none of the above–in no case are they likely to reduce such expenditures
Answer:
Among the changes brought about by FIRREA was
a. the Office of Thrift Supervision replacing the FHLBB
b. the creation of the Bank Insurance Fund (BIF)
c. the creation of the Savings Association Insurance Fund (SAIF)
d. all of the above are true
Answer:
The first central bank in the United States was known as
a. the Bank of the United States
b. the Federal Reserve System
c. the First National Bank
d. Security First Trust
Answer:
A restaurant manager earns $36,000 per year and is paid twice each month. If he spends
all of his income evenly throughout the year, then his income velocity is
a. 48
b. 24
c. 12
d. none of the above
Answer:
The dividend yield:
a. is the annual dividend expressed as a percentage of a company’s profits
b. has been higher for companies included in the NASDAQ and Russell 2000 than for
those included in the DJIA and S&P 500 over the years
c. both of the above are correct
d. neither of the above is correct
Answer:
Which of the following financial instruments contains the highest default risk?
a. commercial paper
b. U.S. Treasury bonds
c. corporate stocks
d. corporate bonds
Answer:
M1 today:
a. is made up of about 50% demand deposits
b. is made up of about 10% traveler’s checks
c. is made up of about 50% currency
d. is made up of about 25% money market mutual fund shares
Answer:
During the 1980s and early 1990s, approximately how many commercial banks and
S&Ls, respectively, failed in the United States?
a. 600 commercial banks and more than half of S&Ls
b. 600 commercial banks and about one-third of S&Ls
c. 2500 commercial banks and about one-third of S&Ls
d. 1200 commercial banks and about one-third of S&Ls
Answer:
A factor that increases the discount rate applied to future earnings
a. will tend to push stock prices up
b. will tend to pull stock prices down
c. will not affect stock prices
d. none of the above is correct
Answer:
Which of the following potential intermediate target variables contains the least amount
of endogeneity and is thus most amenable to being controlled by the Fed?
a. the thirty-year Treasury bond yield
b. total bank reserves
c. M2
d. the volume of discount loans
Answer:
Adoption of inflation targeting will reduce output instability if the economy is typically
buffeted by ____ shocks, but will increase output instability if the economy is buffeted
by ____ shocks.
a. demand; supply
b. supply; demand
c. adoption of inflation targeting will always reduce output instability, regardless of the
source of the shocks
d. adoption of inflation targeting will never reduce output instability, regardless of the
source of the shocks
Answer:
The Fed currently follows a regime of
a. an active policy rule
b. a passive policy rule
c. discretionary monetary policy
d. none of the above
Answer:
Which of the following directly increases the nation’s money supply (M1)?
a. the public withdraws cash from banks
b. banks purchase securities from dealers
c. banks call in loans from borrowers
d. none of the above
Answer:
The advantage to speculators of conducting their activities in the forward exchange
market rather than the spot market is
a. the improved arbitrage possibilities
b. the increase in leverage
c. the reduction in risk
d. the reduced transactions costs
Answer:
Expanding economic activity and rising stock prices have resulted in increased
investment expenditure, which has in turn further expanded economic activity. Which
of the following has occurred?
a. a vicious cycle
b. a virtuous cycle
c. a circular flow
d. not enough information is given to answer the question
Answer:
If the money supply multiplier is 3, and the Fed wishes to increase the money supply by
$6,000, it should
a. buy $6,000 of securities
b. buy $2,000 of securities
c. sell $6,000 of securities
d. sell $2,000 of securities
Answer:
Which of the following was not a government response to the S&L crisis?
a. deregulation
b. forbearance
c. implementation of Regulation Q
d. reducing the supervisory burden
Answer:
Loans made by the Federal Reserve to depository institutions are known as
a. float
b. deferred availability cash items
c. cash items in the process of collection
d. none of the above
Answer:
If income velocity of money were constant, then all economists would agree that
a. the price level varies exactly in proportion to M
b. real GDP varies exactly in proportion to M
c. nominal GDP varies exactly in proportion to M
d. none of the above is necessarily true
Answer:
In the long run, the tradeoff between inflation and unemployment
a. can be exploited by policymakers
b. is horizontal–no matter how much output we have, the inflation rate will be constant
c. disappears as people build inflation into their expectations
d. results in a menu of policy choices for the Fed
Answer:
The only difference between the broad money supply multiplier (m2) and the narrow
money supply multiplier (m1) is
a. the way that the currency ratio k is derived for m2
b. the inclusion of OMA (other monetary assets held by the public) in the numerator
c. the inclusion of both re and rr in the denominator for m2
d. there is no difference between the two multipliers
Answer:
If the current U.S./U.K. exchange rate is 1.5 $/pound, and the current U.K./France
exchange rate is .66 pound/euro, then the U.S./France exchange rate must be
a. $1/euro
b. $2.2/euro
c. $2.16/euro
d. $0.66/euro
Answer:
Which of the following money market instruments sells at a discount to face value, like
U.S. Treasury bills?
a. commercial paper
b. federal funds
c. banker’s acceptances
d. negotiable CDs
Answer:
When Treasury currency outstanding is increasing, the fundamental cause stems from
actions by the
a. banks
b. Federal Reserve
c. public
d. Treasury
Answer:
If the yield on one and two-year maturity bonds is 6 percent and 8 percent, respectively,
then the one-year forward rate is approximately:
a. 10 percent
b. 4 percent
c. 6 percent
d. 8 percent
Answer:
The initial downward thrust to the money supply in the 1930s was triggered by
a. the increase in re
b. the increase in k
c. the increase in rr
d. the decline in the monetary base
Answer:
Which of the following is a liability to a commercial bank?
a. currency and coins
b. demand deposits
c. loans
d. none of the above
Answer:
The Federal Reserve’s monetary policy actions affect the economy primarily through
a. aggregate spending
b. shifting the AD curve
c. both of the above
d. neither of the above
Answer:
Members of the monetary union replaced their home currencies with a new currency,
the
a. SDR
b. eurodollar
c. euro
d. both b and c are correct
Answer:
Purchasing power parity theory of exchange rates seems to be most reliable in
accounting for:
a. short-term exchange rate movements
b. long-term exchange rate movements
c. intermediate-term exchange rate movements
d. extremely short-term exchange rate movements
Answer:
Monetarists use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. the discount rate-Treasury bill yield spread was very large
b. bank reserves declined
c. real short-term interest rates were very high
d. all of the above
Answer: