Risk-free investments have rates of return:
A. equal to zero.
B. with a standard deviation equal to zero.
C. that are uncertain, but have a certain time horizon.
D. that exhibit a large spread of potential payoffs.
Answer:
Net interest income for a bank is:
A. the difference between gross income and net income after taxes.
B. the interest banks earn from uses of funds.
C. the difference between interest income and interest expense.
D. the difference between interest income and total expenses.
Answer:
The components of the formula for the Taylor rule includes each of the following,
except:
A. the target federal funds rate.
B. the current inflation rate.
C. the 30-year U.S. Treasury bond rate.
D. the inflation gap.
Answer:
If the U.S. government’s borrowing needs increase, all other factors constant the:
A. demand for bonds will decrease.
B. price of bonds will increase.
C. supply of bonds will increase.
D. yields on bonds will decrease.
Answer:
Which fact about the term structure is the Expectations Theory unable to explain?
A. Why interest rates on bonds with different terms to maturity tend to move together
over time.
B. Why yields on short-term bonds are more volatile than yields on long-term bonds.
C. Why longer-term yields tend to be higher than shorter-term yields.
D. Why long-term bond yields are influenced by expected future short-term bond
yields.
Answer:
If the government did not offer the too-big-to-fail safety net:
A. large banks would be more disciplined by the potential loss of large corporate
accounts.
B. the moral hazard problem of insuring large banks would increase.
C. the moral hazard problem of insuring large banks would not be affected.
D. the FDIC deposit insurance limits would have to be raised.
Answer:
To say an asset is liquid implies that:
A. we are focusing on a category of assets that are in a physically liquid form, like oil.
B. we are considering assets that may be readily converted into a means of payment.
C. we are considering any asset that can be sold.
D. we are only considering U.S. currency.
Answer:
The main difference between European and American options is:
A. holders of European options have more options than holders of American options.
B. American option holders have more options than European option holders.
C. European option holders can exercise the option prior to expiration.
D. European options cannot be resold.
Answer:
For a firm, a decrease in the interest rate resulting from monetary policy can:
A. decrease the value of its assets.
B. decrease the cost of its liabilities.
C. decrease its net worth.
D. all of the answers given are correct.
Answer:
Stable velocity as a contributing factor to successfully using money growth as a
stabilizing monetary policy tool, is more important in an environment where:
A. inflation is extremely high (e.g., over 100 percent).
B. inflation is low (e.g., less than 10 percent).
C. inflation occurs, the problems caused by a variable velocity are just as severe at low
levels of inflation as at high levels of inflation.
D. there is deflation.
A. inflation is extremely high (e.g., over 100 percent).
Answer:
The European Central Bank has ensured independence by appointing Executive Board
members for:
A. life.
B. eight-year non-renewable terms.
C. fourteen-year terms.
D. twenty-year terms.
Answer:
Up to what amount would a risk-neutral gambler pay to enter a game where on the flip
of a fair coin, if you call the correct outcome the payoff is $2,000?
A. More than $1000 but less than $2000.
B. Up to $2,000.
C. Up to $1,000.
D. More than $1,500.
Answer:
The Breton Woods System was an agreement that:
A. required each participating country to peg their currency to the U.S. dollar.
B. required each participating country to abolish all trade barriers.
C. required each participating country to stay on the gold standard.
D. standardized tariffs across all participating countries.
Answer:
Financial intermediaries include each of the following, except:
A. the New York Stock Exchange.
B. credit unions.
C. savings banks.
D. commercial banks.
Answer:
Banks do not hold a lot of their assets in the form of cash mainly because of:
A. regulation.
B. the fear of being robbed.
C. the opportunity cost of holding cash; cash does not earn interest.
D. it can encourage employee theft.
Answer:
Without the stockholders’ limited liability, the risk from the use of leverage would:
A. be significantly less.
B. be significantly greater.
C. still be the same.
D. be irrelevant.
Answer:
Central bankers with a relatively steep monetary policy reaction curve will:
A. move interest rates more aggressively when inflation rises, leading to more
volatility in output.
B. move interest rates more aggressively when inflation rises, leading to less volatility
in output.
C. move interest rates less aggressively when inflation rises, leading to more volatility
in output.
D. move interest rates less aggressively when inflation rises, leading to less volatility in
output.
Answer:
Requiring a home buyer to have a large down payment reduces the risk to a mortgage
lender because:
A. it means that if the price of the house falls, the owner suffers the loss.
B. the buyer is less likely to sell the house.
C. it means the buyer likely underpaid when she bought the house.
D. it means there is more information available on the buyer.
Answer:
The Federal Reserve Bank of New York is unique from other Reserve banks because it:
A. is the only regional Bank that serves just one state.
B. is the only regional Bank located in a financial center.
C. is where the Federal Reserve System’s portfolio is managed.
D. is the oldest and therefore the largest.
Answer:
If prices and wages are slow to adjust (‘sticky,” rather than flexible):
A. inflation would adjust rapidly.
B. output gaps would disappear quickly.
C. inflation would adjust to output gaps sluggishly.
D. the short-run aggregate supply curve would not shift.
Answer:
A saver knows that if she put $95 in the bank today she will receive $100 from the bank
one year from now, including the interest she will earn. What is the interest rate she is
earning?
A. 5.10%
B. 6.00%
C. 5.52%
D. 5.26%
Answer:
Unconventional monetary policy tools include all but:
A. quantitative easing.
B. forward guidance.
C. targeted asset purchases.
D. reserve requirement.
Answer:
Savings and loan institutions:
A. are owned by the depositors.
B. originally were formed primarily to make home mortgages.
C. today offer a much smaller array of services than when originally formed.
D. are owned by depositors who also have a common bond.
Answer:
A U.S. resident who wants to purchase an automobile that comes from Japan:
A. will be supplying yen on the foreign exchange market.
B. will make up part of the demand for dollars on the foreign exchange market.
C. will make up part of the supply of dollars on the foreign exchange market.
D. will not be a participant in the foreign exchange market.
Answer:
The slope of the monetary policy reaction curve is determined by:
A. how strongly the economy reacts to changes in the nominal interest rate.
B. how strongly the inflation rate impacts peoples’ decisions.
C. how aggressively policymakers change interest rates in response to deviations
between current and target inflation rates.
D. people’s expectations for inflation.
Answer:
Economies of scale associated with financial intermediaries means:
A. the total cost of handling transactions falls as more transactions of different kinds
are handled.
B. the cost per transaction falls as a larger volume of similar transactions are handled.
C. the cost per transaction increases as more transactions are handled.
D. the cost per transaction decreases regardless of the number of transactions.
Answer:
If capital flows freely between countries and a country has a fixed exchange rate, one
thing you know is that the country:
A. exports more than it imports.
B. must have ample gold reserves.
C. cannot have a discretionary monetary policy.
D. must be running large trade deficits
Answer:
Bonds rated as “highly speculative” are:
A. rated so because they guarantee high returns for the buyer.
B. commonly referred to as junk bonds.
C. ranked just above investment grade by Standard & Poor’s.
D. rated so because they do not have any default risk.
Answer:
What tool is available to monetary policymakers to shift the short-run aggregate supply
curve to the left following a positive inflation shock?
A. A rightward shift of the monetary policy reaction curve
B. A leftward shift of the monetary policy reaction curve
C. Open market purchases of government securities
D. None of the answers given is correct; the actions of monetary policymakers affect
the dynamic aggregate demand curve
Answer:
Under the purchase-and-assumption method, the FDIC usually finds it:
A. can sell the failed bank for more than the bank is actually worth.
B. can sell the bank at a price equaling the value of the failed banks assets.
C. has to sell the bank at a negative price since the bank is insolvent.
D. cannot sell the bank and almost always has to revert to the payoff method for
dealing with a failed bank.
Answer:
If interest rates are expected to rise, the bond prices will:
A. not change until interest rates actually change.
B. fall, due to the demand for bonds decreasing.
C. rise, as people seek capital gains.
D. move in the same direction as the expected change in interest rates.
Answer:
Derivative markets exist to allow for:
A. allow for the transfer of risk.
B. direct transfers of common stocks for bonds.
C. cash receipts from the sale of bonds.
D. reduced information asymmetry.
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How do central banks, like the U.S. Federal Reserve, contribute to the welfare of a
society?
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