Which of the following statements concerning seasonal credit is true?
A) It tends to have a lower interest rate than federal funds.
B) It has become increasingly more important in recent years.
C) Only firms receiving secondary credit are eligible to receive seasonal credit.
D) Improvements in credit markets have reduced the need for a seasonal credit facility.
Answer:
The implication of the expectations theory that expected returns for a holding period
must be the same for bonds of different maturities depends on the assumption that
A) yield curves usually slope upward.
B) yield curves usually slope downward.
C) instruments with different maturities are perfect substitutes.
D) savers are usually risk averse.
Answer:
The LM curve slopes upward to the right because
A) the demand for money plus the demand for nonmoney assets must equal the supply
of money plus the supply of nonmoney assets.
B) a higher real interest rate is associated with a higher level of the output gap in money
market equilibrium.
C) a higher real interest rate is associated with a higher level of saving in goods market
equilibrium.
D) in equilibrium the actual real interest rate must increase one-for-one with expected
real interest rate.
Answer:
Which of the following is NOT a characteristic of competitive markets?
A) standardized product
B) purchases and sales of individual traders are small relative to the total volume traded
C) prices adjust quickly
D) there are relatively few sellers
Answer:
If the expected gains on stocks rise, while the expected returns on bonds do not change,
then
A) the demand curve for bonds will shift to the right.
B) the supply curve for loanable funds will shift to the right.
C) the equilibrium interest rate will fall.
D) the equilibrium interest rate will rise.
Answer:
Who owns the Federal Reserve banks?
A) the private commercial banks in each district which are members of the Federal
Reserve System
B) those households which have purchased stock in Federal Reserve System
C) the federal government
D) the governments of the states in which the banks are located
Answer:
According to the equation of exchange, the money supply times the velocity of money
equals the
A) price level.
B) growth rate of the money supply.
C) real GDP.
D) nominal GDP.
Answer:
In the federal funds market diagram, an open market sale by the Fed
A) shifts the reserve supply curve to the right.
B) shifts the reserve supply curve to the left.
C) decreases the federal funds rate.
D) increases the volume of federal funds traded.
Answer:
Which of the following cities does NOT contain a Federal Reserve bank?
A) Cleveland
B) Dallas
C) Los Angeles
D) Boston
Answer:
An increase in the real interest rate causes
A) the IS curve to shift to the right.
B) the IS curve to shift to the left.
C) a movement up the IS curve.
D) a movement down the IS curve.
Answer:
Transactions costs are
A) zero in financial markets.
B) zero in financial intermediaries.
C) the costs of direct financial transactions.
D) equal to the taxes imposed on financial transactions.
Answer:
Under the liquidity premium theory the shape of the yield curve depends on
A) the relative return of investments in common stocks versus investments in corporate
bonds.
B) the size of the federal government’s budget deficit.
C) government tax treatment of long-term versus short-term bonds.
D) the expected pattern of future short-term rates and the size of the term premium at
each maturity.
Answer:
An open economy is one that
A) has a large government sector.
B) lends and borrows in the international capital market.
C) produces mainly agricultural goods.
D) produces mainly manufactured goods.
Answer:
Which of the following is NOT an example of a monopolistically competitive market?
A) high fashion clothing
B) medical care
C) wheat
D) automobiles
Answer:
Which of the following is NOT included in M1?
A) currency
B) savings account deposits
C) checking account deposits
D) traveler’s checks
Answer:
According to the Gordon-Growth model, what will be the percentage change in the
value of a stock of a company whose current dividend is $10.00 and whose dividends
had been expected to grow by 3% but now are expected to grow by 4% per year?
A) 4.0%
B) 17.8%
C) 25.0%
D) 33.3%
Answer:
The Open Market Trading Desk is
A) another name for the Federal Open Market Committee.
B) an organization of private traders in government securities.
C) the area on the floor of the New York Stock Exchange set aside for bond trading.
D) a group of private securities traders that the Fed has selected to participate in open
market operations.
Answer:
Which of the following statements is correct?
A) The volume of open market operations is determined jointly by the actions of the
Fed, the banking system, and the nonbank public.
B) The Fed’s control over discount lending is more complete than its control over open
market operations.
C) The Fed completely controls the volume of open market operations.
D) The Fed has complete control over the volume of both discount loans and open
market operations.
Answer:
Expectations of asset values by participants in financial markets
A) are not possible to model, given the current state of economic knowledge.
B) determine market prices, but are not related to changes in market prices.
C) generally do not change.
D) determine current market prices and changes in market prices.
Answer:
The risk that increased market interest rates will cause a decline in the value of an
investment bank’s holdings of long-term securities is known as
A) credit risk.
B) interest-rate risk.
C) currency risk.
D) security risk.
Answer:
Deliberate actions by a central bank to influence the exchange rate are known as
A) current account actions.
B) foreign-exchange market interventions.
C) dollar-value operations.
D) foreign-commerce maneuvers.
Answer:
Which government agency regulates futures markets?
A) SEC
B) Commodity Futures Trading Commission
C) Board of Trade
D) the Federal Futures Agency
Answer:
How is the interest rate that prevails in the bond market determined?
A) by the interaction of stock prices and bond prices
B) by the decision of the president, in consultation with Congress
C) by the demand for and supply of bonds
D) by the Board of Governors of the New York Stock Exchange
Answer:
When economists state that money is neutral in the long run, they mean that in the long
run,
A) fluctuations in the money supply are equally likely to lead to recessions as to
expansions.
B) changes in the money supply have the same impact on the rich as they do on the
poor.
C) the level of output is independent of the nominal money supply.
D) the price level is independent of the nominal money supply.
Answer:
In forward transactions,
A) the exchange takes place at the same exchange rate as in the spot market.
B) currencies are exchanged at a set date in the future.
C) currencies may only be exchanged at rates set by governments well in advance.
D) currency is bought and sold for delivery later that same day.
Answer:
Which of the following is NOT a key financial service provided by the financial
system?
A) risk sharing
B) profitability
C) liquidity
D) information
Answer:
If AE < Y, which of the following will NOT occur?
A) inventories will decline
B) actual investment will be more than planned investment
C) employment will decline
D) GDP will decline
Answer:
Which of the following is NOT a fixed payment loan?
A) a home mortgage
B) a car loan
C) a U.S. Treasury note
D) a student loan
Answer:
Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to
Harry’s Restaurant. At the end of one year Harry’s Restaurant will pay First National
A) $934.58.
B) $1007.
C) $1700.
D) $1070.
Answer:
Which of the following is a bank liability?
A) reserves
B) consumer loans
C) nontransaction deposits
D) securities
Answer:
Limited liability can best be defined as the legal provision that
A) shields owners of a corporation from losing more than what they invested in a firm.
B) protects bond holders from being sued by other creditors.
C) gives holders of preferred stock priority over holders of common stock.
D) reduces the exposure of sole proprietorships to law suits.
Answer:
According to the quantity theory of money, the growth rate of which of the following is
zero?
A) money supply
B) velocity
C) real GDP
D) price level
Answer:
A reduction in the money supply will result in:
A) a lower interest rate and more negative output gap
B) a higher interest rate and more positive output gap
C) a lower interest rate and more positive output gap
D) a higher interest rates and more negative output gap
Answer:
Moral hazard problems arise when
A) lenders have difficulty in distinguishing between good and lemon firms.
B) when a downturn in economic activity makes repaying loans difficult for borrowers.
C) borrowers default on loans.
D) borrowers have an incentive to conceal information.
Answer:
If the interest rate on a U.S. one-year bond is 2%, the interest rate on a Brazilian
one-year bond is 8%, and the currency premium on reals (Brazilian currency) is 3%,
what is the expected rate of appreciation of the U.S. dollar according to interest-rate
parity?
A) -3%
B) 3%
C) 5%
D) 6%
Answer: