Great Britain is:
A. a member of the European Union but not a member of the Euro system.
B. a member of the Euro system but not a member of the European Union.
C. not a member of the Euro system or the European Union.
D. a member of both the European Union and the Euro system.
Answer:
A bank that does not want to hold a lot of excess reserves but wants to manage liquidity
risk is likely to:
A. hold a lot in highly liquid securities.
B. make sure that most of its assets are in small business loans.
C. have a high ratio of loans to securities.
D. limit withdrawals by customers.
Answer:
Federal funds loans are:
A. secured loans between banks and the Fed.
B. unsecured loans.
C. collateralized loans between banks.
D. guaranteed by the FDIC.
Answer:
The conditions for long-run equilibrium include each of the following, except:
A. imports equal exports.
B. current inflation is steady and equals target inflation.
C. current output equals potential output.
D. current inflation equals expected inflation.
Answer:
The creation of the Federal Reserve in 1913:
A. provided the opportunity for lender of last resort but not the guarantee that it would
be used.
B. guaranteed the Federal Reserve would always act as lender of last resort.
C. eliminated bank panics in the U.S.
D. was in response to the Great Depression in the U.S.
Answer:
According to the rule of 72:
A. any amount should double in value in 72 months if invested at 10%.
B. 72/interest rate is the number of years approximately it will take for an amount to
double.
C. 72 × interest rate is the number of years it will take for an amount to double.
D. the interest rate divided by the number of years invested will always equal 72%.
Answer:
Another name for the expected value of an investment would be the:
A. mean value.
B. upper-end value.
C. certain value.
D. risk-free value.
Answer:
The fact that not everyone places all of his/her savings in U.S. Treasury bonds indicates
that:
A. most investors are not risk averse.
B. many investors are actually risk seekers.
C. even risk-averse people will take risk if they are compensated for it.
D. most people are risk-neutral.
Answer:
Spreading risk involves:
A. finding assets whose returns are perfectly negatively correlated.
B. adding assets to a portfolio that move independently.
C. investing in bonds and avoiding stocks during bad times.
D. building a portfolio of assets whose returns move together.
Answer:
In order to benefit from diversification, the returns on assets in a portfolio must:
A. be perfectly positively correlated.
B. be perfectly negatively correlated.
C. positively correlated but not perfectly.
D. have the same idiosyncratic risks.
Answer:
U.S. monetary policy is best described as:
A. aimed at keeping inflation low and stable and growth high and stable.
B. determining the denominations of a country’s currency.
C. one of the most important functions of congress.
D. attempting to keep inflation constant at zero percent.
Answer:
The primary purpose of meetings of the FOMC is to:
A. set the required reserve rate.
B. set the discount rate.
C. decide on how to influence financial conditions.
D. set the prime rate.
Answer:
In the U.S., loans made by Federal Reserve to banks fall in the categories of:
A. discount loans.
B. reserves.
C. discount loans and reserves.
D. discount loans and foreign exchange reserves.
Answer:
The fact that a financial intermediary can hire a lawyer to write one contract that works
for many customers is an example of:
A. economies of scale.
B. the law of diminishing marginal returns.
C. the law of increasing opportunity cost.
D. the law of demand.
Answer:
In reading the national business news, you hear that mortgage rates increased by 50
basis points. If mortgage rates were initially at 6.5%, what are they after this increase?
A. 6.55%
B. 7.0%
C. 11.5%
D. 56.5%
Answer:
The measure for the actual rate of inflation used in the Taylor rule is the:
A. Personal Consumption Expenditure Index.
B. GDP deflator.
C. Consumer Price Index.
D. Producer Price Index.
Answer:
Higher home values can increase output in the economy if:
A. people take some of the equity out of their homes and spend it on a vacation.
B. people sell their existing home and build a new one.
C. people finance their child’s college education by securing a second mortgage on
their now higher-valued home.
D. all of the answers given are correct.
Answer:
The experience of the Marcos Presidency in the Philippines in 1986 showed:
A. the importance of keeping the central bank independent from political pressure.
B. published central bank balance sheets do not always reflect reality.
C. transparency is critical if people are going to trust a central bank.
D. all of the answers given are correct.
Answer:
Which of the following statements is most correct?
A. The Fed can control the amount of reserves, but cannot control the monetary base.
B. The Fed can control the makeup of the monetary base, but cannot affect the market
interest rate.
C. The Fed can control the size of the monetary base but not the price of its
components.
D. The Fed can control either the size of the monetary base or the price of its
components.
Answer:
Appreciation of the real exchange rate:
A. makes U.S. exports more expensive to foreigners.
B. makes U.S. exports less expensive to foreigners.
C. means a basket of U.S. goods would exchange for fewer foreign goods.
D. benefits all U.S. producers.
Answer:
The future value of $100 at a 5% per year interest rate at the end of one year is:
A. $95.00
B. $105.00
C. $97.50
D. 107.50
Answer:
Property and casualty insurers will hold assets of shorter maturities than life insurance
companies because:
A. shorter maturity assets usually have higher returns.
B. life insurance companies may find they need to get liquid unexpectedly.
C. property and casualty insurers can find themselves needing to get liquid
unexpectedly.
D. life insurance companies generally take on more risk than property and casualty
companies.
Answer:
Which of the following statements is not true?
A. A value-weighted index is a better index to use to reflect changes in the economy’s
overall wealth.
B. A price-weighted index is a better index to use to reflect the average change in the
price of a typical share of stock.
C. The Dow Jones Industrial Average is a price-weighted index.
D. The S&P 500 is a price-weighted index.
Answer:
Credit Unions are regulated by a combination of agencies which includes:
A. state authorities.
B. The Federal Reserve.
C. The Federal Deposit Insurance Corporation.
D. The Office of the Comptroller of the Currency.
Answer:
Nobel-laureate economist Milton Friedman suggested that policymakers strive to ensure
that the monetary aggregates:
A. grow at a rate equal to the rate of inflation.
B. grow at a rate equal to the rate of real growth plus the desired level of inflation.
C. grow at a rate equal to the rate of real growth less the desired level of inflation.
D. remain constant in terms of dollar amounts.
Answer:
Primary credit extended by the Fed is:
A. for banks needing long-term loans to work out financial problems.
B. the highest interest rate loans offered by the Fed.
C. short-term, usually overnight loans.
D. loans offered at the prime interest rate for periods exceeding thirty days but less
than one year.
Answer:
If reserve demand is volatile, in order for the central bank to keep interest rates from
being volatile, it must:
A. target the quantity of reserves.
B. set targets for both interest rates and the quantity of reserves.
C. not target the interest rates.
D. let the quantity of reserves fluctuate.
Answer:
In order for insurance companies to generate predictable payouts, they need to:
A. spread the risk across many policies.
B. accept policyholders from a very specific geographic area.
C. focus on insuring only specific events, for example only fire.
D. offer only life insurance.
Answer:
One negative consequence of regulatory competition is:
A. it is expensive.
B. financial institutions are over regulated at a cost to customers.
C. financial institutions often seek out the most lenient regulator.
D. it minimizes competition.
Answer:
The variance of a portfolio of assets:
A. decreases as the number of assets increases.
B. increases as the number of assets increase.
C. approaches 0 as the number of assets decreases.
D. approaches 1 as the number of assets increases.
Answer:
One of the limiting factors for using monetary policy is:
A. the central banks are limited in their ability to print money.
B. central banks are limited in their ability to make loans.
C. there is a lower nominal-interest-rate bound of zero.
D. the real interest rate cannot fall below zero.
Answer:
Which of the following assigns widely followed bond ratings?
A. The Federal Reserve
B. The Wall Street Journal
C. Moody’s Investor Service
D. The Nasdaq
Answer:
The nominal exchange rate:
A. is the amount of one country’s goods that could be obtained with a basket of goods
of another country.
B. is always expressed as units of a foreign currency per U.S. dollar.
C. is the rate that one can exchange the currency of one country for the currency of
another country.
D. is a synonymous term for the swap rate.
Answer:
The importance of the bank lending transmission mechanism of monetary policy:
A. has increased over the past twenty years.
B. has decreased over the past twenty years.
C. should continue to grow in importance.
D. has always been the weakest of all of the mechanisms.
Answer: