Everything else held constant, when a country’s currency appreciates, the country’s
goods abroad become ________ expensive and foreign goods in that country become
________ expensive.
A) more; less
B) more; more
C) less; less
D) less; more
Duration is
A) an asset’s term to maturity.
B) the time until the next interest payment for a coupon bond.
C) the average lifetime of a debt security’s stream of payments.
D) the time between interest payments for a coupon bond.
A bond with default risk will always have a ________ risk premium and an increase in
its default risk will ________ the risk premium.
A) positive; raise
B) positive; lower
C) negative; raise
D) negative; lower
If bad credit risks are the ones who most actively seek loans then financial
intermediaries face the problem of
A) moral hazard.
B) adverse selection.
C) free-riding.
D) costly state verification.
A rise in short-term interest rates that is believed to be only temporary
A) is likely to have a significant effect on long-term interest rates.
B) will have a bigger impact on long-term interest rates than if the rise in short-term
rates had been permanent.
C) is likely to have only a small impact on long-term interest rates.
D) cannot possibly affect long-term interest rates.
In the figure above, the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth.
B) an increase in money growth.
C) a decline in the expected price level.
D) an increase in income.
Holding all other factors constant, the quantity demanded of an asset is
A) positively related to wealth.
B) negatively related to its expected return relative to alternative assets.
C) positively related to the risk of its returns relative to alternative assets.
D) negatively related to its liquidity relative to alternative assets.
The quantity theory of inflation indicates that the inflation rate equals
A) the growth rate of the money supply minus the growth rate of aggregate output.
B) the level of the money supply minus the level of aggregate output.
C) the growth rate of the money supply plus the growth rate of aggregate output.
D) the level of the money supply plus the level of aggregate output.
An increase in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; LM; left
D) fall; IS; left
________ in the expected future domestic exchange rate causes the demand for
domestic assets to increase and the domestic currency to ________, everything else
held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
The riskiness of an asset is measured by
A) the magnitude of its return.
B) the absolute value of any change in the asset’s price.
C) the standard deviation of its return.
D) risk is impossible to measure.
Discount policy affects the money supply by affecting the volume of ________ and the
________.
A) excess reserves; monetary base
B) borrowed reserves; monetary base
C) excess reserves; money multiplier
D) borrowed reserves; money multiplier
Everything else held constant, an increase in the interest rate paid on checkable deposits
will cause ________ in the amount of checkable deposits held relative to currency
holdings and ________ in the currency ratio.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Recent financial innovation makes the Federal Reserve’s job of conducting monetary
policy
A) easier, since the Fed now knows what to consider money.
B) more difficult, since the Fed now knows what to consider money.
C) easier, since the Fed no longer knows what to consider money.
D) more difficult, since the Fed no longer knows what to consider money.
Explain the Taylor rule, including the formula for setting the federal funds rate target,
and the components of the formula. If the Fed were to use this rule, how many goals
would it use to set monetary policy?
The mandate for the monetary policy goals that has been given to the European Central
Bank is an example of a ________ mandate.
A) primary
B) dual
C) secondary
D) hierarchical
Each Federal Reserve bank has nine directors. Of these ________ are appointed by the
member banks and ________ are appointed by the Board of Governors.
A) three; six
B) four; five
C) five; four
D) six; three
A borrower who takes out a loan usually has better information about the potential
returns and risk of the investment projects he plans to undertake than does the lender.
This inequality of information is called
A) moral hazard.
B) asymmetric information.
C) noncollateralized risk.
D) adverse selection.
Which of the following statements is FALSE?
A) Checkable deposits are usually the lowest cost source of bank funds.
B) Checkable deposits are the primary source of bank funds.
C) Checkable deposits are payable on demand.
D) Checkable deposits include NOW accounts.
If you buy a call option on Treasury futures at 110, and at expiration the market price is
115, the ________ will ________ exercised.
A) call; be
B) put; be
C) call; not be
D) put; not be
Subtracting borrowed reserves from the monetary base obtains
A) reserves.
B) high-powered money.
C) the nonborrowed monetary base.
D) the borrowed monetary base.
Under the Exchange Rate Mechanism of the European Monetary System, when the
German mark depreciated below its lower limit against the British pound, the German
central bank was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
Bank capital has both benefits and costs for the bank owners. Higher bank capital
________ the likelihood of bankruptcy, but higher bank capital ________ the return on
equity for a given return on assets.
A) reduces; reduces
B) increases; increases
C) reduces; increases
D) increases; reduces
Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of
A) interest rates.
B) velocity.
C) income.
D) stock market prices.
A clause in a mortgage loan contract requiring the borrower to purchase homeowner’s
insurance is an example of a
A) proscriptive covenant.
B) prescriptive covenant.
C) restrictive covenant.
D) constraint-imposed covenant.
An expansionary monetary policy raises firms’ cash flows by ________ interest rates.
A) lowering real
B) lowering nominal
C) raising real
D) raising nominal
Economists closely follow the current account balance because they believe it can
provide information on the future movement of
A) interest rates.
B) gold flows.
C) exchange rates.
D) special drawing rights.
Which of the following are TRUE concerning the distinction between interest rates and
returns?
A) The rate of return on a bond will not necessarily equal the interest rate on that bond.
B) The return can be expressed as the difference between the current yield and the rate
of capital gains.
C) The rate of return will be greater than the interest rate when the price of the bond
falls during the holding period.
D) The return can be expressed as the sum of the discount yield and the rate of capital
gains.
The gross domestic product is the
A) the value of all wealth in an economy.
B) the value of all goods and services sold to other nations in a year.
C) the market value of all final goods and services produced in an economy in a year.
D) the market value of all intermediate goods and services produced in an economy in a
year.
Changes in stock prices
A) do not affect people’s wealth and their willingness to spend.
B) affect firms’ decisions to sell stock to finance investment spending.
C) occur in regular patterns.
D) are unimportant to decision makers.
An increase in the time to the promised future payment ________ the present value of
the payment.
A) decreases
B) increases
C) has no effect on
D) is irrelevant to
The Phillips curve indicates that when the labor market is ________, production costs
will ________ and aggregate supply decreases.
A) easy; rise
B) easy; fall
C) tight; fall
D) tight; rise