Referring to the Economic Stimulus Act of 2008, the expansionary effect of the
government stimulus was overwhelmed by the continuing deterioration in credit market
conditions. Everything else held constant and using the ISLM model, the net effect
would cause the ________ curve to ________ and output will ________.
A) IS; shift left; decrease
B) IS; shift right; increase
C) LM; shift right; increase
D) LM shift left; decrease
The amount of checkable deposits that banks are required by regulation to hold are the
A) excess reserves.
B) required reserves.
C) vault cash.
D) total reserves.
Economists’ attempts to explain the term structure of interest rates
A) illustrate how economists modify theories to improve them when they are
inconsistent with the empirical evidence.
B) illustrate how economists continue to accept theories that fail to explain observed
behavior of interest rate movements.
C) prove that the real world is a special case that tends to get short shrift in theoretical
models.
D) have proved entirely unsatisfactory to date.
The ________ interest rate is adjusted for expected changes in the price level.
A) ex ante real
B) ex post real
C) ex post nominal
D) ex ante nominal
If the possibility of a default increases because corporations begin to suffer losses, then
the default risk on corporate bonds will ________, and the bonds’ returns will become
________ uncertain, meaning that the expected return on these bonds will decrease,
everything else held constant.
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
An investment intermediary that lends funds to consumers is
A) a finance company.
B) an investment bank.
C) a finance fund.
D) a consumer company.
If a firm is due to be paid in euros in two months, to hedge against exchange-rate risk
the firm should ________ foreign exchange futures ________.
A) sell; short
B) buy; long
C) sell; long
D) buy; short
An increase in ________ leads to an equal ________ in the monetary base in the short
run.
A) float; decrease
B) float; increase
C) discount loans; decrease
D) Treasury deposits at the Fed; increase
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will increase and the domestic currency
will ________.
A) purchase; appreciate
B) purchase; depreciate
C) sale; appreciate
D) sale; depreciate
When financial institutions go on a lending spree and expand their lending at a rapid
pace they are participating in a
A) credit boom.
B) credit bust.
C) deleveraging.
D) market race.
If a pension fund has insufficient contributions and earnings to pay benefits, it is said it
be
A) underfunded.
B) at par.
C) fully funded.
D) under par.
In the Keynesian cross diagram, a decrease in investment spending because companies
become more pessimistic about investment profitability causes the aggregate demand
function to shift ________, the equilibrium level of aggregate output to fall, and the IS
curve to shift to the ________, everything else held constant.
A) up; left
B) up; right
C) down; left
D) down; right
Which of the following are investment intermediaries?
A) life insurance companies
B) mutual funds
C) pension funds
D) state and local government retirement funds
When the interest rate changes,
A) the demand curve for bonds shifts to the right.
B) the demand curve for bonds shifts to the left.
C) the supply curve for bonds shifts to the right.
D) it is because either the demand or the supply curve has shifted.
When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate demand curve shifts leftward.
B) aggregate demand curve shifts rightward.
C) output will be unchanged.
D) both A and C.
If there are four goods in a barter economy, then one needs to know ________ prices in
order to exchange one good for another.
A) 8
B) 6
C) 5
D) 4
If the price of gold becomes less volatile, then, other things equal, the demand for
stocks will ________ and the demand for antiques will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Goal independence is the ability of ________ to set monetary policy ________.
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking
system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
If you bought a long contract on financial futures you hope that interest rates
A) rise.
B) fall.
C) are stable.
D) fluctuate.
Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the Bank of
England 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
Moral hazard in equity contracts is known as the ________ problem because the
manager of the firm has fewer incentives to maximize profits than the stockholders
might ideally prefer.
A) principal-agent
B) adverse selection
C) free-rider
D) debt deflation
Securitization is a process of asset transformation that involves a number of different
financial institutions working together. These financial institutions are known
collectively as the
A) transformers.
B) amalgamation.
C) movers and shakers.
D) shadow banking system.
Which of the following statements most accurately describes the task of bank asset
management?
A) Banks seek the highest returns possible subject to minimizing risk and making
adequate provisions for liquidity.
B) Banks seek to have the highest liquidity possible subject to earning a positive rate of
return on their operations.
C) Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs supersede the desire for profits.
D) Banks seek to acquire funds in the least costly way.
The view that expectations change relatively slowly over time in response to new
information is known in economics as
A) rational expectations.
B) irrational expectations.
C) slow-response expectations.
D) adaptive expectations.
Another way to state the efficient markets hypothesis is: in an efficient market
A) unexploited profit opportunities will be quickly eliminated.
B) unexploited profit opportunities will never exist.
C) all prices can be accurately predicted.
D) every financial market participant must be well informed about securities.
The Federal Open Market Committee usually meets ________ times a year.
A) four
B) six
C) eight
D) twelve
Since 1974, commercial banks importance as a source of funds for nonfinancial
borrowers
A) has shrunk dramatically, from around 40 percent of total credit advanced to around
25 percent by 2014.
B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50
percent by 2014.
C) has expanded dramatically, from around 50 percent of total credit advanced to above
70 percent by 2014.
D) has expanded dramatically, from around 30 percent of total credit advanced to above
50 percent by 2014.
In general, banks make profits by selling ________ liabilities and buying ________
assets.
A) long-term; shorter-term
B) short-term; longer-term
C) illiquid; liquid
D) risky; risk-free
Because prices are sticky in the short-run, when the Federal Reserve raises the federal
funds rate
A) nominal interest rates fall.
B) real interest rates rise.
C) inflation falls.
D) real interest rates fall.
When the Fed purchases artwork to decorate the conference room at the Federal
Reserve Bank of Kansas City
A) reserves rise, but the monetary base falls.
B) reserves fall.
C) currency in circulation falls.
D) the monetary base rises.
A ________ pays out cash flows from a collection of assets in different tranches, with
the highest-rated tranch paying out first, while lower ones paid out less if there are
losses on the underlying assets.
A) collateralized debt obligation (CDO)
B) adjustable-rate mortgage
C) negotiable CD
D) discount bond