Interest rate fluctuations
A) are usually not considered to be of much importance and are largely ignored by the
Fed.
B) have the paradoxical effect of increasing the rate of economic growth.
C) make it difficult for households and firms to plan for the future.
D) have largely been eliminated by the Fed during the past two decades.
Answer:
When someone in a country buys an asset abroad, the transaction is recorded
A) in the current account.
B) in the official settlements balance.
C) in the financial account as a capital inflow.
D) in the financial account as a capital outflow.
Answer:
According to the efficient markets hypothesis, who is most likely to benefit from
frequently moving funds from one asset to another?
A) your broker
B) small investors
C) big investors
D) only those who consistently beat the market
Answer:
Changes in net worth and liquidity may significantly affect the volume of lending and
economic activity according to the
A) interest rate channel.
B) balance sheet channel.
C) money channel.
D) bank lending channel.
Answer:
Which of the following statements is correct?
A) A devaluation of the British pound would result in more dollars to the pound.
B) A revaluation of the British pound would raise the prices of U.S. goods in Britain.
C) A devaluation of the British pound would lower the prices of British goods in the
United States.
D) Revaluations and devaluations of a country’s currency were not allowed under the
Bretton Woods system.
Answer:
All of the following are characteristics of debit cards EXCEPT:
A) payments are deferred until a later date
B) they can be used like checks
C) they eliminate the problem of trust since the bank’s computer authorizes the
transaction
D) when used at a store, his bank instantly credits the store’s account with the amount
and deducts it from his account.
Answer:
Which of the following led to a “bank jog” in Greece?
A) high unemployment
B) high inflation
C) speculation that Greece would abandon the euro
D) the default of several Greek banks
Answer:
All of the following were reasons that the Fed increase the required reserve ration in
1936 EXCEPT:
A) concerns over the possibility of future inflation
B) to eliminate the high level of excess reserves
C) fears that the economy was overheating
D) concerns over a speculative bubble
Answer:
If the forward exchange rate of the yen in terms of dollars is greater than the spot
exchange rate,
A) Japanese interest rates must be higher than U.S. interest rates.
B) U.S. interest rates must be higher than Japanese interest rates.
C) market participants must be expecting the dollar to appreciate against the yen.
D) market participants must be expecting the dollar to depreciate against the yen.
Answer:
The Federal Reserve System was created in response to
A) the stock market crash of 1929.
B) the ending of the Civil War.
C) the banking panic of 1907.
D) difficulties of the free-banking era.
Answer:
Which of the following involves banks borrowing funds from firms or other banks
using the value of underlying securities as collateral?
A) federal funds
B) repurchase agreement
C) counterparty lending
D) money market account
Answer:
An most important service provided by underwriters is
A) lowering of information costs.
B) dealing with problems of moral hazard.
C) insuring firms against loss from fire.
D) insuring firms against loss from employee theft.
Answer:
Monetary neutrality refers to the fact that changes in the money supply
A) affect output more in the long run than in the short run.
B) have no effect on output in the long run.
C) affect only output in the long run.
D) have a greater effect on prices in the short run than in the long run.
Answer:
Other assets are inferior to money in the sense that
A) they increase in value more slowly than does money.
B) they have a lower overall return than money.
C) they are more vulnerable to losing their real value as inflation increases.
D) they generate transactions costs when they are exchanged for money.
Answer:
When economists refer to the role of money as a standard of deferred payment, they
mean that
A) payments by checks are usually deferred until the checks clear the bank.
B) money earns interest while loan payments are deferred.
C) money provides a standard for payments that will occur in the future.
D) money today is worth less than money tomorrow.
Answer:
At any point along the LM curve,
A) the quantity of money demanded equals the quantity of money supplied.
B) the economy must be in general equilibrium.
C) the nominal interest rate must equal the real interest rate.
D) saving must equal investment.
Answer:
All of the following statements about secondary credit are true EXCEPT
A) they are temporary, short-term loans to satisfy seasonal requirements.
B) the secondary credit interest rate is set above the primary credit rate.
C) it is intended for banks not eligible for primary credit.
D) borrowers of secondary credit are less financially healthy.
Answer:
In Wall Street Jargon, a “Bear Market” typically means
A) stock prices have declined by at least 20%.
B) stock prices have declined by at least 50%.
C) stock prices have risen by at least 20%.
D) stock prices have risen by at least 50%.
Answer:
All of the following help make the Fed independent of the political process EXCEPT
A) financial independence.
B) chair of Fed receives a lifetime appointment.
C) Board members receive a long, nonrenewable appointment.
D) Board members’ terms expire at different times, reducing the possible number of
appointees by any one president.
Answer:
Money as a medium of exchange refers only to
A) currency.
B) gold coins.
C) anything that is generally accepted as payment for goods and services.
D) checks at commercial banks.
Answer:
The use of collateral
A) allows banks to charge higher interest rates on loans.
B) makes it more costly for borrowers to take advantage of their asymmetric
information.
C) makes it more costly for lenders to take advantage of their asymmetric information.
D) has important tax implications for both borrowers and lenders.
Answer:
If, while you are holding a coupon bond, the interest rates on other similar bonds fall,
you can be sure that
A) the coupon payments on your bond will fall.
B) the market price of your bond will rise.
C) the market price of your bond will fall.
D) the par value of your bond will rise.
Answer:
Differences in price levels
A) explain well actual exchange rate movements.
B) are not capable of explaining well actual exchange rate movements, particularly in
the short run.
C) have been small for most countries in the post-World War II period.
D) only can be explained by the fact that little foreign trade actually takes place.
Answer:
The current yield is equal to
A) the coupon divided by the market price of the bond.
B) the yield to maturity, if the bond is a coupon bond.
C) the coupon divided by the par value of the bond.
D) the market price of the bond divided by its par value.
Answer:
Research by Reinhart and Rogoff indicate that most of the increase in national debt as a
result of a financial crisis is due to
A) government bail outs of financial institutions.
B) increase spending on social welfare programs.
C) government stimulus programs.
D) sharp declines in tax revenues.
Answer:
A sale of foreign assets by a central bank has the same effect on the monetary base as
A) a decrease in the discount rate.
B) a decrease in the required reserve ratio.
C) an open market sale of government bonds.
D) an open market purchase of government bonds.
Answer:
What is the maximum amount a bank can lend?
A) its total reserves
B) its excess reserves
C) its excess reserves divided by the required reserve ratio
D) the value of its checkable deposits times the required reserve ratio
Answer:
Regulation Q
A) prohibited interstate banking.
B) placed ceilings on allowable interest rates on time and savings deposits.
C) required all banks to hold reserves against demand deposits.
D) broadened the basis on which the Fed could make discount loans.
Answer:
Suppose that Congress passes an investment tax credit. The likely result will be
A) the supply curve for bonds will shift to the right.
B) the demand curve for bonds will shift to the left.
C) the demand curve for bonds will shift to the right.
D) the equilibrium interest rate will fall.
Answer:
An asset’s fundamental value equals
A) its face value.
B) its maturity value.
C) the market’s best guess of the present value of the asset’s expected future returns.
D) the weighted sum of its market price over the recent past.
Answer:
A bank’s remaining value after it has met all its liabilities is known as a
A) bank’s assets.
B) bank’s liabilities.
C) bank capital.
D) bank’s income.
Answer: