The equation of exchange is
A) M × P = V × Y.
B) M + V = P + Y.
C) M + Y = V + P.
D) M × V = P × Y.
Answer:
In the Governing Council, the decision of what policy to implement is made by
A) majority vote of the Executive Board members.
B) majority vote of the heads of the National Banks.
C) consensus.
D) majority vote of all members of the Governing Council.
Answer:
Because of an expected rise in interest rates in the future, a banker will likely
A) make long-term rather than short-term loans.
B) buy short-term rather than long-term bonds.
C) buy long-term rather than short-term bonds.
D) make either short or long-term loans; expectations of future interest rates are
irrelevant.
Answer:
When bad storms slow the check-clearing process, float tends to ________ causing the
Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; purchases
C) increase; defensive; sales
D) increase; dynamic; purchases
Answer:
In Keynes’s liquidity preference framework, as the expected return on bonds increases
(holding everything else unchanged), the expected return on money ________, causing
the demand for ________ to fall.
A) falls; bonds
B) falls; money
C) rises; bonds
D) rises; money
Answer:
Regulatory forbearance
A) meant delaying the closing of “zombie S&Ls” as their losses mounted during the
1980s.
B) had the advantage of benefiting healthy S&Ls at the expense of “zombie S&Ls”, as
insolvent institutions lost deposits to health institutions.
C) had the advantage of permitting many insolvent S&Ls the opportunity to return to
profitability, saving the FSLIC billions of dollars.
D) increased adverse selection dramatically.
Answer:
The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System.
B) the Federal Deposit Insurance Corporation.
C) the Office of Thrift Supervision.
D) the Securities and Exchange Commission.
Answer:
According to aggregate demand and supply analysis, the negative supply shocks of
1973-1975 and 1978-1980 had the effect of
A) increasing aggregate output, lowering unemployment, and raising the inflation.
B) decreasing aggregate output, raising unemployment, and raising the inflation.
C) increasing aggregate output, raising unemployment, and raising the inflation.
D) decreasing aggregate output, raising unemployment, and lowering the inflation.
Answer:
Asset transformation can be described as
A) borrowing long and lending short.
B) borrowing short and lending long.
C) borrowing and lending only for the short term.
D) borrowing and lending for the long term.
Answer:
The view that velocity is constant in the short run transforms the equation of exchange
into the quantity theory of money. According to the quantity theory of money, when the
money supply doubles
A) velocity falls by 50 percent.
B) velocity doubles.
C) nominal incomes falls by 50 percent.
D) nominal income doubles.
Answer:
A stockholder’s ownership of a company’s stock gives her the right to
A) vote and be the primary claimant of all cash flows.
B) vote and be the residual claimant of all cash flows.
C) manage and assume responsibility for all liabilities.
D) vote and assume responsibility for all liabilities.
Answer:
The fact that banks operate on a ‘sequential service constraint” means that
A) all depositors share equally in the bank’s funds during a crisis.
B) depositors arriving last are just as likely to receive their funds as those arriving first.
C) depositors arriving first have the best chance of withdrawing their funds.
D) banks randomly select the depositors who will receive all of their funds.
Answer:
A simple deposit multiplier equal to two implies a required reserve ratio equal to
A) 100 percent.
B) 50 percent.
C) 25 percent.
D) 0 percent.
Answer:
If a mutual fund outperforms the market in one period, evidence suggests that this fund
is
A) highly likely to consistently outperform the market in subsequent periods due to its
superior investment strategy.
B) likely to under-perform the market in subsequent periods to average its overall
returns.
C) not likely to consistently outperform the market in subsequent periods.
D) not likely to outperform the market in any subsequent period.
Answer:
Everything else held constant, if aggregate output is to the left of the IS curve, then
there is an excess ________ of goods which will cause aggregate output to ________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
Answer:
According to Tobin’s q theory, when q is ________, firms will not purchase new
investment goods because the market value of firms is ________ relative to the cost of
capital.
A) low; low
B) low; high
C) high; low
D) high; high
Answer:
Comparing a discount bond and a coupon bond with the same maturity,
A) the coupon bond has the greater effective maturity.
B) the discount bond has the greater effective maturity.
C) the effective maturity cannot be calculated for a coupon bond.
D) the effective maturity cannot be calculated for a discount bond.
Answer:
Under a fixed exchange rate regime, if a country has an ________ exchange rate, then
its central bank’s attempt to keep its currency from depreciating will result in a
________ of international reserves.
A) undervalued; gain
B) undervalued; loss
C) overvalued; gain
D) overvalued; loss
Answer:
Suppose the U.S. economy is producing at the natural rate of output. A depreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the depreciation
causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Answer:
Banks are important to the study of money and the economy because they
A) channel funds from investors to savers.
B) have been a source of rapid financial innovation.
C) are the only important financial institution in the U.S. economy.
D) create inflation.
Answer:
________ in the domestic interest 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
Answer:
In the liquidity trap a small change in interest rates produces ________ change in the
quantity of money demanded.
A) a small
B) no
C) a proportionate
D) a very large
Answer:
An expectation may fail to be rational if
A) relevant information was not available at the time the forecast is made.
B) relevant information is available but ignored at the time the forecast is made.
C) information changes after the forecast is made.
D) information was available to insiders only.
Answer:
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 ________ and the equilibrium level of aggregate output to ________,
everything else held constant.
A) up; rise
B) up; fall
C) down; rise
D) down; fall
Answer:
Aggregate output and the interest rate are ________ related to government spending
and are ________ related to taxes.
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively
Answer:
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $2 million in reserves, then it will not have enough reserves to support a
deposit outflow of
A) $1.2 million.
B) $1.1 million.
C) $1 million.
D) $900,000.
Answer:
One of the assumptions of the Gordon Growth Model is that dividends will continue
growing at ________ rate.
A) an increasing
B) a fast
C) a constant
D) an escalating
Answer:
A ________ yield curve predicts a future increase in inflation.
A) steeply upward sloping
B) slight upward sloping
C) flat
D) downward sloping
Answer:
The Fed can engage in preemptive strikes against a rise in inflation by ________ the
federal funds interest rate; it can act preemptively against negative demand shocks by
________ the federal funds interest rate.
A) raising; lowering
B) raising; raising
C) lowering; lowering
D) lowering; raising
Answer:
In the United States, the government agency requiring that firms that sell securities in
public markets adhere to standard accounting principles and disclose information about
their sales, assets, and earnings is the
A) Federal Communications Commission.
B) Federal Trade Commission.
C) Securities and Exchange Commission.
D) Federal Reserve System.
Answer:
The inaccurate ratings provided by credit-rating agencies
A) meant that investors did not have the information they needed to make informed
choices about their investments.
B) were irrelevant since no one pays any attention to them anyway.
C) meant that investors actually took on less risk.
D) will not be a problem when determining capital requirements under Basel 2..
Answer:
In the Gordon Growth Model, the growth rate is assumed to be ________ the required
return on equity.
A) greater than
B) equal to
C) less than
D) proportional to
Answer:
Franco Modigliani has found that an expansionary monetary policy can cause stock
market prices to ________ and consumption to ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
If an individual moves money from currency to a demand deposit account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 stays the same.
Answer: