Which of the following empirical regularities cannot be explained by pure expectations
theory?
a. the tendency for movements in the yield curve to be upward or downward shifts,
rather than rotations
b. the tendency for yield curves to slope upward
c. the tendency for the yield curve to slope upward at the beginning of expansions and
downward at the beginning of recessions
d. all of the above can be explained by pure expectations theory
Answer:
All else equal, the more diversified an investor’s portfolio is,
a. the less liquid that portfolio will be
b. the lower that portfolio’s yield will be
c. the less risky that portfolio will be
d. all of the above
Answer:
Percentage reserve requirements are set by
a. the Board of Governors
b. Congress
c. the Federal Open Market Committee
d. the New York Fed
Answer:
Concerning the accountability of the European Central Bank (ECB) and the Federal
Reserve System (the Fed), is correct to say that:
a. the Fed is more accountable because of its financial independence
b. the Fed is more accountable because it has only one mandated goal
c. the ECB is more accountable because it has two mandated goals
d. the ECB is more accountable because it has only one mandated goal
Answer:
Reasons why ridding a nation of an inflationary or recessionary gap is not as easy as it
may appear include
a. uncertainty about the positions of the AD and AS curves
b. uncertainty about the shapes of the AD and AS curves
c. uncertainty about the direction and strength of factors influencing the AS and AD
curves
d. all of the above
Answer:
Whenever a bank writes off a loan as uncollectible, that bank’s
a. assets rise by the amount of the loan
b. capital accounts fall by the amount of the loan
c. liabilities fall by the amount of the loan
d. all of the above occur
Answer:
Given what you know about bank reserves, which of the following is true?
a. B = Fb + Cp
b. Fb = B – Cb – Cp
c. R = Cb + Cp
d. R = M/m
Answer:
Which of the following is one of the ultimate goals of monetary policy?
a. achieving zero money supply growth
b. balancing the federal budget
c. achieving a high level of employment
d. all of the above
Answer:
Because of negative externalities associated with bank failures, sound bank regulatory
policies might include imposition of
a. a policy which somewhat encourages bank risk taking
b. required capital ratios below those banks would voluntarily maintain
c. required capital ratios above those banks would voluntarily maintain
d. a laissez-faire policy toward bank risk taking
Answer:
In theory, adoption of a credible inflation target should shift the Phillips curve ____ and
____ the sacrifice ratio.
a. upward; increase
b. downward; increase
c. upward; decrease
d. downward; decrease
Answer:
In a system of discretionary monetary policy,
a. the central bank follows a constant growth rule
b. the central bank assesses economic conditions and implements whatever action it
sees fit
c. both of the above are true
d. neither of the above is true
Answer:
Legal reserves (or just reserves) of a commercial bank consist of
a. capital accounts and deposits at the Federal Reserve
b. cash on hand and capital accounts
c. cash on hand and deposits at the Federal Reserve
d. cash on hand and U.S. government securities
Answer:
The correct relationship between the monetary base and the money supply is captured
in the following expression:
a. B = m x M
b. B = M/m
c. m = M x B
d. M = m/B
Answer:
In terms of the impact on investment expenditures on new plant and equipment, which
measure of interest rates is most important?
a. the ex ante real interest rate
b. the ex post real interest rate
c. the nominal interest rate
d. all of the above are equally important
Answer:
Of the following operating targets, choose the target that is the most controllable by the
Fed.
a. discount loans
b. monetary base
c. net free reserves
d. nonborrowed reserves
Answer:
Over long time horizons, such as 30 years,
a. bonds have never outperformed stocks
b. bonds have always outperformed stocks
c. bonds have often outperformed stocks
d. bonds have seldom outperformed stocks
Answer:
A look at the money growth data for most of the past 75 years appears to reveal that
a. the Fed has been a destabilizing influence, as money growth is countercyclical
b. the Fed has been a destabilizing influence, as money growth is procyclical
c. the Fed has been a stabilizing influence, as money growth is countercyclical
d. the Fed has been a stabilizing influence, as money growth is procyclical
Answer:
Given other factors, which of the following events tends to increase the money supply
multiplier (M1/B)?
a. banks ease lending standards, reducing the desired excess reserve ratio
b. funds are cleared from smaller banks to larger banks
c. income tax rates are increased, pulling up the currency ratio
d. none of the above
Answer:
An appreciation of the dollar in foreign exchange markets is likely to
a. increase the trade deficit
b. narrow the trade deficit
c. have no effect on the trade deficit
d. all of the above are equally likely
Answer:
The best evidence in support of the monetarist view of the role of the Federal Reserve
in the Great Depression is conveyed by
a. the behavior of the currency ratio
b. the behavior of the excess reserve ratio
c. the behavior of real interest rates
d. the behavior of reserve requirements
Answer:
Regarding FDIC deposit insurance, which of the following is true?
a. the limits of coverage have increased faster than the U.S. price level
b. the maximum coverage per depositor per bank is now $100,000
c. the percentage of bank deposits insured has increased over the past 30 years
d. all of the above are true
Answer:
The federal funds market is an example of:
a. a capital market
b. an organized market
c. an equity market
d. a money market
Answer:
The Continental Illinois Bank was vulnerable in 1984 because
a. it had a very high ratio of loans/total assets
b. it had many bad loans on its books
c. it had a very high ratio of negotiable CDs/total liabilities
d. all of the above
Answer:
Which of the following helps to explain why a nation’s aggregate supply curve is
positively sloped (upward sloping)?
a. the fact that certain input prices are fixed in the short run
b. the fact that higher prices tend to pull up wages and other input prices
c. the fact that lower prices increase real wealth
d. the substitution effect
Answer:
In periods of economic expansion, which of the following happens to the demand
and/or supply curves for loanable funds and to interest rates?
a. supply rises and interest rates fall
b. demand rises and interest rates fall
c. demand falls and interest rates fall
d. demand rises and interest rates rise
Answer:
Typically, an asset with lower liquidity will have:
a. a higher yield
b. a lower yield
c. lower risk
d. none of the above
Answer:
The recommendations of the Werner committee
a. strongly advised against the creation of a monetary union in Europe
b. led to the creation of the European monetary union within two years
c. were not realized due to the collapse of the Bretton Woods system
d. did none of the above
Answer:
In 2004, the monetary base was approximately how large?
a. $1,314 billion
b. $728 billion
c. $586 billion
d. $241 billion
Answer:
During WWII and the immediate postwar era, the Fed accommodated the desires of the
Treasury by
a. emphasizing control of the money supply
b. targeting interest rates at very low levels
c. both of the above
d. neither of the above
Answer:
Suppose that $5 million of coins found in a sunken ship are deposited into a bank
checking account, and the reserve requirement is 25 percent. Assuming banks rid
themselves of all excess reserves, the ultimate expansion of deposits will be
a. $50 million
b. $25 million
c. $20 million
d. $5 million
Answer:
Which of the following is true about the Comptroller of the Currency?
a. it exists within the Treasury Department
b. it charters state banks
c. it supervises and examines, but does not charter, national banks
d. none of the above is correct
Answer:
The initial impetus for the S&L problems of the early 1980s was
a. adverse selection
b. deregulation
c. disintermediation
d. moral hazard
Answer:
The largest source of funds for the commercial banking system today is
a. capital accounts
b. loans
c. transactions deposits
d. nontransactions deposits
Answer: