As a person’s wealth increases we would expect the demand for money to:
A. decrease.
B. increase dollar for dollar with wealth.
C. increase but at a rate less than dollar for dollar.
D. not change; money demand does not vary with wealth, only with income.
Answer:
The fact that there is a market for federal funds enables banks to:
A. make fewer loans than they would otherwise.
B. borrow more from the Fed.
C. hold a lower level of excess reserves than they would otherwise hold.
D. hold less in required reserves.
Answer:
The option writer is:
A. the seller of an option.
B. the buyer of an option.
C. the underlying asset of the option.
D. the individual who obtains the rights.
Answer:
In an economy like the United States, the impact of a decrease in import prices on
overall inflation can be best described as:
A. nonexistent.
B. a modest increase.
C. a modest decrease.
D. a significant decrease, particularly as globalization and trade increase.
Answer:
Stabilization policy refers to the use of:
A. only fiscal policy.
B. only monetary policy.
C. either fiscal or monetary policy.
D. policy to shift the long-run aggregate supply curve.
Answer:
Which of the following is a false statement about the structure of the Federal Reserve
System?
A. Banker and business interests are reflected
B. State and regional interests are reflected
C. Government (public) and private interests are reflected
D. Exporter and importer interests are reflected
Answer:
A bank can usually offer a saver a higher return for the same risk for all of the following
reasons except:
A. the bank can usually purchase assets at a lower cost than any one saver.
B. the bank can pool the resources of small savers and purchase higher valued assets.
C. economies of scale can also be applied by the bank in its purchase of assets.
D. savers do not have good enough information to know if the return is sufficient.
Answer:
Congress chartered Sallie Mae to make loans to:
A. homeowners.
B. customers of securities brokers.
C. small business owners.
D. students.
Answer:
When the currency loses value, causing people to spend it more quickly, this:
A. has the same effect on inflation as an increase in money growth.
B. has the same effect on inflation as a decrease in money growth.
C. causes higher inflation but not as much as an increase in money growth would.
D. causes even higher inflation than an increase in money growth would.
Answer:
An investment pays $1,500 half of the time and $500 half of the time. Its expected
value and variance respectively are:
A. $1,000; 500,000 dollars
B. $2,000; (250,000 dollars)2
C. $1,000; 250,000 dollars
D. $1,000; 250,000 dollars2
Answer:
If an American traveling abroad can obtain 115 euros for $100 U.S. the current euro per
$ exchange rate is:
A. 0.870 euros/$.
B. 1.15 euros/$.
C. 115 euros/$.
D. 1 euro/1.15$.
Answer:
The Agreement to form a European monetary union was formalized in the Treaty of:
A. Maastricht.
B. Paris.
C. Amsterdam.
D. Milan.
Answer:
The members of the Board of Governors in recent years have been all of the following,
except:
A. former academic economists.
B. former economic forecasters.
C. a current Secretary of the Treasury.
D. former bankers.
Answer:
The interest rate changes that result from the FOMC meetings:
A. can be altered only by Congress.
B. can be altered by the Secretary of the Treasury during an economic crisis.
C. cannot be changed by anyone other than the FOMC.
D. can only be altered during a time of crisis by the U.S. President.
Answer:
Monetary policy operations for central banks are run through changes in the liability
category of:
A. government’s accounts.
B. currency.
C. reserves.
D. gold.
Answer:
Considering U.S. commercial banks, loans account for:
A. about one-third of total assets.
B. one-half of total assets.
C. two-thirds of liabilities.
D. three-quarters of total assets.
Answer:
Interest rates that are adjusted for expected inflation are known as:
A. coupon rates.
B. ex ante real interest rates.
C. ex post real interest rates.
D. nominal interest rates.
Answer:
Suppose that consumer and business confidence fall. What is the ultimate outcome for
the economy if monetary policymakers respond to keep inflation on an unchanged
target?
A. If monetary policymakers respond, output would remain close to potential output.
B. If monetary policymakers respond, output would fall below potential output.
C. If monetary policymakers respond, output would rise above potential output.
D. If monetary policymakers respond, output would remain close to potential output
but inflation would still rise despite their actions.
Answer:
In many cases, life insurance companies will require applicants to take a physical. This
is done to avoid the problem of:
A. adverse selection.
B. moral hazard.
C. free riding.
D. transaction costs.
Answer:
What matters most during a bank run is:
A. the number of loans outstanding.
B. the solvency of the bank.
C. the liquidity of the bank.
D. the size of the bank’s assets.
Answer:
A country announces capital outflow controls that will take effect in three months. This
announcement will likely:
A. stabilize the country’s exchange rate.
B. attract significant amounts of foreign investors.
C. result in a significant appreciation of the country’s currency.
D. result in a significant depreciation in the country’s currency.
Answer:
The point where the central bank’s target inflation rate is consistent with the long-run
real interest rate lies:
A. above the monetary policy reaction curve.
B. below the monetary policy reaction curve.
C. on the monetary policy reaction curve.
D. on the horizontal (inflation) axis.
Answer:
Citigroup is an example of:
A. an Edge Act corporation.
B. a foreign bank.
C. a financial holding company.
D. a unit bank.
Answer:
At a growth rate of 6% an economy will double in size in:
A. 7 years.
B. 14 years.
C. 12 years.
D. 6 years.
Answer:
According to the NBER, a severe decline in economic activity that lasted less than two
quarters:
A. could not be considered a recession.
B. could still be considered a recession.
C. would not be called a recession until more than two years had passed.
D. would immediately be called a recession.
Answer:
Which of the following would be categorized as an unconventional monetary policy
tool?
A. Discount window lending
B. Targeted asset purchases
C. Federal funds rate target
D. Deposit rate
Answer:
If inflation is very high, say 50 or 100 percent a year, monetary policymakers wishing
to lower it will shift their focus to controlling:
A. the long-term interest rate.
B. the short-term interest rate.
C. the exchange rate.
D. money growth.
Answer:
In April 1991, Argentina adopted a currency board primarily to address the problem of:
A. slow growth.
B. high interest rates.
C. large trade surpluses.
D. triple-digit inflation.
Answer:
A portfolio of assets has lower risk than holding one asset, but the same expected return
and higher transaction costs. Which of the following statements is most correct?
A. The portfolio is attractive to people who are risk-averse and risk-neutral, but not to
risk seekers.
B. The portfolio is attractive to investors who are risk-neutral.
C. The portfolio is not attractive to investors who are risk-neutral.
D. The portfolio is attractive to investors who are risk seekers.
Answer:
Opportunistic disinflation occurs when policymakers:
A. change the target inflation rate.
B. take advantage of positive supply shocks.
C. are able to permanently lower inflation.
D. all of the answers given are correct.
Answer:
An increase in the federal funds rate should:
A. cause mortgage rates to increase by less than the increase in the federal funds rate.
B. have an inverse impact on mortgage rates.
C. not impact mortgage rates since the federal funds rate is a very short-term rate.
D. cause the mortgage rates to increase by more than the increase in the federal funds
rate.
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