Financial intermediaries’ low transaction costs allow them to provide ________ services
that make it easier for customers to conduct transactions.
A) liquidity
B) conduction
C) transcendental
D) equitable
If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion,
the GDP deflator price index is
A) 7.
B) 100.
C) 150.
D) 200.
Everything else held constant, an increase in government spending ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
A credit market instrument that provides the borrower with an amount of funds that
must be repaid at the maturity date along with an interest payment is known as a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Which of the following is NOT a benefit to an individual purchasing a mutual fund?
A) reduced risk
B) lower transactions costs
C) free-riding
D) diversification
Total reserves minus bank deposits with the Fed equals
A) vault cash.
B) excess reserves.
C) required reserves.
D) currency in circulation.
The number of futures contracts outstanding is called
A) turnover.
B) volume.
C) float.
D) open interest.
A negative supply shock causes ________ to ________.
A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase
Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the
bank’s assets to increase their rate sensitivity or, alternatively, ________ the duration of
the bank’s liabilities.
A) shortening; lengthening
B) shortening; shortening
C) lengthening; lengthening
D) lengthening; shortening
Reasons regulators chose to follow regulatory forbearance rather than to close the
insolvent S&Ls include all of the following EXCEPT
A) they had insufficient funds to close all of the insolvent S&Ls.
B) they were friends with the S&L owners.
C) they hoped the problem would go away.
D) they did not have the authority to close the insolvent S&Ls.
The theory of purchasing power parity states that exchange rates between any two
currencies will adjust to reflect changes in
A) the trade balances of the two countries.
B) the current account balances of the two countries.
C) fiscal policies of the two countries.
D) the price levels of the two countries.
When interest rates rise in the United States (with the price level fixed), the value of the
dollar ________, domestic goods become ________ expensive, and net exports
________.
A) falls; less; fall
B) falls; more; rise
C) rises; more; fall
D) rises; less; fall
Using Taylor’s rule, when the equilibrium real federal funds rate is 3 percent, the
positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual
inflation rate is 2 percent, the nominal federal funds rate target should be
A) 5 percent.
B) 5.5 percent.
C) 6 percent.
D) 6.5 percent.
According to the traditional interest-rate channel, expansionary monetary policy lowers
the real interest rate, thereby raising expenditure on
A) business fixed investment.
B) government expenditure.
C) consumer nondurables.
D) net exports.
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement ________
the demand for reserves, lowering the federal funds interest rate, everything else held
constant.
A) rise; decreases
B) rise; increases
C) decline; increases
D) decline; decreases
If the consumption function is expressed as C = a + mpc × YD, then “a” represents
A) autonomous consumer expenditure.
B) the marginal propensity to consume.
C) the expenditure multiplier.
D) disposable income.
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, one million dollars in required reserves,
and faces a required reserve ratio of ten percent. Given this information, we can say
First National Bank has ________ million dollars in vault cash.
A) two
B) eight
C) nine
D) ten
If the deficit is financed by selling bonds to the ________, the money supply will
________, causing aggregate demand to ________.
A) public; rise; increase
B) public; fall; decrease
C) central bank; rise; increase
D) central bank; fall; decrease
Information plays an important role in asset pricing because it allows the buyer to more
accurately judge
A) liquidity.
B) risk.
C) capital.
D) policy.
The interest rate thought to have the most important impact on aggregate demand is the
A) short-term interest rate.
B) T-bill rate.
C) rate on 90-day CDs.
D) long-term interest rate.
When the European System of Central Banks uses long-term refinancing operations, it
is similar to the Federal Reserve using
A) dynamic open market operations.
B) defensive open market operations.
C) discount policy.
D) reserve requirements.
Everything else held constant, an increase in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in ________ percent.
A) dollar; euros is 3
B) euro; dollars is 1
C) dollar; euros is 1
D) euro; dollars is 3
In the Keynesian framework, as long as output is below the equilibrium level,
unplanned inventory investment will remain negative, firms will continue to ________
production, and output will continue to ________.
A) lower; fall
B) lower; rise
C) raise; fall
D) raise; rise
The most important developments that reduced banks cost advantages include
A) the growth of the junk bond market.
B) the competition from money market mutual funds.
C) the growth of securitization.
D) the growth in the commercial paper market.
Government regulations designed to reduce the moral hazard problem include
A) laws that force firms to adhere to standard accounting principles.
B) light sentences for those who commit the fraud of hiding and stealing profits.
C) state verification subsidies.
D) state licensing restrictions.
A deductible reduces ________ in exactly the same way as ________.
A) moral hazard; coinsurance
B) adverse selection; restrictive provisions
C) moral hazard; cancellation of insurance
D) adverse selection; limits on the amount of insurance
Which of the following is NOT a source of borrowings for a bank?
A) federal funds
B) Eurodollars
C) transaction deposits
D) discount loans
If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
A) 2.5.
B) 1.67.
C) 2.3.
D) 0.651.
________ in the domestic interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to depreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
Everything else held constant, a decrease in the required reserve ratio on checkable
deposits will mean
A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.
Options on individual stocks are referred to as
A) stock options.
B) futures options.
C) American options.
D) individual options.
Open market sales shrink ________ thereby lowering ________.
A) the money multiplier; the money supply
B) the money multiplier; reserves and the monetary base
C) reserves and the monetary base; the money supply
D) the money base; the money multiplier
Due to asymmetric information in credit markets, monetary policy may affect economic
activity through the balance sheet channel, where an increase in the money supply
A) raises stock prices, lowering the cost of new capital relative to firms’ market value,
thus increasing investment spending.
B) raises firms’ net worth, decreasing adverse selection and moral hazard problems,
thus increasing banks’ willingness to lend to finance investment spending.
C) raises the level of bank reserves, deposits, and bank loans, thereby raising spending
by those individuals who do not have access to credit markets.
D) lowers the value of the dollar, increasing net exports and aggregate demand.