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,
for Francois the Frenchman the expected rate of return on dollar-denominated assets is
A) 11 percent.
B) 9 percent.
C) 5 percent.
D) 3 percent.
E) 1 percent.
Net worth can perform a similar role to
A) diversification.
B) collateral.
C) intermediation.
D) economies of scale.
In the basic closed-economy ISLM model, the LM curve can be described by an
equation where
A) output is a function of consumption.
B) money is a function of interest rates.
C) output is a function of money.
D) interest rate is a function of output.
Which of the following is included in M2 but NOT in M1?
A) NOW accounts
B) demand deposits
C) currency
D) money market mutual fund shares (retail)
The expectations-augmented Phillips curve implies that as expected inflation increases,
nominal wages ________ to prevent real wages from ________.
A) fall; rising
B) fall; falling
C) rise; falling
D) rise; rising
If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output
increases by
A) 250.
B) 500.
C) 750.
D) 1000.
If you buy a put option on Treasury futures at 115, and at expiration the market price is
110, the ________ will ________ exercised.
A) call; be
B) put; be
C) call; not be
D) put; not be
Which of the following would a bank NOT hold as insurance against the highest cost of
deposit outflow-bank failure?
A) excess reserves
B) secondary reserves
C) bank capital
D) mortgages
In the basic closed-economy ISLM model, the money market can be described by the
A) money demand function.
B) money supply.
C) money market equilibrium condition.
D) all of the above.
The discount rate is
A) the interest rate the Fed charges on loans to banks.
B) the price the Fed pays for government securities.
C) the interest rate that banks charge their most preferred customers.
D) the price banks pay the Fed for government securities.
The fixed exchange rate regime established at a meeting in New Hampshire in 1944 has
been known as the
A) General Agreement on Tariffs and Trade.
B) Bretton Woods system.
C) International Settlement Fund.
D) Balance of Payments Compliance Accord.
Other things equal, a decrease in autonomous consumption shifts the ________ curve to
the ________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
Keynes’s motivation in developing the aggregate output determination model stemmed
from his concern with explaining
A) the hyperinflations of the 1920s.
B) why the Great Depression occurred.
C) the high unemployment in Great Britain before World War I.
D) the high unemployment in Great Britain after World War II.
In the basic closed-economy ISLM model, the IS curve can be described by an equation
where
A) output is a function of consumption.
B) money is a function of interest rates.
C) output is a function of money.
D) output is a function of interest rates.
Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in
Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace
the walls of the conference room. Suppose further that, at a public auction, the bank
sells the painting for $19.95. This sale will cause ________ in the monetary base,
everything else held constant.
A) an increase of $19.95
B) an increase of more than $19.95
C) a decrease of $19.95
D) a decrease of more than $19.95
A $100 deposit into my checking account at My Bank increases my checkable deposits
by $100, and the bank’s ________ by $100.
A) reserves
B) loans
C) capital
D) securities
Prior to 2008, the bank’s cost of holding reserves equaled
A) the interest paid on deposits times the amount of reserves.
B) the interest paid on deposits times the amount of deposits.
C) the interest earned on loans times the amount of loans.
D) the interest earned on loans times the amount on reserves.
The economy recovers quickly from most recessions, but the increase in adverse
selection and moral hazard problems in the credit markets caused by ________ led to
the severe economic contraction known as The Great Depression.
A) debt deflation
B) illiquidity
C) an improvement in banks’ balance sheets
D) increases in bond prices
________ is the process of researching and developing profitable new products and
services by financial institutions.
A) Financial engineering
B) Financial manipulation
C) Customer manipulation
D) Customer engineering
To promote an economic expansion and an exit from the deflationary environment that
the Japanese
had been experiencing for the past fifteen years, the “Abenomics” aims at
A) increasing inflation target.
B) increasing inflation expectations.
C) purchasing long-term bonds.
D) all of the above.
E) none of the above.
The ________ is defined as the payments to the owner plus the change in a security’s
value expressed as a fraction of the security’s purchase price.
A) yield to maturity
B) current yield
C) rate of return
D) yield rate
With ________ finance, borrowers obtain funds from lenders by selling them securities
in the financial markets.
A) active
B) determined
C) indirect
D) direct
Everything else held constant, in the market for reserves, decreases in the interest rate
paid on excess reserves affect the federal funds rate
A) when the funds rate is below the interest rate paid on excess reserves.
B) when the funds rate equals the interest rate paid on excess reserves.
C) when the funds rate is below the discount rate.
D) when the funds rate equals the discount rate.
In the long-run ISLM model and with everything else held constant, the long-run effect
of an autonomous increase in investment is to ________ real output and ________ the
interest rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
According to the purchasing power parity theory, a rise in the United States price level
of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso.
B) the dollar to depreciate 1 percent relative to the peso.
C) the dollar to depreciate 5 percent relative to the peso.
D) the dollar to appreciate 5 percent relative to the peso.
The total amount of required reserves in the banking system is equal to the ________
the required reserve ratio and checkable deposits.
A) sum of
B) difference between
C) product of
D) ratio between
If a security pays $110 next year and $121 the year after that, what is its yield to
maturity if it sells for $200?
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) providing a risk-free repository of spending power.
Tobin’s q is defined as the market value of firms ________ the replacement cost of
capital.
A) times
B) minus
C) plus
D) divided by
The Federal Reserve Bank of ________ houses the open market desk.
A) Boston
B) New York
C) Chicago
D) San Francisco
The primary indicator of the Fed’s stance on monetary policy is
A) the discount rate.
B) the federal funds rate.
C) the growth rate of the monetary base.
D) the growth rate of M2.
Net profit after taxes per dollar of equity capital is a basic measure of bank profitability
called
A) return on assets.
B) return on capital.
C) return on equity.
D) return on investment.
