Moral hazard and adverse selection problems increased in prominence in the 1980s
A. as deregulation required savings and loans and mutual savings banks to be more
cautious.
B. following a burst of financial innovation in the 1970s and early 1980s that produced
new financial instruments and markets, thereby widening the scope for risk taking.
C. following a decrease in federal deposit insurance from $100,000 to $40,000.
D. as interest rates were sharply decreased to bring down inflation.
Answer:
One of the problems in conducting a duration gap analysis is that the duration gap is
calculated assuming that interest rates for all maturities are the same. That means that
the yield curve is
A. flat.
B. slightly upward sloping.
C. steeply upward sloping.
D. downward sloping.
Answer:
The speculative motive for holding money is closely tied to what function of money?
A. store of wealth
B. unit of account
C. medium of exchange
D. standard of deferred payment
Answer:
By taking the long position on a futures contract of $100,000 at a price of 115 you are
agreeing to ________ a ________ face value security for ________.
A. sell; $100,000; $115,000.
B. sell; $115,000; $100,000.
C. buy; $100,000; $115,000.
D. buy; $115,000; $100,000.
Answer:
Financial instruments whose payoffs are linked to previously issued securities are called
A. grandfathered bonds.
B. financial derivatives.
C. hedge securities.
D. reversible bonds.
Answer:
The theory of PPP suggests that if one country’s price level falls relative to another’s, its
currency should
A. depreciate.
B. appreciate.
C. float.
D. do none of the above.
Answer:
If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014
and 2017, then to have the same real income, your nominal income in 2017 must be
A. $50,000.
B. $75,000.
C. $100,000.
D. $150,000.
Answer:
________ are the most important monetary policy tool because they are the primary
determinant of changes in the ________, the main source of fluctuations in the money
supply.
A. Open market operations; monetary base
B. Open market operations; money multiplier
C. Changes in reserve requirements; monetary base
D. Changes in reserve requirements; money multiplier
Answer:
According to the household liquidity effect, higher stock prices lead to increased
consumption expenditures because consumers
A. feel more secure about their financial position.
B. want to sell stocks and spend the proceeds before stock prices fall.
C. believe that their wages will increase due to increased profitability of firms.
D. can now afford more expensive imports.
Answer:
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
Answer:
Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to make their analysts’ recommendations public is an example of
A. regulate for transparency.
B. supervisory oversight.
C. separation of functions.
D. socialization of information production.
Answer:
That several hundred S&Ls were not even examined once in the period January 1984
through June 1986 can be explained by
A. Congress’s unwillingness to allocate the necessary funds to thrift regulators.
B. regulators’ reluctance to find the specific problem thrifts that they knew existed.
C. slower growth in lending meant that less regulation was needed.
D. Congress’s unwillingness to listen to campaign contributors.
Answer:
In the generalized dividend model, if the expected sales price is in the distant future
A. it does not affect the current stock price.
B. it is more important than dividends in determining the current stock price.
C. it is equally important with dividends in determining the current stock price.
D. it is less important than dividends but still affects the current stock price.
Answer:
An increase in spending that results from expansionary ________ policy causes the
interest rate to ________, everything else held constant.
A. fiscal; rise
B. fiscal; fall
C. incomes; rise
D. incomes; fall
Answer:
The demand curve for bonds has the usual downward slope, indicating that at ________
prices of the bond, everything else equal, the ________ is higher.
A. higher; demand
B. higher; quantity demanded
C. lower; demand
D. lower; quantity demanded
Answer:
When the Fed supplies the banking system with an extra dollar of reserves, deposits
________ by ________ than one dollara process called multiple deposit creation.
A. increase; less
B. increase; more
C. decrease; less
D. decrease; more
Answer:
The quantity theory of inflation indicates that if the aggregate output is growing at 3%
per year and the growth rate of money is 5%, then inflation is
A. 2%.
B. 8%.
C. -2%.
D. 1.6%.
Answer:
The theory of portfolio choice suggests that the most important factor affecting the
demand for domestic and foreign assets is
A. the level of trade and capital flows.
B. the expected return on these assets relative to one another.
C. the liquidity of these assets relative to one another.
D. the riskiness of these assets relative to one another.
Answer:
If your nominal income in 2014 was $50,000, and prices doubled between 2014 and
2017, to have the same real income, your nominal income in 2017 must be
A. $50,000.
B. $75,000.
C. $90,000.
D. $100,000.
Answer:
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to lower
production.
A. below; negative
B. above; negative
C. below; positive
D. above; positive
Answer:
In the period 1965 through the 1970s, policymakers pursued ________ policies in order
to achieve ________.
A. expansionary; high employment
B. expansionary; low inflation
C. contractionary; high employment
D. contractionary; low inflation
Answer:
In the basic closed-economy ISLM model, the goods market equilibrium condition is
A. output = consumption + investment + government spending.
B. output = consumption + investment + government spending – tax.
C. output = consumption + investment + government spending + net export.
D. output = potential output.
Answer:
The key factor causing life insurance companies to move into the management of
pension funds was
A. the investment expertise of insurance companies.
B. a request for this change by managers of pension funds.
C. a change in state laws.
D. a change in federal legislation in 1974 to encourage pension funds to turn fund
management over to life insurance companies.
Answer:
From 1990s until 2012, the Japanese economy has experienced
A. easy monetary policy as indicated by falling nominal interest rates.
B. easy monetary policy as indicated by short-term interest rates near zero.
C. tight monetary policy as indicated by falling asset prices.
D. tight monetary policy as indicated by short-term interest rates near zero.
Answer:
________ work in the secondary markets matching buyers with sellers of securities.
A. Dealers
B. Underwriters
C. Brokers
D. Claimants
Answer:
After 2003, The Federal Reserve usually keeps the discount rate
A. above the target federal funds rate.
B. equal to the target federal funds rate.
C. below the target federal funds rate.
D. equal to zero.
Answer:
A liquid asset is
A. an asset that can easily and quickly be sold to raise cash.
B. a share of an ocean resort.
C. difficult to resell.
D. always sold in an over-the-counter market.
Answer:
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 excess reserves.
A. two
B. eight
C. nine
D. ten
Answer:
According to the liquidity preference theory, the demand for money is ________ related
to aggregate output and ________ related to interest rates.
A. negatively; negatively
B. negatively; positively
C. positively; negatively
D. positively; positively
Answer:
A phenomenon closely related to market overreaction is
A. the random walk.
B. the small-firm effect.
C. the January effect.
D. excessive volatility.
Answer:
Using the one-period valuation model, assuming a year-end dividend of $1.00, an
expected sales price of $100, and a required rate of return of 5%, the current price of the
stock would be
A. $110.00.
B. $101.00.
C. $100.00.
D. $96.19.
Answer:
By analyzing aggregate demand through its component parts, we can conclude that,
everything else held constant, a decline in the inflation rate causes
A. an increase in real interest rates, an increase in investment spending, and a decline in
aggregate output demand.
B. a decline in real interest rates, a decrease in investment spending, and an increase in
aggregate output demand.
C. a decline in real interest rates, an increase in investment spending, and an increase in
aggregate output demand.
D. an increase in real interest rates, a decline in investment spending, and a decline in
aggregate output demand.
Answer:
The legislation that overturned the prohibition on interstate banking is
A) the McFadden Act.
B) the Gramm-Leach-Bliley Act.
C) the Glass-Steagall Act.
D) the Riegle-Neal Act.
Answer:
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
Answer: