The velocity of money is
A) the average number of times that a dollar is spent in buying the total amount of final
goods and services.
B) the ratio of the money stock to high-powered money.
C) the ratio of the money stock to interest rates.
D) the average number of times a dollar is spent in buying financial assets.
Answer:
Under a fixed exchange rate regime, if the domestic currency is initially undervalued,
that is, above par, the central bank must intervene to sell the ________ currency by
purchasing ________ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer:
Assume that the following are the predicted inflation rates in these countries for the
year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil.
According to the purchasing power parity and everything else held constant, which of
the following would we expect to happen?
A) The Brazilian real will depreciate against the U.S. dollar.
B) The Mexican peso will depreciate against the Brazilian real.
C) The Canadian dollar will depreciate against the Mexican peso.
D) The U.S. dollar will depreciate against the Canadian dollar.
Answer:
Regulation of the financial system
A) occurs only in the United States.
B) protects the jobs of employees of financial institutions.
C) protects the wealth of owners of financial institutions.
D) ensures the stability of the financial system.
Answer:
To calculate the growth rate of a variable, you will
A) calculate the percentage change from one time period to the next.
B) calculate the difference between the two variables.
C) add the ending value to the beginning value.
D) divide the increase by the number of time periods.
Answer:
The oldest central bank, having been founded in 1694, is the
A) Bank of England.
B) Deutsche Bundesbank.
C) Bank of Japan.
D) Federal Reserve System.
Answer:
From 1950-2011 the price level in the United States increased more than.
A) twofold.
B) threefold.
C) sixfold.
D) ninefold.
Answer:
Small-denomination time deposits refer to certificates of deposit with a denomination of
less than
A) $1,000.
B) $10,000.
C) $100,000.
D) $1,000,000.
Answer:
According to the Taylor rule, the Fed should raise the federal funds interest rate when
inflation ________ the Fed’s inflation target or when real GDP ________ the Fed’s
output target.
A) rises above; drops below
B) drops below; drops below
C) rises above; rises above
D) drops below; rises above
Answer:
Which of the following is not a secondary market?
A) foreign exchange market
B) futures market
C) options market
D) IPO market
Answer:
A rise in short-term interest rates that is believed to be only temporary
A) is likely to have a significant effect on long-term interest rates.
B) will have a bigger impact on long-term interest rates than if the rise in short-term
rates had been permanent.
C) is likely to have only a small impact on long-term interest rates.
D) cannot possibly affect long-term interest rates.
Answer:
A contractionary monetary policy decreases net exports by ________ interest rates and
________ the value of the dollar.
A) lowering real; decreasing
B) lowering real; increasing
C) raising nominal; increasing
D) raising real; increasing
Answer:
Reducing risk through the purchase of assets whose returns do not always move
together is
A) diversification.
B) intermediation.
C) intervention.
D) discounting.
Answer:
Which of the following $1,000 face-value securities has the highest yield to maturity?
A) A 5 percent coupon bond with a price of $600
B) A 5 percent coupon bond with a price of $800
C) A 5 percent coupon bond with a price of $1,000
D) A 5 percent coupon bond with a price of $1,200
Answer:
Because interest rates have substantial fluctuations, the ________ theory of the demand
for money indicates that velocity has substantial fluctuations as well.
A) classical
B) Cambridge
C) liquidity preference
D) Pigouvian
Answer:
In the Keynesian liquidity preference framework, a rise in the price level causes the
demand for money to ________ and the demand curve to shift to the ________,
everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Answer:
Suppose interest rates are kept very low for a long time such that there is a spike in the
amount of lending. Everything else held constant, this could cause ________ bubble.
A) an irrational exuberance
B) a credit-driven
C) a stock
D) a debt-driven
Answer:
Newly-issued high-yield bonds rated below investment grade by the bond-rating
agencies are frequently referred to as
A) municipal bonds.
B) Yankee bonds.
C) “fallen angels.”
D) junk bonds.
Answer:
The majority of members of the Federal Open Market Committee are
A) Federal Reserve Bank presidents.
B) members of the Federal Advisory Council.
C) presidents of member banks.
D) the seven Federal Reserve governors.
Answer:
An important characteristic of the modern payments system has been the rapidly
increasing use of
A) checks and decreasing use of currency.
B) electronic fund transfers.
C) commodity monies.
D) fiat money.
Answer:
In the Keynesian cross diagram, an increase in investment spending because companies
become more optimistic about investment profitability causes the aggregate demand
function to shift up, the equilibrium level of aggregate output to ________, and the IS
curve to shift to the ________, everything else held constant.
A) rise; left
B) rise; right
C) fall; left
D) fall; right
Answer:
Suppose on any given day the prevailing equilibrium federal funds rate is above the
Federal Reserve’s federal funds target rate. If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
Answer:
The regulatory agency responsible for supervising savings and loans institutions is the
A) FSLIC.
B) Fed.
C) Comptroller of the Currency.
D) Office of Thrift Supervision.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to appreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Answer:
The most important category of assets on a bank’s balance sheet is
A) discount loans.
B) securities.
C) loans.
D) cash items in the process of collection.
Answer:
According to the efficient markets hypothesis, purchasing the reports of financial
analysts
A) is likely to increase one’s returns by an average of 10%.
B) is likely to increase one’s returns by about 3 to 5%.
C) is not likely to be an effective strategy for increasing financial returns.
D) is likely to increase one’s returns by an average of about 2 to 3%.
Answer:
The Depository Institutions Deregulation and Monetary Control Act of 1980
A) separated investment banks and commercial banks.
B) restricted the use of ATS accounts.
C) imposed restrictive usury ceilings on large agricultural loans.
D) increased deposit insurance from $40,000 to $100,000.
Answer:
Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the Bank of
England was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
Answer:
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
Answer:
Methods of financing government spending are described by an expression called the
government budget constraint, which states the following:
A) the government budget deficit must equal the sum of the change in the monetary
base and the change in government bonds held by the public.
B) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the public.
C) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Fed.
D) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Treasury.
Answer:
American businesses get their external funds primarily from
A) bank loans.
B) bonds and commercial paper issues.
C) stock issues.
D) loans from nonbank financial intermediaries.
Answer: