The risk premium tends to vary in the following manner relative to the business cycle:
a. countercyclically
b. procyclically
c. about the same over all phases of the business cycle
d. unrelated to business cycle conditions
Answer:
An increase in income tax rates is likely to cause ____ and the monetary multiplier to
____.
a. k to increase; decrease
b. k to increase; increase
c. re to increase; decrease
d. rr to decrease; decrease
Answer:
A particular type of financial intermediary issues deposits or ‘shares” and uses the funds
principally to make consumer loans to its members. This institution is:
a. a finance company
b. a mutual savings bank
c. a credit union
d. a money market mutual fund
Answer:
The least liquid asset below is:
a. a checking account deposit
b. a passbook savings account
c. a Treasury bond
d. a money market mutual fund share
Answer:
A nursing home administrator earns $36,000 per year (after deductions) and is paid on
the first of each month. If he spends all of his income evenly throughout the year, then
his income velocity is
a. 36
b. 24
c. 12
d. none of the above
Answer:
The Treaty of Rome established the
a. European Economic Community
b. Economic and Monetary Union
c. European Union
d. United Nations
Answer:
Suppose that in a given week, other assets rise by $300, Treasury currency outstanding
rises by $300, and foreign deposits at the Fed rise by $600. If the Fed wishes to
defensively offset these changes in the base, it should
a. sell $600 of securities
b. sell $1,200 of securities
c. buy $300 of securities
d. take no action
Answer:
Assuming a 10% reserve requirement, a bank deposit of $100 in cash will result in the
creation of
a. an additional $900 of induced deposits
b. $1,000 of money
c. both of the above
d. neither of the above
Answer:
If banks in a given week expand loans by $300 million and sell off $200 million in
Treasury bills to the public, the net effect on the money supply (M1) is to
a. increase it by $100 million
b. increase it by $300 million
c. increase it by $500 million
d. do none of the above
Answer:
Above all, the most important criterion for a good intermediate target of monetary
policy is
a. controllability
b. importance
c. political feasibility
d. stability
Answer:
Which of the following financial assets is the most illiquid–that is, the least liquid?
a. a passbook savings account
b. shares of Motorola stock
c. U.S. government bonds
d. U.S. Treasury bills
Answer:
In 2004, the average maturity of the marketable U.S. government debt was
a. less than 1 year
b. approximately 5 years
c. approximately 10 years
d. more than 20 years
Answer:
Economists who prefer the M1 measure of the money supply tend to emphasize which
function of money?
a. the unit of account function
b. the medium of exchange function
c. the standard of value function
d. the store of value function
Answer:
Inflation, in the AS-AD framework, is attributable to
a. a persistently rightward shifting AS curve
b. a persistently rightward shifting AD curve
c. a persistently leftward shifting AD curve
d. none of the above
Answer:
When an American buys 100,000 British pounds in the futures market, she makes a
commitment to
a. demand a known amount of dollars on a specified future date
b. supply a known amount of dollars on a specified future date
c. supply a known amount of dollars immediately, for the pounds to be delivered when
the contract is due
d. supply an amount of dollars to be determined on the future date when the contract is
due
Answer:
The cost of borrowing money, adjusted for inflation, is called
a. the inflation rate
b. the real interest rate
c. the nominal interest rate
d. the interest rate
Answer:
Suppose that you withdraw $20 from your checking account to attend the local Strong
Man Competition. If reserve requirements are 10 percent, and if your bank was holding
no excess reserves before your withdrawal,
a. your bank will have to sell $18 of securities to cover its reserve deficiency
b. your bank will not have to sell securities, because your withdrawal reduced required
reserves as well as excess reserves
c. your bank will have to sell $20 of securities to cover its reserve deficiency
d. none of the above is true
Answer:
Which event will cause the aggregate supply curve to increase (shift rightward)?
a. an increase in business confidence
b. a decrease in steel prices
c. an increase in wages
d. a decrease in the money supply
Answer:
Increases in Federal budget deficits:
a. may affect interest rates by increasing expected future inflation
b. may cause a corresponding increase in personal saving, reducing the upward effect
on interest rates
c. directly increase the demand for loanable funds and may increase interest rates
d. do all the above
Answer:
Arguments in favor of inflation targeting include
a. that it decreases excessive transparency of a nation’s central bank
b. that it makes the central bank more credible but less accountable
c. that it provides a nominal anchor for monetary policy
d. all of the above
Answer:
The higher the equity multiplier, ceteris paribus,
a. the higher the bank’s earnings per share
b. the higher the bank’s capital accounts ratio
c. the lower the bank’s liabilities/assets ratio
d. all of the above are true
Answer:
High stock prices
a. raise consumer wealth and encourage consumption expenditure
b. discourage investment in plant and equipment by business firms
c. discourage research and development by business firms
d. all of the above
Answer:
What is the current yield on an 8 3/4s Treasury note priced at $91.05?
a. 9.61%
b. 10.41%
c. 9.16%
d. none of the above
Answer:
The independent status of the Federal Reserve may lead to which of the following
problems?
a. lack of input from partisan politicians
b. lack of objectivity in considering economic goals and policy
c. the potential for monetary policy to conflict with other facets of national policy
d. vital input from members of Congress, who tend to have more expertise in
economics than members of the Board of Governors
Answer:
Deflation:
a. is generally accompanied by stagnant aggregate demand and high unemployment
b. is a persistent decline in a nation’s general level of prices
c. is often associated with debt default and foreclosures
d. is characterized by all of the above
Answer:
Which of the following helps to explain why a nation’s aggregate demand curve is
downward sloping?
a. lower prices trigger an income effect
b. lower prices stimulate net exports (NX)
c. lower prices boost the incentive to produce
d. all of the above
Answer:
Open-end mutual funds
a. may issue new shares at any time
b. may or may not charge investors an up-front commission fee
c. trade at a fixed share price
d. do all of the above
Answer:
Keynesians use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. the New York Fed reduced its discount rate eight times
b. the money supply multiplier increased
c. bank reserves fell about 18 percent
d. none of the above
Answer:
What is the yield to maturity of an 8 1/4 Treasury note which sells for $75.50 and
matures in 5 years?
a. 17.41 percent
b. 13.15 percent
c. 10.92 percent
d. none of the above
Answer:
A decrease in interest rates engineered by the Federal Reserve would
a. stimulate investment, shifting AD rightward
b. stimulate consumption, shifting AD rightward
c. do both of the above
d. do neither of the above
Answer:
When aggregate supply decreases, the Fed’s ideal response is to
a. increase the money supply to increase aggregate demand
b. reduce interest rates to increase aggregate demand
c. increase interest rates to reduce aggregate demand
d. do none of the above–the Fed has no ideal response
Answer:
Assuming a 10 percent reserve requirement, a cash withdrawal of $6,000 from a local
bank will
a. ultimately cause bank loans and securities to decrease by $54,000
b. ultimately cause bank excess reserves to fall by $5,400
c. ultimately cause aggregate bank total reserves to fall by $60,000
d. ultimately cause aggregate bank required reserves to rise by $600
Answer: