For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is
A. $10,030.
B. $10,300.
C. $13,000.
D. $13,310.
Answer:
On the evening news you hear of a scientific study that directly links premature births
to cigarette smoking. This is an example of
A. direct-model evidence.
B. informed voter-model evidence.
C. structural-model evidence.
D. reduced-form evidence.
Answer:
The ________ of the term structure of interest rates states that the interest rate on a
long-term bond will equal the average of short-term interest rates that individuals
expect to occur over the life of the long-term bond, and investors have no preference for
short-term bonds relative to long-term bonds.
A. segmented markets theory
B. expectations theory
C. liquidity premium theory
D. separable markets theory
Answer:
When the Fed extends a $100 discount loan to the First National Bank, reserves in the
banking system
A. increase by $100.
B. increase by more than $100.
C. decrease by $100.
D. decrease by more than $100.
Answer:
If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike
price of 114, and at the expiration date the price is 110, your ________ is ________.
A. profit; $4000
B. loss; $4000
C. profit; $3000
D. loss; $3000
Answer:
Everything else held constant, when bonds become less widely traded, and as a
consequence the market becomes less liquid, the demand curve for bonds shifts to the
________ and the interest rate ________.
A. right; rises
B. right; falls
C. left; falls
D. left; rises
Answer:
When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A. the liabilities of the First National Bank increase by $10.
B. the reserves of the First National Bank increase by $ 10.
C. the liabilities of Citibank increase by $10.
D. the assets of Citibank fall by $10.
Answer:
A corporation acquires new funds only when its securities are sold in the
A. secondary market by an investment bank.
B. primary market by an investment bank.
C. secondary market by a stock exchange broker.
D. secondary market by a commercial bank.
Answer:
If the Taylor Principle is not followed and nominal interest rates are increased by less
than the increase in the inflation rate, then real interest rates will ________ and
monetary policy will be too ________.
A. rise; tight
B. rise; loose
C. fall; tight
D. fall; loose
Answer:
A decrease in the domestic interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A. right; appreciate
B. right; depreciate
C. left; appreciate
D. left; depreciate
Answer:
Microprudential supervision does all of the following EXCEPT
A. checking capital ratios of a bank.
B. checking a bank’s compliance with disclosure requirements.
C. assessing the riskiness of an individual bank’s activities.
D. focusing on financial system liquidity.
Answer:
________ are the time and resources spent trying to exchange goods and services.
A. Bargaining costs
B. Transaction costs
C. Contracting costs
D. Barter costs
Answer:
The organization responsible for the conduct of monetary policy in the United States is
the
A. Comptroller of the Currency.
B. U.S. Treasury.
C. Federal Reserve System.
D. Bureau of Monetary Affairs.
Answer:
The primary assets of a pension fund are
A. money market instruments.
B. corporate bonds and stock.
C. consumer and business loans.
D. mortgages.
Answer:
The business term for economies of scope is
A) economies of scale.
B) diversification.
C) cooperation.
D) synergies.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, an increase in the reserve requirement ________
the demand for reserves, ________ the federal funds rate, everything else held constant.
A. decreases; lowering
B. increases; lowering
C. increases; raising
D. decreases; raising
Answer:
Because the United States was the reserve-currency country under the Bretton Woods
system, it could run large balance of payments ________ without ________ significant
amounts of international reserves.
A) deficits; losing
B) deficits; gaining
C) surpluses; losing
D) surpluses; gaining
Answer:
When the financial crisis started in August 2007, inflation was rising and the Fed began
an aggressive easing lowering of the federal funds rate, which indicated that
A. the Fed pursued an autonomous monetary policy tightening.
B. the Fed pursued an autonomous monetary policy easing.
C. the Fed had an automatic negative response to inflation based on the Taylor rule.
D. the Fed had an automatic positive response to inflation based on the Taylor rule.
Answer:
A central bank’s attempt to prevent an appreciation of its currency can stimulate
domestic inflation if the ________ of foreign currencies leads to ________ international
reserves which ________ the monetary base.
A) purchase; higher; increases
B) purchase; lower; decreases
C) sale; lower; decreases
D) sale; higher; increases
Answer:
The life insurance industry’s share of total financial intermediary assets fell from 15.3%
at the end of 1970 to 11.5% at the end of 1980 because of
A. poor investment returns in the 1970s.
B. widespread failures of life insurance companies.
C. federal regulations limiting the sale of life insurance.
D. unpredictability of payouts.
Answer:
The FOMC “Statement on Long-Run Goals and Monetary Policy Strategy”made it clear
that the Federal Reserve would be pursuing ________, consistent with its dual mandate.
A. a flexible form of inflation targeting
B. a strict form of inflation targeting
C. a zero inflation targeting
D. an implicit inflation targeting
Answer:
________ in the foreign interest rate causes the demand for domestic assets to shift to
the left and the domestic currency to ________, everything else held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer:
The net amount of international reserves that move between governments to finance
international transactions is called the ________ balance.
A) capital account
B) current account
C) trade
D) official reserve transactions
Answer:
One problem with conflicts of interest is that they can reduce the ________ in financial
markets, thereby increasing ________.
A. quantity of information; financial institutions’ profits
B. quantity of information; asymmetric information
C. quality of information; asymmetric information
D. quality of information; financial institutions’ profits
Answer:
Due to the lack of timely data for the price level and economic growth, the Fed’s
strategy
A. targets the exchange rate, since the Fed can control this variable.
B. targets the price of gold, since it is closely related to economic activity.
C. uses an intermediate target, such as an interest rate.
D. stabilizes the consumer price index, since the Fed can control the CPI.
Answer:
Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of
liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent,
the net worth of the bank falls by
A. $1 million.
B. $2.4 million.
C. $3.6 million.
D. $4.8 million.
Answer:
Goal independence is the ability of ________ to set monetary policy ________.
A. the central bank; goals
B. Congress; goals
C. Congress; instruments
D. the central bank; instruments
Answer:
Which of the following statements concerning external sources of financing for
nonfinancial businesses in the United States are TRUE?
A. Stocks are a far more important source of finance than are bonds.
B. Stocks and bonds, combined, supply less than one-half of the external funds.
C. Financial intermediaries are the least important source of external funds for
businesses.
D. Since 1970, more than half of the new issues of stock have been sold to American
households.
Answer:
Which of the following is NOT an advantage of a correctly specified structural model?
A. Structural models may help us to more accurately predict the effect that monetary
policy has on economic activity.
B. A structural model provides more pieces of evidence about monetary policy’s effect
on economic activity.
C. Structural models may allow economists to more accurately predict the impact
institutional changes have on the link between monetary policy and income.
D. A structural model imposes no restrictions on the way monetary policy affects the
economy.
Answer:
Everything else held constant, if a factor increases the demand for ________ goods
relative to ________ goods, the domestic currency will appreciate.
A. foreign; domestic
B. foreign; foreign
C. domestic; domestic
D. domestic; foreign
Answer:
Supply-side economic policies seek to
A. raise interest rates through contractionary monetary policy.
B. increase federal government expenditures.
C. increase consumption expenditures by increasing taxes.
D. increase saving and investment using tax incentives.
Answer:
When the Federal Reserve calls in a discount loan from a bank, the monetary base
________ and reserves ________.
A. remains unchanged; decrease
B. remains unchanged; increase
C. decreases; decrease
D. decreases; remains unchanged
Answer:
Which of the following is a potential operating instrument for the central bank?
A. the monetary base
B. the M1 money supply
C. nominal GDP
D. the discount rate
Answer: