A coupon bond has an annual coupon of $75, a par value of $1000, and a market price
of $900. Its current yield equals
A) 50%.
B) 33%.
C) its yield to maturity.
D) Not enough information has been provided to calculate the current yield for this
bond.
Answer:
When output is below its full-employment level, the short-run aggregate supply will
shift down and to the right because
A) the expected price level will be below the actual price level.
B) workers’ wages will decline.
C) prices of nonlabor inputs will rise.
D) workers’ wages will rise.
Answer:
Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a
one-year Mexican bond that pays 10% interest. Next year, the exchange rate is 11 pesos
per dollar. Assuming you convert your funds back to U.S. dollars, how much money
will you have in one year?
A) $1000
B) $1100
C) $91
D) $0
Answer:
Which combination of assets represents the most diversification?
A) holding corporate and Treasury bonds
B) holding shares of Google and Yahoo
C) holding shares of Google and Microsoft
D) holding shares of Google along with Treasury bonds
Answer:
The Dodd-Frank Act removed which group from decisions regarding the presidents of
Federal Reserve Banks?
A) Class A directors
B) Class B directors
C) Class C directors
D) Board of Governors
Answer:
In an options contract, another name for the strike price is the
A) market price.
B) exercise price.
C) equilibrium price.
D) fixed price.
Answer:
The aggregate supply curve represents levels of output that producers are willing to sell
at
A) each level of the real interest rate.
B) each level of real GDP.
C) each price level.
D) each inflation rate.
Answer:
The “troika” that helped Greece avoid defaulting on its debt including all of the
following EXCEPT:
A) IMF
B) European Central Bank
C) World Bank
D) European Commission
Answer:
The Troubled Asset Relief Program (TARP) allowed
A) the Treasury to inject funds into commercial banks in return for stock in the banks.
B) the Fed to provide funds to commercial banks in return for stock.
C) the Treasury to insure bank deposits at major U.S. banks.
D) the Fed to make loans to banks as the lender of last resort.
Answer:
All of the following describe the market for credit default swaps on mortgage-backed
securities in the mid-2000s EXCEPT
A) an increasing number of buyers were speculators.
B) AIG apparently underestimated the risk involved with mortgage-backed securities.
C) the volume of credit default swaps was too low making it difficult to assess their
value.
D) payments by buyers were too low relative to risk.
Answer:
A substantial appreciation of the U.S. dollar will likely result in, all else equal,
A) lower demand for U.S. products and layoffs of U.S. workers.
B) increased demand for U.S. products and increased employment of U.S. workers.
C) lower foreign currency prices of U.S. products in foreign countries.
D) higher U.S. dollar prices of foreign products in the United States.
Answer:
The difference between currency outstanding and currency in circulation is equal to
A) vault cash.
B) bank reserves.
C) coins issued by the U.S. Treasury.
D) zero; they are the same thing.
Answer:
Which of the following is NOT true of moral hazard?
A) It would not exist in a world of perfect information.
B) It arises because borrowers typically know more than lenders.
C) It describes a lender’s problem of distinguishing the good-risk applicants from the
bad-risk applicants.
D) It describes a lender’s problem in verifying borrowers are using their funds as
intended.
Answer:
Which of the following statements is correct?
A) The Fed has difficulty covering its normal expenses, but is reluctant to ask Congress
for money.
B) The Fed is dependent on the annual appropriations it receives from Congress.
C) The Fed’s profits are substantial, even when compared to the largest U.S.
corporations.
D) At one time the Fed made substantial profits, but falling interest rates have greatly
reduced them.
Answer:
In the early 1930s
A) countries that abandoned the gold standard suffered severe inflation.
B) countries that tried to defend the gold standard suffered more depression than
countries that abandoned the gold standard.
C) the gold standard was abandoned by every major industrial country except England.
D) the United States was the first major industrial country to abandon the gold standard.
Answer:
AIG almost went bankrupt in 2008 because
A) the value of the securities underlying its credit default swaps declined significantly.
B) it lacked the collateral required by buyers of its credit default swaps.
C) prices of securities underlying their credit default swaps were hard to determine
since they were no longer actively traded.
D) all of the above.
Answer:
Currently, the dominant reserve currency is the
A) U.S. dollar.
B) Japanese yen.
C) euro.
D) British pound.
Answer:
As of October 2012, which of the following was true?
A) deposits of foreign governments and international organizations > bank reserves >
currency in circulation
B) currency in circulation > bank reserves > deposits of foreign governments and
international organizations
C) bank reserves > currency in circulation > deposits of foreign government and
international organizations
D) currency in circulation > deposits of foreign governments and international
organizations > bank reserves
Answer:
In July 2010, what was the total value of U.S. currency in circulation?
A) $500 million
B) $150 billion
C) $1080 billion
D) $6 trillion
Answer:
Since 1980, discount loans have been available
A) only to member banks of the Federal Reserve System.
B) only to national banks.
C) only to state banks.
D) to all depository institutions.
Answer:
When market participants have adaptive expectations
A) they use all information available to them.
B) they only slowly adjust their expectations to news which could affect prices or
returns.
C) they are more likely to make accurate forecasts than if they have rational
expectations.
D) they are able to forecast interest rates more accurately than inflation rates.
Answer:
Forward transactions
A) provide substantial liquidity.
B) entail small information costs.
C) provide risk sharing.
D) provide reduced tax payments.
Answer:
As of late 2012, what was the all-time high price for an ounce of gold?
A) $1078
B) $1780
C) $7800
D) $14,163
Answer:
Unlike the segmented markets theory, the expectations theory attributes the slope of the
yield curve to
A) tax considerations.
B) the fact that short-term bonds are not perfect substitutes for long-term bonds.
C) the market’s view of future short-term interest rates.
D) the variance in the inflation rates over the business cycle.
Answer:
If the account manager finds that the current level of bank reserves is greater than the
desired level indicated in the most recent directive from the FOMC, he will
A) order banks to reduce their reserves.
B) order banks to raise their interest rates in an attempt to get them to loan out more of
their reserves.
C) conduct an open market purchase.
D) conduct an open market sale.
Answer:
All of the following have been proposed as reasons for an unusually high level of
uncertainty following the financial crisis of 2007-2009 EXCEPT:
A) the severity of the financial crisis
B) concerns of small businesses regarding how the Affordable Care Act would affect
the cost of hiring workers
C) concerns by households and firms regarding potential tax increases and spending
cuts scheduled to take place in January 2013
D) the Fed indicating that it would withdraw stimulus as soon as there was any
evidence of economic recovery
Answer:
Which of the following is a behavior inconsistent with the Efficient Markets
Hypothesis?
A) diversification of one’s portfolio
B) avoiding active trading of stocks
C) holding onto a losing stock while being more likely to sell a stock that has increased
in value
D) the purchase of a stock index fund
Answer:
Which of the following is NOT a nontransaction deposit?
A) a money market deposit account
B) a certificate of deposit
C) a savings account
D) a NOW account
Answer:
As a result of higher expected inflation,
A) the demand and supply curves for loanable funds both shift to the right and the
equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the
equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable
funds shifts to the left, and the equilibrium interest rate usually rises.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable
funds shifts to the right, and the equilibrium interest rate usually rises.
Answer:
The Fed can implement open market operations
A) more rapidly than changes in reserve requirements, but less rapidly than changes in
the discount rate.
B) more rapidly than changes in the discount rate, but less rapidly than changes in
reserve requirements.
C) less rapidly than either changes in the discount rate or changes in reserve
requirements.
D) more rapidly than either changes in the discount rate or changes in reserve
requirements.
Answer:
The discount window is
A) another name for the discount rate.
B) the means by which the Fed makes discount loans to banks.
C) the spread between the discount rate and the T-bill rate.
D) the period each month during which banks are allowed to apply for discount loans.
Answer: