The process of indirect finance using financial intermediaries is called
A. direct lending.
B. financial intermediation.
C. resource allocation.
D. financial liquidation.
Answer:
Life insurance companies are regulated by state governments because
A. they have never experienced bankruptcy.
B. they have never experienced profitability.
C. they have never experienced widespread failures.
D. they hold only highly liquid assets.
Answer:
Everything else held constant, a decrease in planned investment expenditure ________
aggregate ________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
Countries that experience very high rates of inflation may also have
A. balanced budgets.
B. rapidly growing money supplies.
C. falling money supplies.
D. constant money supplies.
Answer:
When you deposit a $50 bill in the Security Pacific National Bank
A. its liabilities decrease by $50.
B. its assets increase by $50.
C. its reserves decrease by $50.
D. its cash items in the process of collection increase by $50.
Answer:
In the case of an insurance policy, ________ occurs when the existence of insurance
encourages the insured party to take risks that increase the likelihood of an insurance
payoff; ________ occurs when those most likely to get large insurance payoffs are the
ones who want to purchase insurance the most.
A. moral hazard; insurance market discrimination
B. moral hazard; insurance segregation
C. moral hazard; adverse selection
D. adverse selection; moral hazard
Answer:
The Federal Open Market Committee consists of the
A. five senior members of the seven-member Board of Governors.
B. seven members of the Board of Governors and seven presidents of the regional Fed
banks.
C. seven members of the Board of Governors and five presidents of the regional Fed
banks.
D. twelve regional Fed bank presidents and the chairman of the Board of Governors.
Answer:
A contractionary monetary policy shifts the LM curve to the ________, reducing
________, everything else held constant.
A. left; output and increasing interest rates
B. left; both real output and interest rates
C. right; both interest rates and real output
D. right; interest rates and increasing real output
Answer:
The management of money and interest rates is called ________ policy and is
conducted by a nation’s ________ bank.
A. monetary; superior
B. fiscal; superior
C. fiscal; central
D. monetary; central
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:
When I purchase a corporate ________, I am lending the corporation funds for a
specific time. When I purchase a corporation’s ________, I become an owner in the
corporation.
A. bond; stock
B. stock; bond
C. stock; debt security
D. bond; debt security
Answer:
Holding large amounts of bank capital helps prevent bank failures because
A. it means that the bank has a higher income.
B. it makes loans easier to sell.
C. it can be used to absorb the losses resulting from bad loans.
D. it makes it easier to call in loans.
Answer:
A stockholder’s ownership of a company’s stock gives her the right to
A. vote and be the primary claimant of all cash flows.
B. vote and be the residual claimant of all cash flows.
C. manage and assume responsibility for all liabilities.
D. vote and assume responsibility for all liabilities.
Answer:
If uncertainty about banks’ health causes depositors to begin to withdraw their funds
from banks, the country experiences a(n)
A. banking crisis.
B. financial recovery.
C. reduction of the adverse selection and moral hazard problems.
D. increase in information available to investors.
Answer:
In the market for reserves, a lower discount rate
A. decreases the supply of reserves.
B. increases the supply of reserves.
C. lengthens the vertical section of the supply curve of reserves.
D. shortens the vertical section of the supply curve of reserves.
Answer:
Everything else held constant, an autonomous easing of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to decrease.
D. aggregate demand to increase.
Answer:
Everything else held constant, a depreciation of the domestic currency will cause the IS
curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Answer:
If the Federal Reserve conducts open market sales, the money supply ________,
shifting the LM curve to the ________, everything else held constant.
A. decreases; right
B. decreases; left
C. increases; right
D. increases; left
Answer:
An increase in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; LM; left
D. fall; IS; left
Answer:
In the liquidity trap a small change in interest rates produces ________ change in the
quantity of money demanded.
A. a small
B. no
C. a proportionate
D. a very large
Answer:
Money ________ transaction costs, allowing people to specialize in what they do best.
A. reduces
B. increases
C. enhances
D. eliminates
Answer:
During the 1950s, the Fed targeted
A. M1.
B. M2.
C. the monetary base.
D. money market conditions.
Answer:
The time it takes for the policy actually to have an impact on the economy is called
A. the data lag.
B. the recognition lag.
C. the legislative lag.
D. the implementation lag.
E. the effectiveness lag.
Answer:
The most common definition that monetary policymakers use for price stability is
A. low and stable deflation.
B. an inflation rate of zero percent.
C. high and stable inflation.
D. low and stable inflation.
Answer:
Positive spending shocks lead to ________ output ________.
A. higher; in both the short and long runs
B. higher; in the short run but not in the long run
C. lower; in both the short and long runs
D. lower; in the short run but not in the long run
Answer:
Everything else held constant, aggregate demand increases when
A. taxes are cut.
B. government spending is reduced.
C. animal spirits decrease.
D. the money supply is reduced.
Answer:
A stock’s price will fall if there is
A. a decrease in perceived risk.
B. an increase in the required rate of return.
C. an increase in the future sales price.
D. current dividends are high.
Answer:
When paper currency is decreed by governments as legal tender, legally it must be
A. paper currency backed by gold.
B. a precious metal such as gold or silver.
C. accepted as payment for debts.
D. convertible into an electronic payment.
Answer:
A tax cut initially
A. increases consumption expenditure by an amount greater than the tax cut.
B. increases consumption expenditure by an amount equal to the tax cut.
C. increases consumption expenditure by an amount that is less than the value of the tax
cut.
D. has no effect on consumption expenditure.
E. reduces consumption expenditure by an amount that is less than the value of the tax
cut.
Answer:
The growth of the subprime mortgage market led to
A. increased demand for houses and helped fuel the boom in housing prices.
B. a decline in the housing industry because of higher default risk.
C. a decrease in home ownership as investors chose other assets over housing.
D. decreased demand for houses as the less credit-worthy borrowers could not obtain
residential mortgages.
Answer:
The efficient markets hypothesis predicts that stock prices follow a “random walk.” The
implication of this hypothesis for investing in stocks is
A. a “churning strategy” of buying and selling often to catch market swings.
B. turning over your stock portfolio each month, selecting stocks by throwing darts at
the stock page.
C. a “buy and hold strategy” of holding stocks to avoid brokerage commissions.
D. following the advice of technical analysts.
Answer:
Suppose the economy is producing below the natural rate of output and the government
is suffering from large budget deficits. To deal with the deficit problem, suppose the
government takes a policy action to reduce the size of the deficits. This policy action
will cause ________ in the unemployment rate in the short run and ________ in
inflation in the short run, everything else held constant.
A. an increase; an increase
B. a decrease; a decrease
C. a decrease; an increase
D. an increase; a decrease
Answer:
Increased uncertainty resulting from the global financial crisis ________ the required
return on investment in equity.
A. raised
B. lowered
C. had no impact on
D. decreased
Answer: