Suppose a 360-day Treasury bill issued today sells at a discount rate of 5 percent.
Suppose interest rates remain constant in the next year. We can state that, 180 days from
now, the price of this Treasury bill will be approximately:
a. $990
b. $950
c. $975
d. none of the above
Answer:
The primary tool of Federal Reserve policy is
a. discount window policy
b. money supply policy
c. open market operations
d. reserve requirement policy
Answer:
The power of the Board of Governors derives largely from the fact that the Board
a. determines the salaries of the top officers of the Fed district banks
b. makes up 7/12 of the voting members of the Federal Open Market Committee
c. selects the Chairman of the Board of Governors
d. unilaterally conducts monetary policy in the United States
Answer:
Monetarists use which piece of evidence to support their position about Fed policy in
the early 1930s?
a. the currency ratio increased sharply
b. real interest rates were extremely high
c. short-term interest rates fell to very low levels
d. the New York Fed reduced the discount rate eight times
Answer:
Float would decrease in magnitude if
a. a blizzard hit the Midwest
b. the Fed increases deferral time for remote banks
c. a postal strike occurred
d. preauthorized payments by banks are outlawed
Answer:
In retrospect, a clear error made by the Fed in the early 1930s was
a. allowing the monetary base to decline 25 percent
b. the creation of too many excess reserves
c. the increase in reserve requirements in 1930 and 1931
d. the tightening of discount window policy
Answer:
If nominal interest rates are 10 percent, expected inflation is 8 percent, and realized
inflation is 6 percent, the ex post real interest rate is:
a. -2 percent
b. 2 percent
c. 4 percent
d. 10 percent
Answer:
Which of the following potential target variables scores the lowest on the measurability
criterion?
a. the M1 money supply
b. the real Treasury bond rate
c. total bank reserves
d. all of the above are equally measurable
Answer:
The depository institution with the fewest number of firms is the:
a. mutual savings bank
b. credit union
c. savings and loan association
d. commercial bank
Answer:
Surveys of inflationary expectations, such as the Livingston and Michigan Surveys, are
most useful in ascertaining:
a. ex ante real interest rates
b. ex post after-tax interest rates
c. ex post real interest rates
d. nominal interest rates
Answer:
In order to raise interest rates, the Fed should
a. sell securities in the open market
b. reduce the discount rate
c. reduce the reserve requirement
d. do none of the above
Answer:
Today, the Fed has chosen ____ as an operating target.
a. bank reserves
b. discounts and advances
c. the fed funds rate
d. the monetary base
Answer:
Which decade witnessed the poorest stock market returns?
a. the 1950s
b. the 1970s
c. the 1980s
d. the 1990s
Answer:
To trigger a multiple deposit contraction, the Fed may
a. sell securities in the open market
b. raise the discount rate
c. raise the reserve requirement
d. do any of the above
Answer:
During the decade of the 1930s, the U.S. unemployment rate averaged approximately
a. 7 percent
b. 10 percent
c. 18 percent
d. 23 percent
Answer:
Which of the following is an indicator of relatively high bank liquidity?
a. its securities/total assets ratio is low
b. its loans/total assets ratio is high
c. both of the above
d. neither of the above
Answer:
As a store of value:
a. money is superior to U.S. government bonds
b. non-money assets outperform money
c. money outperforms non-monetary assets
d. Treasury bills outperform common stocks
Answer:
Secondary markets do not raise new capital. Nonetheless, they are still important to an
economy for what primary reason?
a. They provide liquidity, without which primary issues could not be marketed.
b. They channel funds from savers to borrowers.
c. They give an indicator as to the true value of a company.
d. None of the above is true.
Answer:
Which of the following components of real expenditures is likely to respond positively
to a reduction in the national price level?
a. net exports (NX)
b. investment spending
c. consumption spending
d. all of the above
Answer:
The common stocks of most firms are traded:
a. over the counter
b. in the money market
c. on organized exchanges
d. in the debt market
Answer:
A decrease in stock prices ____ the cost of capital to the firm and ____ investment
expenditures.
a. raises; increases
b. raises; reduces
c. lowers; increases
d. lowers; reduces
Answer:
The Free Banking Era in the United States
a. lasted from 1883 to 1909
b. was characterized by a large number of banks and banknotes
c. was characterized by a high degree of supervision of bank activity
d. all of the above
Answer:
An increase in prices can be caused by an aggregate demand ____ or by an aggregate
supply ____.
a. decrease; decrease
b. decrease; increase
c. increase; increase
d. increase; decrease
Answer:
Commercial bank regulatory bodies in the United States include
a. the Comptroller of the Currency, the Federal Reserve, the FDIC, and state banking
commissions
b. the Comptroller of the Currency, the Federal Reserve, and state banking commissions
c. the Federal Reserve, the Comptroller of the Currency, and the FDIC
d. the FDIC, state banking commissions, and the Comptroller of the Currency
Answer:
As an economist, you determine that checking accounts have 8/10 the “moneyness” of
currency, savings accounts have 5/10 the moneyness of currency, time deposits have
4/10 the moneyness of currency, and money market mutual fund shares have 2/10 the
moneyness of currency. If currency = $1000, checkable deposits = $2000, savings
accounts = $4000, time deposits = $4000, and MMMF shares = $2000, the M2 money
supply would be:
a. $3,000
b. $2,600
c. $6,600
d. $13,000
Answer:
Over the past 30 years, the fastest growing contractual saving institution has been the
a. mutual savings bank
b. government and private pension funds
c. life insurance company
d. fire and casualty insurance company
Answer:
An inflationary gap exists when
a. equilibrium output is above the natural rate of output
b. the natural rate of unemployment is greater than the actual rate of unemployment
c. both of the above occur
d. neither of the above occurs
Answer:
Suppose DDO total $1,000 billion, the reserve requirement for all DDO is 8 percent,
and total reserves held by banks total $81 billion. Then we can compute re to be
a. 0.001
b. 0.1
c. 0.081
d. 0.08
Answer:
The Panic of 1907
a. caused lawmakers to consider the need for a “lender of last resort”
b. led to the Federal Reserve Act of 1913
c. led to the creation of a central bank for the United States
d. did all of the above
Answer:
The U.S. government’s response to the initial S&L crisis of the early 1980s was to
a. beef up supervision of S&Ls
b. deregulate the industry and practice forbearance
c. implement FIRREA in 1982
d. impose additional regulations on S&Ls
Answer:
Suppose the Treasury bill yield is 10 percent, and the ex post real Treasury bill yield is
6 percent. Then:
a. expected inflation must have been 4 percent
b. expected inflation must have exceeded actual inflation
c. actual inflation must have been 4 percent
d. none of the above
Answer:
One reason that more banks decided to give up membership in the Federal Reserve
System in the 1970s was that
a. the Fed only paid interest on reserves to nonmember banks
b. the Federal Reserve’s reserve requirements were too low
c. rising interest rates increased the reserve requirement “tax”
d. all of the above were true
Answer:
Passage of Gramm-Leach-Bliley touched off
a. a wave of mergers between commercial banks and investment banks
b. a wave of mergers between commercial banks and insurance companies
c. both of the above
d. neither of the above
Answer:
Assume the nominal interest rate is 8 percent and expected inflation is 6 percent. Then
the expected after tax real interest rate is negative for individuals in a marginal tax
bracket above:
a. zero
b. 25 percent
c. 10 percent
d. 20 percent
Answer:
Which unit of the Federal Reserve is responsible for buying and selling securities in
order to manage the money supply?
a. the Board of Governors
b. the Federal Open Market Committee
c. the twelve Federal Reserve district banks
d. the president of the Federal Reserve Bank of New York
Answer: