If during the past decade the average rate of monetary growth has been 5% and the
average inflation rate has been 5%, everything else held constant, when the Federal
Reserve announces that the new rate of monetary growth will be 10%, the adaptive
expectation forecast of the inflation rate is
A. 5%.
B. between 5 and 10%.
C. 10%.
D. more than 10%.
Answer:
If Treasury deposits at the Fed are predicted to increase, the manager of the trading desk
at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A. defensive; inject
B. defensive; drain
C. dynamic; inject
D. dynamic; drain
Answer:
A(n) ________ is a subsidiary of a U.S. bank that is engaged primarily in international
banking.
A) Edge Act corporation
B) Eurodollar agency
C) universal bank
D) McFadden corporation
Answer:
Tobin’s model of the speculative demand for money shows that people hold money as a
________ as a way of reducing ________.
A. medium of exchange; transaction costs
B. medium of exchange; risk
C. store of wealth; transaction costs
D. store of wealth; risk
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess demand of goods which will cause aggregate output to
________.
A. right; fall
B. right; rise
C. left; fall
D. left; rise
Answer:
Holding everything else constant
A. if asset A’s risk rises relative to that of alternative assets, the demand will increase
for asset A.
B. the more liquid is asset A, relative to alternative assets, the greater will be the
demand for asset A.
C. the lower the expected return to asset A relative to alternative assets, the greater will
be the demand for asset A.
D. if wealth increases, demand for asset A increases and demand for alternative assets
decreases.
Answer:
If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on peso-denominated assets is
A. 11 percent.
B. 15 percent.
C. 17 percent.
D. 19 percent.
Answer:
The strongest argument for an independent Federal Reserve rests on the view that
subjecting the Fed to more political pressures would impart
A. an inflationary bias to monetary policy.
B. a deflationary bias to monetary policy.
C. a disinflationary bias to monetary policy.
D. a countercyclical bias to monetary policy.
Answer:
When the policy rate hits its lower bound and inflation keeps falling, this portion of the
aggregate demand curve is
A. downward sloping.
B. upward sloping.
C. flat.
D. undetermined.
Answer:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the excess reserve ratio to
200% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 0.15 to 0.33
b. decrease from 0.73 to 0.61
c. increase from 0.54 to 0.67
d. decrease from 1.67 to 1.54
Answer:
All of the following might create problems from financial liberalization in emerging
countries EXCEPT
A. ineffective screening of borrowers.
B. limits on risk-taking.
C. lax government supervision of banks.
D. lenders failure to monitor borrowers.
Answer:
The supply curve for bonds has the usual upward slope, indicating that as the price
________, ceteris paribus, the ________ increases.
A. falls; supply
B. falls; quantity supplied
C. rises; supply
D. rises; quantity supplied
Answer:
In the long-run ISLM model and with everything else held constant, an increase in the
money supply leaves the level of output and interest rates unchanged, an outcome
called
A. interest rate overshooting.
B. long-run money neutrality.
C. long-run crowding out.
D. the long-run Phillips curve.
Answer:
Which of the following is not a part of the Sarbanes-Oxley Act of 2002?
A. the establishment of a Public Company Accounting Oversight Board (PCAOB) to
supervise accounting firms and thus insure that audits are independent and controlled
for quality
B. increased penalties for white-collar crime and obstruction of official investigations
C. requires a CEO and CFO to certify that periodic financial statements and disclosure
of the firm are accurate
D. requires investment banks to make public their analysts’ recommendations
Answer:
Of the following sources of external finance for American nonfinancial businesses, the
least important is
A. loans from banks.
B. stocks.
C. bonds and commercial paper.
D. loans from other financial intermediaries.
Answer:
Which of the following instruments are traded in a money market?
A. bank commercial loans
B. commercial paper
C. state and local government bonds
D. residential mortgages
Answer:
High net worth helps to diminish the problem of moral hazard problem by
A) requiring the state to verify the debt contract.
B) collateralizing the debt contract.
C) making the debt contract incentive compatible.
D) giving the debt contract characteristics of equity contracts.
Answer:
A breakdown of financial markets can result in
A. financial stability.
B. rapid economic growth.
C. political instability.
D. stable prices.
Answer:
According to the efficient markets hypothesis, purchasing the reports of financial
analysts
A. is likely to increase one’s returns by an average of 10%.
B. is likely to increase one’s returns by about 3 to 5%.
C. is not likely to be an effective strategy for increasing financial returns.
D. is likely to increase one’s returns by an average of about 2 to 3%.
Answer:
Which of the following are generally TRUE of all bonds?
A. The longer a bond’s maturity, the greater is the rate of return that occurs as a result of
the increase in the interest rate.
B. Even though a bond has a substantial initial interest rate, its return can turn out to be
negative if interest rates rise.
C. Prices and returns for short-term bonds are more volatile than those for longer term
bonds.
D. A fall in interest rates results in capital losses for bonds whose terms to maturity are
longer than the holding period.
Answer:
When asset prices rise above their fundamental economic values, a(n) ________ occurs.
A. asset-price bubble
B. liability war
C. decline in lending
D. decrease in moral hazard
Answer:
As interest rates rise, the expected absolute return of money ________, money’s
expected return relative to bonds ________.
A. does not change; decrease
B. rises; decrease
C. does not change; increase
D. falls; decrease
Answer:
As a result of the global financial crisis several of the large, free-standing investment
banking firms chose to become bank holding companies. This means that they will now
be regulated by
A) the Federal Reserve.
B) the FDIC.
C) the state banking authorities.
D) the Treasury.
Answer:
Referring to the Economic Stimulus Act of 2008, the expansionary effect of the
government stimulus was overwhelmed by the continuing deterioration in credit market
conditions. Everything else held constant and using the ISLM model, the net effect
would cause the ________ curve to ________ and output will ________.
A. IS; shift left; decrease
B. IS; shift right; increase
C. LM; shift right; increase
D. LM shift left; decrease
Answer:
Since 1974, commercial banks importance as a source of funds for nonfinancial
borrowers
A. has shrunk dramatically, from around 40 percent of total credit advanced to around
25 percent by 2014.
B. has shrunk dramatically, from around 70 percent of total credit advanced to below 50
percent by 2014.
C. has expanded dramatically, from around 50 percent of total credit advanced to above
70 percent by 2014.
D. has expanded dramatically, from around 30 percent of total credit advanced to above
50 percent by 2014.
Answer:
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say First
National Bank has ________ million dollars in required reserves.
A. one
B. two
C. nine
D. ten
Answer:
If there are economies of scale in the transactions demand for money, as income
increases, money demand
A. increases proportionately.
B. increases less than proportionately.
C. increases more than proportionately.
D. does not change.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
increase 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:
Holding many risky assets and thus reducing the overall risk an investor faces is called
A. diversification.
B. foolishness.
C. risk acceptance.
D. capitalization.
Answer:
Which bank regulatory agency has the sole regulatory authority over bank holding
companies?
A. the FDIC
B. the Comptroller of the Currency
C. the FHLBS
D. the Federal Reserve System
Answer:
In the ISLM framework, an expansionary monetary policy causes aggregate output to
________ and the interest rate to ________, everything else held constant.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer: