If market participants notice that a variable behaves differently now than in the past,
then, according to rational expectations theory, we can expect market participants to
A. change the way they form expectations about future values of the variable.
B. begin to make systematic mistakes.
C. no longer pay close attention to movements in this variable.
D. give up trying to forecast this variable.
Answer:
Due to asymmetric information in credit markets, monetary policy may affect economic
activity through the balance sheet channel, where an increase in the money supply
A. raises stock prices, lowering the cost of new capital relative to firms’ market value,
thus increasing investment spending.
B. raises firms’ net worth, decreasing adverse selection and moral hazard problems, thus
increasing banks’ willingness to lend to finance investment spending.
C. raises the level of bank reserves, deposits, and bank loans, thereby raising spending
by those individuals who do not have access to credit markets.
D. lowers the value of the dollar, increasing net exports and aggregate demand.
Answer:
Introduction of checks into the payments system reduced the costs of exchanging goods
and services. Another advantage of checks is that
A. they provide convenient receipts for purchases.
B. they can never be stolen.
C. they are more widely accepted than currency.
D. the funds from a deposited check are available for use immediately.
Answer:
The countries that have made the least use of securities markets are ________ and
________; in these two countries finance from financial intermediaries has been almost
ten times greater than that from securities markets.
A. Germany; Japan
B. Germany; Great Britain
C. Great Britain; Canada
D. Canada; Japan
Answer:
The ________ states that exchange rates between any two currencies will adjust to
reflect changes in the price levels of the two countries.
A. theory of purchasing power parity
B. law of one price
C. theory of money neutrality
D. quantity theory of money
Answer:
The Chairman of the Board of Governors is chosen from among the seven governors
and serves a ________, renewable term.
A. one-year
B. two-year
C. four-year
D. eight-year
Answer:
A change in perceived risk of a stock changes
A. the expected dividend growth rate.
B. the expected sales price.
C. the required rate of return.
D. the current dividend.
Answer:
If float is predicted to decrease because of good weather, 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:
Much of the credit for prevention of a financial market meltdown after “Black Monday”
(October 19, 1987) must be given to the Federal Reserve System and then-chairman
A. Paul Volcker.
B. Alan Blinder.
C. Arthur Burns.
D. Alan Greenspan.
Answer:
In the Governing Council, the decision of what policy to implement is made by
A. majority vote of the Executive Board members.
B. majority vote of the heads of the National Banks.
C. consensus.
D. majority vote of all members of the Governing Council.
Answer:
During times of financial crisis, mark-to-market accounting
A. requires that a financial firms’ assets be marked down in value which can worsen the
lending crisis.
B. leads to an increase in the financial firms’ balance sheets since they can now get
assets at bargain prices.
C. leads to an increase in financial firms’ lending.
D. results in financial firms’ assets increasing in value.
Answer:
If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it
can reduce interest-rate risk with a swap that requires Second National to
A. pay fixed rate while receiving floating rate.
B. receive fixed rate while paying floating rate.
C. both receive and pay fixed rate.
D. both receive and pay floating rate.
Answer:
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A. 5 percent.
B. 8 percent.
C. 10 percent.
D. 40 percent.
Answer:
In the basic closed-economy ISLM model, the IS curve can be described by an equation
where
A. output is a function of consumption.
B. money is a function of interest rates.
C. output is a function of money.
D. output is a function of interest rates.
Answer:
Since 1980
A. banks have decreased risk taking to offset the decline in profits.
B. banks have offset the decline in profits from traditional activities with increased
income from off-balance-sheet activities.
C. banks have offset the decline in profits from off-balance-sheet activities with
increased income from traditional activities.
D. bank profits have grown rapidly due to deregulation.
Answer:
The monetary base consists of
A. currency in circulation and Federal Reserve notes.
B. currency in circulation and the U.S. Treasury’s monetary liabilities.
C. currency in circulation and reserves.
D. reserves and Federal Reserve Notes.
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 of reserves and causes the federal funds interest rate to ________,
everything else held constant.
A. decreases; fall
B. increases; fall
C. increases; rise
D. decreases; rise
Answer:
Credit cards date back to
A. prior to the second World War.
B. just after the second World War.
C. the early 1950s.
D. the late 1950s.
Answer:
The Policy Trilemma states that a country or a monetary union can’t pursue the
following three policies at the same time
A) capital control, a fixed exchange rate, and an independent monetary policy.
B) free capital mobility, a fixed exchange rate, and an independent monetary policy.
C) free capital mobility, a flexible exchange rate, and an independent monetary policy.
D) capital control, a flexible exchange rate, and an independent monetary policy.
Answer:
The Basel Committee ruled that regulators in other countries can ________ the
operations of a foreign bank if they believe that it lacks effective oversight.
A. restrict
B. encourage
C. renegotiate
D. enhance
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate
equals the interest rate paid on excess reserves, raising the interest rate paid on excess
reserves
A. increases the federal funds rate.
B. lowers the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect of the federal funds rate.
Answer:
As “haircuts” increased during 2007-2009, financial institutions found that to borrow
the same loan amount now required ________ collateral.
A. less
B. no
C. more
D. default-free
Answer:
In the simple Keynesian model, equilibrium aggregate output is determined by
A. aggregate demand.
B. aggregate supply.
C. the national demand for labor.
D. the price level.
Answer:
Anything that increases the demand for foreign goods relative to domestic goods tends
to ________ the domestic currency because domestic goods will only continue to sell
well if the value of the domestic currency is ________, everything else held constant.
A. depreciate; lower
B. depreciate; higher
C. appreciate; lower
D. appreciate; higher
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. The duration gap for this bank is
A. 0.5 year.
B. 1 year.
C. 1.5 years.
D. 2 years.
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
a. 2.5.
b. 2.8.
c. 2.0.
d. 0.7.
Answer:
When money prices are used to facilitate comparisons of value, money is said to
function as a
A. unit of account.
B. medium of exchange.
C. store of value.
D. payments-system ruler.
Answer:
If the required reserve ratio is 10 percent, the simple deposit multiplier is
A. 5.0.
B. 2.5.
C. 100.0.
D. 10.0
Answer:
In the loanable funds framework, the ________ curve of bonds is equivalent to the
________ curve of loanable funds.
A. demand; demand
B. demand; supply
C. supply; supply
D. supply; equilibrium
Answer:
In one sense ________ appears surprising since it means that the bank is not ________
its portfolio of loans and thus is exposing itself to more risk.
A. specialization in lending; diversifying
B. specialization in lending; rationing
C. credit rationing; diversifying
D. screening; rationing
Answer:
If bonds with different maturities are perfect substitutes, then the ________ on these
bonds must be equal.
A. expected return
B. surprise return
C. surplus return
D. excess return
Answer:
An inverted yield curve
A. slopes up.
B. is flat.
C. slopes down.
D. has a U shape.
Answer:
In financial markets, when a firm issuing new securities has previously issued
securities, these securities are called
A. seasoned issues.
B. an initial public offering.
C. secondary issues.
D. investment-grade issues.
Answer:
The sum of the current yield and the rate of capital gain is called the
A. rate of return.
B. discount yield.
C. perpetuity yield.
D. par value.
Answer: