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1) When the level of unplanned inventory investment is equal to zero, the economy is
A) in disequilibrium
B) in a recession
C) in equilibrium
D) overheating
2) Deposit insurance is only one type of government safety net All of the following are
types of government support for troubled financial institutions except
A) forgiving tax debt
B) lending from the central bank
C) lending directly from the government's treasury department
D) nationalizing and guaranteeing that all creditors will be repaid their loans in full
3) If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then
its yield to maturity is
A) 0 percent
B) 5 percent
C) 10 percent
D) 20 percent
4) One reason for the extraordinary growth of foreign financial markets is
A) decreased trade
B) increases in the pool of savings in foreign countries
C) the recent introduction of the foreign bond
D) slower technological innovation in foreign markets
5) If the Federal Reserve conducts open market ________, the money supply
________, shifting the LM curve to the right, everything else held constant
A) purchases; decreases
B) sales; decreases
C) purchases; increases
D) sales; increases
6) Which of the following $1,000 face-value securities has the highest yield to
maturity?
A) A 5 percent coupon bond with a price of $600
B) A 5 percent coupon bond with a price of $800
C) A 5 percent coupon bond with a price of $1,000
D) A 5 percent coupon bond with a price of $1,200
7) Net profit after taxes per dollar of equity capital is a basic measure of bank
profitability called
A) return on assets
B) return on capital
C) return on equity
D) return on investment
8) Changes in stock prices
A) do not affect people's wealth and their willingness to spend
B) affect firms' decisions to sell stock to finance investment spending
C) occur in regular patterns
D) are unimportant to decision makers
9) Federal funds are
A) funds raised by the federal government in the bond market
B) loans made by the Federal Reserve System to banks
C) loans made by banks to the Federal Reserve System
D) loans made by banks to each other
10) The political business cycle refers to the phenomenon that just before elections,
politicians enact ________ policies After the elections, the bad effects of these policies
(for example, ________ ) have to be counteracted with ________ policies
A) expansionary; higher unemployment; contractionary
B) expansionary; a higher inflation rate; contractionary
C) contractionary; higher unemployment; expansionary
D) contractionary; a higher inflation rate; expansionary
11) A credit boom can lead to a(n) ________ such as we saw in the tech stock market in
the late 1990s
A) asset-price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard
12) Which of the following is not a secondary market?
A) foreign exchange market
B) futures market
C) options market
D) IPO market
13) A situation in which the quantity of bonds supplied exceeds the quantity of bonds
demanded is called a condition of excess supply; because people want to sell ________
bonds than others want to buy, the price of bonds will ________
A) fewer; fall
B) fewer; rise
C) more; fall
D) more; rise
14) To convert a nominal GDP to a real GDP, you would use
A) the PCE deflator
B) the CPI measure
C) the GDP deflator
D) the PPI measure
15) An increase in Treasury deposits at the Fed causes
A) the monetary base to increase
B) the monetary base to decrease
C) Fed assets to increase but has no effect on the monetary base
D) Fed assets to decrease but has no effect on the monetary base
16) All else the same, when the Fed calls in a $100 discount loan previously extended to
the First National Bank, reserves in the banking system
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
