1) The payments system is
A) the method of conducting transactions in the economy
B) used by union officials to set salary caps
C) an illegal method of rewarding contracts
D) used by your employer to determine salary increases
2) A venture capital firm protects its equity investment from moral hazard through
which of the following means?
A) It places people on the board of directors to better monitor the borrowing firm’s
activities
B) It writes contracts that prohibit the sale of an equity investment to the venture capital
firm
C) It prohibits the borrowing firm from replacing its management
D) It requires a 50% stake in the company
3) Conflicts of interest may arise within the credit rating agencies because
A) the investors pay the credit agencies for ratings
B) the issuers of debt securities pay the credit agencies for ratings
C) the credit rating agencies provide auditing services to issuers of debt securities
D) the credit rating agencies are involved in offering credit counseling to investors
4) A plot of the interest rates on default-free government bonds with different terms to
maturity is called
A) a risk-structure curve
B) a default-free curve
C) a yield curve
D) an interest-rate curve
5) On January 25, 2009, one U.S. dollar traded on the foreign exchange market for
about 0.75 euros. Therefore, one euro would have purchased about ________ U.S.
dollars.
A) 0.75
B) 1.00
C) 1.33
D) 1.75
6) When the economy suffers a temporary negative supply shock and the monetary
policy makers try to stabilize economic activity in the short run, then
A) aggregate demand curve shifts rightward
B) output will be at its potential
C) inflation rate will be higher
D) all of the above
E) both A and B
7) When the total value of final goods and services is calculated using current prices,
the resulting measure is referred to as
A) real GDP
B) the GDP deflator
C) nominal GDP
D) the index of leading indicators
8) ________ in the foreign interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to depreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
9) Everything else held constant, a decrease in the required reserve ratio on checkable
deposits will mean
A) a decrease in the money supply
B) an increase in the money supply
C) a decrease in checkable deposits
D) an increase in discount loans
10) Sweep accounts which were created to avoid reserve requirements became possible
because of a change in
A) deposit ceilings
B) technology
C) government rules
D) bank mergers
11) Which of the following accurately summarize the empirical evidence about
technical analysis?
A) Technical analysts fare no better than other financial analysison average they do not
outperform the market
B) Technical analysts tend to outperform other financial analysis, but on average they
nevertheless under-perform the market
C) Technical analysts fare no better than other financial analysis, and like other
financial analysts they outperform the market
D) Technical analysts fare no better than other financial analysis, and like other
financial analysts they under-perform the market
12) The theory of bureaucratic behavior when applied to the Fed helps to explain why
the Fed
A) was supportive of congressional attempts to limit the central bank’s autonomy
B) was so secretive about the conduct of future monetary policy
C) sought less control over banks in the 1980s
D) was willing to take on powerful groups that may threaten its autonomy
13) When in 1985 a British pound cost approximately $1.30, a Shetland sweater that
cost 100 British pounds would have cost $130. With a weaker dollar, the same Shetland
sweater would have cost
A) less than $130
B) more than $130
C) $130, since the exchange rate does not affect the prices that American consumers
pay for foreign goods
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in
price due to the stronger dollar
14) If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on dollar-denominated assets is
A) 11 percent
B) 9 percent
C) 5 percent
D) 3 percent
E) 1 percent
15) Unemployment resulting from a mismatch of workers’ skills and job requirements is
called
A) frictional unemployment
B) structural unemployment
C) seasonal unemployment
D) cyclical unemployment
16) The monetary policy strategy that provides the least accountability is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
17) 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 2011
B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50
percent by 2011
C) has expanded dramatically, from around 50 percent of total credit advanced to above
70 percent by 2011
D) has expanded dramatically, from around 30 percent of total credit advanced to above
50 percent by 2011
18) If an individual moves money from a small-denomination time deposit to a demand
deposit account,
A) M1 increases and M2 stays the same
B) M1 stays the same and M2 increases
C) M1 stays the same and M2 stays the same
D) M1 increases and M2 decreases
19) This theory views shocks to tastes (workers’ willingness to work, for example) and
technology (productivity) as the major driving forces behind short-run fluctuations in
the business cycle because these shocks lead to substantial short-run fluctuations in the
natural rate of output.
A) The natural rate hypothesis
B) Hysteresis
C) Real business cycle theory
D) The Phillips curve model
20) A ________ pays the owner a fixed coupon payment every year until the maturity
date, when the ________ value is repaid.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
21) The strengthening of the dollar between 1980 and 1985 contributed to a ________
in American competitiveness, putting pressure on the Fed to pursue a more ________
monetary policy.
A) decrease; contractionary
B) increase; expansionary
C) increase; contractionary
D) decrease; expansionary
22) One problem with conflicts of interest is that they can reduce the ________ in
financial markets, thereby increasing ________.
A) quantity of information; financial institutions’ profits
B) quantity of information; asymmetric information
C) quality of information; asymmetric information
D) quality of information; financial institutions’ profits
23) The Fed can exert more precise control over ________ than it can over ________.
A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money
24) Everything else held constant, aggregate demand increases when
A) net exports decrease
B) taxes increase
C) planned investment spending increases
D) the money supply decreases
25) If float is predicted to increase because of bad 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
26) Which regulatory body charters national banks?
A) The Federal Reserve
B) The FDIC
C) The Comptroller of the Currency
D) The U.S. Treasury
27) A ________ is bought at a price below its face value, and the ________ value is
repaid at the maturity date.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
28) The practice of keeping high-risk assets on a bank’s books while removing low-risk
assets with the same capital requirement is known as
A) competition in laxity
B) depositor supervision
C) regulatory arbitrage
D) a dual banking system
29) If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,
which bond would you prefer to have been holding?
A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity
30) The January effect refers to the fact that
A) most stock market crashes have occurred in January
B) stock prices tend to fall in January
C) stock prices have historically experienced abnormal price increases in January
D) the football team winning the Super Bowl accurately predicts the behavior of the
stock market for the next year
31) Elimination of riskless profit opportunities in the futures market is
A) hedging
B) arbitrage
C) speculation
D) underwriting
32) The result of the too-big-to-fail policy is that ________ banks will take on
________ risks, making bank failures more likely.
A) small; fewer
B) small; greater
C) big; fewer
D) big; greater
33) When yield curves are flat,
A) long-term interest rates are above short-term interest rates
B) short-term interest rates are above long-term interest rates
C) short-term interest rates are about the same as long-term interest rates
D) medium-term interest rates are above both short-term and long-term interest rates
34) What is the return on a 5 percent coupon bond that initially sells for $1,000 and
sells for $1,200 next year?
A) 5 percent
B) 10 percent
C) -5 percent
D) 25 percent
35) Which of the following $1,000 face-value securities has the lowest yield to
maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900
36) Between May and July 1997, concerns about the large current account deficit in
Thailand and the weakness in the Thai financial system caused speculators to suspect
that Thailand might be forced to
A) devalue its currency
B) sell baht to prop up its value
C) buy dollars to prop up the baht
D) impose capital controls
37) Large fluctuations in money supply growth and smaller fluctuations in the federal
funds rate between October 1982 and the early 1990s indicate that the Fed had shifted
to ________ as an operating target.
A) borrowed reserves
B) nonborrowed reserves
C) excess reserves
D) required reserves
38) In financial markets, when a firm issues stock for the first time it is called an
A) investment portfolio option
B) initial public offering
C) initial portfolio offering
D) investment portfolio offering
39) A credit market instrument that pays the owner a fixed coupon payment every year
until the maturity date and then repays the face value is called a
A) simple loan
B) fixed-payment loan
C) coupon bond
D) discount bond