Using Taylor’s rule, when the equilibrium real federal funds rate is 2 percent, there is no
output gap, the actual inflation rate is zero, and the target inflation rate is 2 percent, the
nominal federal funds rate should be
A. 0 percent.
B. 1 percent.
C. 2 percent.
D. 3 percent.
Answer:
Everything else held constant, if aggregate output is to the left of the IS curve, then
there is an excess ________ of goods which will cause aggregate output to ________.
A. supply; fall
B. supply; rise
C. demand; fall
D. demand; rise
Answer:
Which of the following can be described as involving indirect finance?
A. You make a loan to your neighbor.
B. You buy shares in a mutual fund.
C. You buy a U.S. Treasury bill from the U.S. Treasury at Treasury Direct.gov.
D. You purchase shares in an initial public offering by a corporation in the primary
market.
E.
Answer:
When the price of a bond decreases, all else equal, the bond demand curve
A. shifts right.
B. shifts left.
C. does not shift.
D. inverts.
Answer:
From the earlier 1990s until 2012, the Japanese monetary was ________ and stock and
real estate prices were ________.
A. tight; rising.
B. easy; rising.
C. tight; falling.
D. easy; falling.
Answer:
An increase in interest rates
A. increases the value of the dollar, net exports, and equilibrium output.
B. increases the value of the dollar, reducing net exports and equilibrium output.
C. reduces the value of the dollar, net exports, and equilibrium output.
D. reduces the value of the dollar, increasing net exports and equilibrium output.
Answer:
If a conflict of interest exists
A. it will always have serious adverse consequences.
B. it may not have a serious adverse consequences if the incentive to take advantage of
the conflict is low.
C. the government needs to step in to pass legislation to remove the conflict.
D. there will not be serious adverse consequences, even if the incentive to take
advantage of the conflict is low.
Answer:
According to the liquidity premium theory of the term structure
A. bonds of different maturities are not substitutes.
B. if yield curves are downward sloping, then short-term interest rates are expected to
fall by so much that, even when the positive term premium is added, long-term rates fall
below short-term rates.
C. yield curves should never slope downward.
D. interest rates on bonds of different maturities do not move together over time.
Answer:
The existence of deposit insurance can increase the likelihood that depositors will need
deposit protection, as banks with deposit insurance
A. are likely to take on greater risks than they otherwise would.
B. are likely to be too conservative, reducing the probability of turning a profit.
C. are likely to regard deposits as an unattractive source of funds due to depositors’
demands for safety.
D. are placed at a competitive disadvantage in acquiring funds.
Answer:
The principal-agent problem would not occur if ________ of a firm had complete
information about actions of the ________.
A) owners; customers
B) owners; managers
C) managers; customers
D) managers; owners
Answer:
Consumer protection legislation includes legislation to
A. reduce discrimination in credit markets.
B. require banks to make loans to everyone who applies.
C. reduce the amount of interest that bank’s can charge on loans.
D. require banks to make periodic reports to the Better Business Bureau.
Answer:
An expansionary monetary policy raises firms’ cash flows by ________ interest rates.
A. lowering real
B. lowering nominal
C. raising real
D. raising nominal
Answer:
If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon
payment every year is
A. $37.50.
B. $3.75.
C. $375.00.
D. $13.75
Answer:
Which of the followings does NOT describe the goods market in the ISLM model?
A. consumption function
B. investment function
C. government spending and tax
D. money supply
Answer:
The Federal Open Market Committee makes the Fed’s decisions on the purchase or sale
of government securities, but these purchases or sales are executed by the Federal
Reserve Bank of
A. Chicago.
B. Boston.
C. New York.
D. San Francisco.
Answer:
A model that is composed of many equations that show the channels through which
monetary and fiscal policy affect aggregate output and spending is called a
A. reduced-form model.
B. median-voter model.
C. informed median-voter model.
D. structural model.
Answer:
Collateralized debt is also know as
A. unsecured debt.
B. secured debt.
C. unrestricted debt.
D. promissory debt.
Answer:
Small-denomination time deposits refer to certificates of deposit with a denomination of
less than
A. $1,000.
B. $10,000.
C. $100,000.
D. $1,000,000.
Answer:
Depositors have a strong incentive to show up first to withdraw their funds during a
bank crisis because banks operate on a
A. last-in, first-out constraint.
B. sequential service constraint.
C. double-coincidence of wants constraint.
D. everyone-shares-equally constraint.
Answer:
The problem faced by the lender that the borrower may take on additional risk after
receiving the loan is called
A. adverse selection.
B. moral hazard.
C. transactions costs.
D) diversification.
Answer:
An example of the ________ problem would be if Brian borrowed money from Sean in
order to purchase a used car and instead took a trip to Atlantic City using those funds.
A. moral hazard
B. adverse selection
C. costly state verification
D. agency
Answer:
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from
a bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A. $10.
B. $100.
C. $100 times the reciprocal of the required reserve ratio.
D. $100 times the required reserve ratio.
Answer:
When the price level falls, the ________ curve for nominal money ________, and
interest rates ________, everything else held constant.
A. demand; decreases; fall
B. demand; increases; rise
C. supply; increases; rise
D. supply; decreases; fall
Answer:
Which of the following policy measures required the SEC to prevent issuers of
asset-backed securities from choosing the credit-rating agencies that will give them the
highest rating and supported earlier initiatives by the SEC?
A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B. Sarbanes-Oxley Act of 2002
C. Global Legal Settlement of 2002
D. Gramm-Leach-Bliley Act of 1999
E. Riegle-Neal Act of 1994
Answer:
Under a fixed exchange rate regime, if a central bank must intervene to purchase the
________ currency by selling ________ assets, then, like an open market sale, this
action reduces the monetary base and the money supply, causing the interest rate on
domestic assets to rise.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer:
The driving force behind the securitization of mortgages and automobile loans has been
A. the rising regulatory constraints on substitute financial instruments.
B. the desire of mortgage and auto lenders to exit this field of lending.
C. the improvement in information technology.
D. the relaxation of regulatory restrictions on credit card operations.
Answer:
The efficient markets hypothesis suggests that if an unexploited profit opportunity
arises in an efficient market
A. it will tend to go unnoticed for some time.
B. it will be quickly eliminated.
C. financial analysts are your best source of this information.
D. all profits will be eliminated through taxation.
Answer:
The Fed’s support of the Depository Institutions Deregulation and Monetary Control
Act of 1980 stemmed in part from its
A. concern over declining Fed membership.
B. belief that all banking regulations should be eliminated.
C. belief that interest rate ceilings were too high.
D. belief that depositors had to become more knowledgeable of banking operations.
Answer:
The current supervisory practice toward risk management
A. focuses on the quality of a bank’s balance sheet.
B. determines whether capital requirements have been met.
C. evaluates the soundness of a bank’s risk-management process.
D. focuses on eliminating all risk.
Answer:
Conflicts of interest are a type of ________ problem that can happen when an
institution provides multiple services.
A. adverse selection
B. free-riding
C. discounting
D. moral hazard
Answer:
Higher government deficits ________ the supply of bonds and shift the supply curve to
the ________, everything else held constant.
A. increase; left
B. increase; right
C. decrease; left
D. decrease; right
Answer:
An autonomous appreciation of the U.S. dollar makes American goods ________
expensive relative to foreign goods which ________ net exports in the U.S.
A. less; decreases
B. less; increases
C. more; decreases
D. more; increases
Answer:
A defined-benefit pension
A. determines benefits by contributions and their earnings.
B. fixes benefits in advance.
C. links benefits to investment performance.
D. fixes benefits paid out for a limited number of years.
Answer:
A decrease in the liquidity of corporate bonds, other things being equal, shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A. right; right
B. right; left
C. left; left
D. left; right
Answer: