Keynes’s liquidity preference theory indicates that the demand for money is ________
related to ________.
A) negatively; interest rates
B) positively; interest rates
C) negatively; income
D) negatively; wealth
Answer:
An increase in interest rates might ________ saving because more can be earned in
interest income.
A) encourage
B) discourage
C) disallow
D) invalidate
Answer:
The FHLBS gives loans to S&Ls and thus performs a function similar to the ________
for commercial banks.
A) Federal Reserve
B) U.S. Treasury
C) Office of the Comptroller of the Currency
D) U.S. Mint
Answer:
Banks have attempted to maintain adequate profit levels by
A) making fewer riskier loans, such as commercial real estate loans.
B) pursuing new off-balance-sheet activities.
C) increasing reserve deposits at the Fed.
D) decreasing capital accounts..
Answer:
One factor contributing to the decline in cost advantages that banks once had is the
A) decline in the importance of checkable deposits from over 60 percent of banks’
liabilities to 2 percent today.
B) decline in the importance of savings deposits from over 60 percent of banks’
liabilities to under 15 percent today.
C) decline in the importance of checkable deposits from over 40 percent of banks’
liabilities to 15 percent today.
D) decline in the importance of savings deposits from over 40 percent of banks’
liabilities to under 20 percent today.
Answer:
The theory of portfolio choice suggests that the most important factor affecting the
demand for domestic and foreign assets is
A) the level of trade and capital flows.
B) the expected return on these assets relative to one another.
C) the liquidity of these assets relative to one another.
D) the riskiness of these assets relative to one another.
Answer:
A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield
to maturity of
A) 3 percent.
B) 20 percent.
C) 25 percent.
D) 3 percent.
Answer:
Suppose that there is a positive aggregate demand shock and the central bank commits
to an inflation rate target. But if the commitment is not credible, then
A) the public’s expected inflation will remain unchanged.
B) the short-run aggregate supply curve will rise.
C) over time inflation will fall back down to the inflation target.
D) all of the above.
E) both A and B.
Answer:
The monetary policy strategy that provides an automatic rule for the conduct of
monetary policy is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
The interest rate on a consol equals the
A) price times the coupon payment.
B) price divided by the coupon payment.
C) coupon payment plus the price.
D) coupon payment divided by the price.
Answer:
An investment bank purchases securities from a corporation at a predetermined price
and then resells them in the market. This process is called
A) underwriting.
B) underhanded.
C) understanding.
D) undertaking.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be higher.
B) output will be at its potential.
C) output will be unchanged.
D) inflation will be unchanged.
E) both A and B.
Answer:
Managers (________) may act in their own interest rather than in the interest of the
stockholder-owners (________) because the managers have less incentive to maximize
profits than the stockholder-owners do.
A) principals; agents
B) principals; principals
C) agents; agents
D) agents; principals
Answer:
The three largest Federal Reserve banks (New York, Chicago, and San Francisco)
combined hold more than ________ percent of the assets of the Federal Reserve
System.
A) 25
B) 33
C) 50
D) 67
Answer:
Adjustable rate mortgages
A) protect households against higher mortgage payments when interest rates rise.
B) keep financial institutions’ earnings high even when interest rates are falling.
C) benefit homeowners when interest rates are falling.
D) generally have higher initial interest rates than on conventional fixed-rate
mortgages.
Answer:
Moral hazard problems increased in prominence in the 1980s
A) as deregulation required savings and loans and mutual savings banks to be more
cautious.
B) following a burst of financial innovation in the 1970s and early 1980s that produced
new financial instruments and markets, thereby widening the scope for risk taking.
C) following a decrease in federal deposit insurance from $100,000 to $40,000.
D) as interest rates were sharply decreased to bring down inflation.
Answer:
The time it takes for policy makers to obtain data indicating what is happening in the
economy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of a cut in government spending is to ________ real output and ________ the interest
rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess ________ of money which will cause the interest rate to fall.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S.
dollars.
A) 0.02
B) 1.20
C) 7
D) 49
Answer:
If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A) 5%.
B) 5%.
C) 0%.
D) -5%.
Answer:
Both ________ and ________ were financial innovations that occurred because of
interest rate volatility.
A) adjustable-rate mortgages; commercial paper
B) adjustable-rate mortgages; financial derivatives
C) sweep accounts; financial derivatives
D) sweep accounts; commercial paper
Answer:
The evidence on the interest sensitivity of the demand for money suggests that the
demand for money is ________ to interest rates, and there is ________ evidence that a
liquidity trap exists.
A) sensitive; substantial
B) sensitive; little
C) insensitive; substantial
D) insensitive; little
Answer:
Paper currency that has been declared legal tender but is not convertible into coins or
precious metals is called ________ money.
A) commodity
B) fiat
C) electronic
D) funny
Answer:
A lesson of the Enron collapse is that government regulation
A) always fails.
B) can reduce but not eliminate asymmetric information.
C) increases the problem of asymmetric information.
D) should be reduced.
Answer:
The measure of the aggregate price level that is most frequently reported in the media is
the
A) GDP deflator.
B) producer price index.
C) consumer price index.
D) household price index.
Answer:
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.
Answer:
The global financial crisis showed the need for increased financial regulation, however,
too much or poorly designed regulation could
A) choke off financial innovation.
B) increase the efficiency of the financial system.
C) increase economic growth.
D) increase international financial integration.
Answer:
Risk that is related to the uncertainty about interest rate movements is called
A) default risk.
B) interest-rate risk.
C) the problem of moral hazard.
D) security risk.
Answer:
When the economy suffers a temporary negative supply shock, the central bank’s
autonomous monetary policy to keep inflation at the target inflation rate leads to
A) more stable economic activities.
B) a large deviation of output from its potential.
C) divine coincidence.
D) both B and C.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
5%, lowering the discount rate from 5% to 4%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Answer:
Secondary markets make financial instruments more
A) solid.
B) vapid.
C) liquid.
D) risky.
Answer:
Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets
include
A) failure of the Mexican oil monopoly.
B) the ratification of the North American Free Trade Agreement.
C) increased uncertainty from political shocks.
D) decline in interest rates.
Answer:
Even economists have no single, precise definition of money because
A) money supply statistics are a state secret.
B) the Federal Reserve does not employ or report different measures of the money
supply.
C) the “moneyness” or liquidity of an asset is a matter of degree.
D) economists find disagreement interesting and refuse to agree for ideological reasons.
Answer: