An increase in the expected inflation rate will ________ the ________ for gold,
________ its price, everything else held constant.
A. increase; demand; increasing
B. decrease; demand; decreasing
C. increase; supply; increasing
D. decrease; supply; increasing
Answer:
By the standard of low-grade bonds, interest rates were ________ and monetary policy
was ________ during the Great Depression.
A. low; tight
B. low; easy
C. high; tight
D. high; easy
Answer:
Adjustable rate mortgages
A. reduce the interest-rate risk for financial institutions.
B. benefit homeowners when interest rates rise.
C. generally have higher initial interest rates than conventional fixed-rate mortgages.
D. allow borrowers to avoid paying interest on portions of their mortgage loans.
Answer:
Tools to help solve the adverse selection problem in financial markets include all of the
following EXCEPT
A) diversification.
B) government regulations to increase information.
C) the use of financial intermediaries.
D) the private production and sale of information.
Answer:
There are two types of investment: ________ investmentthe spending by business firms
on equipment and structures, and planned spending on residential housesand ________
investmentspending by business firms on additional holdings of raw materials, parts,
and finished goods.
A. planned; gross
B. planned; inventory
C. fixed; gross
D. fixed; inventory
Answer:
The current structure of financial markets can be best understood as the result of
attempts by financial market participants to
A. adapt to continually changing government regulations.
B. deal with the great number of small firms in the United States.
C. reduce transaction costs.
D. cartelize the provision of financial services.
Answer:
If the required reserve ratio is one-third, currency in circulation is $300 billion, and
checkable deposits are $900 billion, then the currency-deposit ratio is
a. 0.25.
b. 0.33.
c. 0.67.
d. 0.375.
Answer:
The total amount of reserves in the banking system is equal to the ________ required
reserves and excess reserves.
A. sum of
B. difference between
C. product of
D. ratio between
Answer:
Economists consider the ________ to be the most accurate measure of interest rates.
A. simple interest rate.
B. current yield.
C. yield to maturity.
D. real interest rate.
Answer:
The evidence from banking crises in other countries indicates that
A. deposit insurance is to blame in each country.
B. a government safety net for depositors need not increase moral hazard.
C. regulatory forbearance never leads to problems.
D. deregulation combined with poor regulatory supervision raises moral hazard
incentives.
Answer:
A positive supply shock causes ________ to ________.
A. aggregate demand; increase
B. aggregate demand; decrease
C. short-run aggregate supply; decrease
D. short-run aggregate supply; increase
Answer:
The most common type of interest-rate swap is
A. the plain vanilla swap.
B. the basic swap.
C. the ordinary swap.
D. the notional swap.
Answer:
The type of credit insurance that landed AIG into trouble in 2008 is called
A. insurance rate swaps.
B. monoline insurance.
C. default insurance.
D. credit default swaps.
Answer:
The risk that interest payments will not be made, or that the face value of a bond is not
repaid when a bond matures is
A. interest rate risk.
B. inflation risk.
C. liquidity risk.
D. default risk.
Answer:
In the United States, loans from ________ are far ________ important for corporate
finance than are securities markets.
A. government agencies; more
B. government agencies; less
C. financial intermediaries; more
D. financial intermediaries; less
Answer:
Because inflation in Germany after World War I sometimes exceeded 1,000 % per
month, one can conclude that the German economy suffered from
A. deflation.
B. disinflation.
C. hyperinflation.
D. superdeflation.
Answer:
The first country to adopt inflation targeting was
A. the United Kingdom.
B. Canada.
C. New Zealand.
D. Australia.
Answer:
Under a fixed exchange rate regime, if a country has an ________ exchange rate, then
its central bank’s attempt to keep its currency from depreciating will result in a
________ of international reserves.
A) undervalued; gain
B) undervalued; loss
C) overvalued; gain
D) overvalued; loss
Answer:
In 1977, he pioneered the concept of selling new public issues of junk bonds for
companies that had not yet achieved investment-grade status.
A. Michael Milken
B. Roger Milliken
C. Ivan Boesky
D. Carl Icahn
Answer:
A corporation acquires new funds only when its securities are sold in the
A. primary market by an investment bank.
B. primary market by a stock exchange broker.
C. secondary market by a securities dealer.
D. secondary market by a commercial bank.
Answer:
The upward slope of the MP curve indicates that
A. the central bank lowers real interest rates when inflation rises.
B. the central bank raises real interest rates when inflation falls.
C. the central bank raises nominal interest rates when inflation rises.
D. the central bank raises real interest rates when inflation rises.
Answer:
The process of asset transformation refers to the conversion of
A. safer assets into risky assets.
B. safer assets into safer liabilities.
C. risky assets into safer assets.
D. risky assets into risky liabilities.
Answer:
When a corporation announces a major decline in earnings, the stock price may initially
decline significantly and then rise back to normal levels over the next few weeks. This
impact is called
A. the January effect.
B. mean reversion.
C. market overreaction.
D. the small-firm effect.
Answer:
When the domestic currency is initially overvalued in a fixed exchange rate regime, the
central bank must intervene in the foreign exchange market to ________ the domestic
currency, thereby allowing the money supply to ________.
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
Answer:
Policy makers cannot achieve both price stability and economic activity stability when
facing
A. temporary supply shocks.
B. permanent supply shocks.
C. demand shocks.
D. all of the above.
Answer:
Which of the following financial intermediaries is NOT a depository institution?
A. a savings and loan association
B. a commercial bank
C. a credit union
D. a finance company
Answer:
An autonomous monetary policy easing ________ real interest rates and ________
output in the short run, thereby ________ stock prices.
A. raises; lowers; lowering
B. raises; raises; raising
C. lowers; raises; raising
D. lowers; raises; lowering
Answer:
ATMs were developed because of breakthroughs in technology and as a
A) means of avoiding restrictive branching regulations.
B) means of avoiding paying interest to corporate customers.
C) way of concealing transactions from the SEC.
D) increasing the competition from foreign banks.
Answer:
The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A. depreciate.
B. appreciate.
C. float.
D. do none of the above.
Answer:
As the costs associated with deposit outflows ________, the banks willingness to hold
excess reserves will ________.
A. decrease; increase
B. increase; decrease
C. increase; increase
D. decrease; not be affected
Answer:
A decrease in autonomous planned investment spending, other things equal, shifts the
________ curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Answer:
Assume equilibrium at full employment for an economy characterized by the simple
Keynesian model. If the government raises taxes to eliminate a budget deficit, then
A. the rate of unemployment will increase.
B. the level of aggregate output will increase.
C. the price level will increase.
D. the rate of interest will fall.
Answer:
Nationwide banking might reduce bank failures due to
A) reduced competition.
B) reduced lending to small businesses.
C) diversification of loan portfolios across state lines.
D) elimination of community banks.
Answer: