In the fall of 1998 we saw an increase in the risk spread because:
A. the risk spread always increases as we approach the end of the year.
B. the Russian government defaulted on some of its bonds.
C. there was an extraordinarily large amount of corporate fraud being reported in 1998.
D. there was a significant increase in U.S. income tax rates.
Answer:
Which of the following statement is true?
A. Printing currency can be a profitable venture for a government.
B. Printing currency, while necessary, is a losing venture for a government.
C. Too much money printed usually leads to lower prices.
D. In the modern economy the amount of money created has no effect on prices.
Answer:
During World War II, the Fed accommodated the war effort by:
A. significantly curtailing credit in the economy.
B. keeping bond prices high and interest rates low.
C. selling any Treasury securities the public did not purchase.
D. curtailing credit and keeping bond prices high.
Answer:
Most economic historians believe that:
A. if more countries would have been on the gold standard the Great Depression would
have been averted.
B. the gold standard didn’t play a major role in the Great Depression.
C. the gold flows played a central role in spreading the Great Depression.
D. countries that held on to the gold standard recovered from the Great Depression the
quickest.
Answer:
Using the equation of exchange, if real GDP increases by 3.0%, the velocity of money
grows by 1.0% and the growth rate of money is 3.0%; what is the rate of inflation?
A. +1.0%
B. It is constant or a 0% change
C. It is the same as the growth rate of money, or 3.0%
D. -1.0%
Answer:
Which of the following traditional channels of monetary policy transmission can be
described as powerful?
A. The interest-rate channel
B. The exchange-rate channel
C. Both the interest-rate channel and the exchange-rate channel can be described as
very powerful
D. Neither the interest-rate channel nor the exchange-rate channel can be described as
very powerful
Answer:
An increased risk of a financial crisis in the euro area should cause the:
A. demand for all government securities including U.S. Treasury securities to decrease.
B. risk spread between U.S. Treasury bonds and other bonds to decrease.
C. price of U.S. Treasury bonds to increase and the yield on other bonds to increase.
D. price of U.S. Treasury bonds to increase and the yield on other bonds to decrease.
Answer:
A decrease in the inflation target by the central bank would:
A. have no impact on the positioning of the dynamic aggregate demand curve.
B. cause the dynamic aggregate demand curve to shift to the left.
C. cause the dynamic aggregate demand curve to shift to the right.
D. be reflected by a movement down and along the existing dynamic aggregate
demand curve.
Answer:
A zero-coupon bond refers to a bond which:
A. does not pay any coupon payments because the issuer is in default.
B. promises a single future payment.
C. pays coupons only once a year.
D. pays coupons only if the bond price is above face value.
Answer:
The fact that not everyone places all of his/her savings in U.S. Treasury bonds indicates
that:
A. most investors are not risk averse.
B. many investors are actually risk seekers.
C. even risk-averse people will take risk if they are compensated for it.
D. most people are risk-neutral.
Answer:
In comparing money to a share of Microsoft stock held by an individual, we can say:
A. the share of stock is an asset, but money is a liability.
B. only the money is a means of payment, but both are stores of value.
C. only the money is a means of payment, but both are units of account.
D. both the Microsoft stock and the money are liabilities.
Answer:
The right to buy a given quantity of an underlying asset at a predetermined price on or
before a specific date is called a(n):
A. put option.
B. option writer.
C. call option.
D. arbitrage contract.
Answer:
During the 2007-2009 financial crisis which of the following became the largest
component of assets on the Fed’s balance sheet:
A. foreign exchange reserves.
B. loans.
C. U.S. Treasury securities.
D. mortgage backed securities.
Answer:
Trading risk faced by U.S. banks results from:
A. the free-rider problem.
B. changes in regulations.
C. adverse selection.
D. moral hazard.
Answer:
Which of the following statements is most correct?
A. A fixed exchange rate policy is a lack of a monetary policy.
B. A fixed exchange rate policy is appropriate for a country that lacks a central bank.
C. A fixed exchange rate policy is only appropriate for countries with little
international reserves.
D. A fixed exchange rate policy is a monetary policy.
Answer:
Given a choice between two investments with the same expected payoff most people
will:
A. choose the one with the lower standard deviation.
B. opt for the one with the higher standard deviation.
C. be indifferent since the expected payoffs are the same.
D. calculate the variance to assess the relative risks of the two choices.
Answer:
Assume we have a stock currently worth $100. We also assume the interest rate is zero,
and we can buy options for this stock with a strike price of $100. If the stock can rise or
fall by $20 with equal probability over the option period, and the option cannot be
exercised until the expiration date, what is the time value of the option?
A. $20
B. $0
C. $10
D. $100
Answer:
When studying world stock indexes, we observe that:
A. the S&P 500 is largest in terms of index value.
B. most of the world’s indexes are price-weighted.
C. the indexes are very comparable.
D. the indexes are comparable but only in percentage terms.
Answer:
When equity and property prices collapse (bust), bank balance sheets are impaired
because:
A. banks hold a lot of corporate stocks.
B. banks own a lot of property outright.
C. the collateral that is backing many of the loans banks have made is now worth less.
D. banks hold a lot of corporate stocks and they also own a lot of property outright.
Answer:
A bank that does not want to hold a lot of excess reserves but wants to manage liquidity
risk is likely to:
A. hold a lot in highly liquid securities.
B. make sure that most of its assets are in small business loans.
C. have a high ratio of loans to securities.
D. limit withdrawals by customers.
Answer:
Often a bank will require a loan officer to make personal visits on customers with loans
outstanding. This is encouraged because:
A. the bank worries about another bank trying to steal their customers.
B. the bank wants to make sure the business is busy.
C. this is an effective monitoring technique and should reduce moral hazard.
D. the bank has excess funds available and hopes to make another loan to the business.
Answer:
Which of the following expresses 5.65%?
A. 0.565
B. 0.00565
C. 5.65
D. 0.0565
Answer:
The Expectations Hypothesis cannot explain why:
A. yields on securities of different maturities move together.
B. short-term yields are more volatile than long term yields.
C. yield curves usually slope upward.
D. long-term bonds usually are less liquid than short-term bonds with the same default
risk.
Answer:
All of the following are true about central bank independence except that it:
A. is usually given at the pleasure of governments.
B. can be eliminated by governments in a time of crisis.
C. is usually guaranteed by a country’s constitution.
D. can be subverted by the actions of fiscal policymakers.
Answer:
The central banks of Australia, Canada and New Zealand have eliminated reserve
requirements and conduct monetary policy through a “channel” or “corridor” system
that involves setting:
A. target interest rate only.
B. target interest rate and a lending rate only.
C. target interest rate and a deposit rate only.
D. target interest rate, a lending rate, and a deposit rate.
Answer:
Empirical research has shown that:
A. in the 1990s and 2000s, velocity was more sensitive to an increase in the
opportunity cost of holding money than in the 1980s.
B. in the 1990s and 2000s, velocity was less sensitive to an increase in the opportunity
cost of holding money than in the 1980s.
C. during the 1980s and 1990s, the velocity of money was not sensitive to changes in
the opportunity cost of holding money.
D. during the 1980s and 1990s, the velocity of money actually decreased as the
opportunity cost of holding money increased.
Answer:
A large step toward independence occurred for the Fed in 1935 when the:
A. Fed went from two to twelve districts.
B. Secretary of the Treasury and the Comptroller of the Currency were removed from
the Board of Governors.
C. Chairman of the Board of Governors was no longer a cabinet position.
D. Fed was given the ability to control its own budget.
Answer:
Consider the period from 1995 to 1999. The U.S. economy:
A. experienced the great productivity slowdown.
B. experienced increases in productivity that allowed the Fed the opportunity to raise
the inflation rate.
C. experienced increases in productivity that allowed the Fed the opportunity to let the
inflation rate fall.
D. saw its potential level of output decrease.
Answer:
Which of the following would not be included in a definition of risk?
A. Risk is a measure of uncertainty.
B. Risk can always be avoided at no cost.
C. Risk has a time horizon.
D. Risk usually involves some future payoff.
Answer:
When arbitrage occurs across countries with a flexible exchange rate and when the
bonds in each country are identical and there are no barriers to capital flows then the:
A. interest rates on the bonds will be identical.
B. expected return on the bonds will be identical.
C. inflation rates in each country will be identical.
D. prices of the bonds will be identical.
Answer: