The Fed accidentally discovered open market operations when
A. it came to the rescue of failing banks in the early 1930s, and found that its purchases
of bank loans injected reserves into the banking system.
B. it purchased securities for income following the 1920-1921 recession.
C. it attempted to slow inflation in 1919 by selling securities and found that its sales
drained reserves from the banking system.
D. it reinterpreted a key provision of the Federal Reserve Act.
Answer:
Which of the following monetary policy tools is more effective when the economy
faces the interest rate zero-lower-bound problem?
A. open market operation
B. discount policy
C. required reserve ratio
D. the Fed’s liquidity provision
Answer:
A credit market instrument that requires the borrower to make the same payment every
period until the maturity date is known as a
A. simple loan.
B. fixed-payment loan.
C. coupon bond.
D. discount bond.
Answer:
Analysis of adverse selection indicates that financial intermediaries, especially banks
A. have advantages in overcoming the free-rider problem, helping to explain why
indirect finance is a more important source of business finance than is direct finance.
B. despite their success in overcoming free-rider problems, nevertheless play a minor
role in moving funds to corporations.
C. provide better-known and larger corporations a higher percentage of their external
funds than they do to newer and smaller corporations which rely to a greater extent on
the new issues market for funds.
D. must buy securities from corporations to diversify the risk that results from holding
non-tradable loans.
Answer:
On the expiration date of a futures contract, the price of the contract converges to the
A. purchase price of the contract.
B. average price over the life of the contract.
C. price of the underlying asset.
D. average of the purchase price and the price of the underlying asset.
Answer:
The long-run aggregate supply curve is
A. a vertical line through the non-inflationary rate of output.
B. a vertical line through the current level of output.
C. a vertical line through the natural rate level of output.
D. a horizontal line through the current level of output.
Answer:
Which of the following is NOT part of the shadow banking system?
A. the transformer
B. the servicer
C. the bundler
D. the distributor
Answer:
The Obama administration increased the tax on the top income tax bracket from 35% to
39%. Supply and demand analysis predicts the impact of this change was a ________
interest rate on municipal bonds and a ________ interest rate on Treasury bonds, all
else the same.
A. higher; lower
B. lower; lower
C. higher; higher
D. lower; higher
Answer:
The Federal Open Market Committee usually meets ________ times a year.
A. four
B. six
C. eight
D. twelve
Answer:
If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of
“unfair” trade practices, and Japanese demand for American exports increases at the
same time, then, in the long run ________, everything else held constant.
A. the Japanese yen will appreciate relative to the U.S. dollar
B. the Japanese yen will depreciate relative to the U.S. dollar
C. the Japanese yen will either appreciate, depreciate or remain constant against the
U.S. dollar
D. there will be no effect on the Japanese yen relative to the U.S. dollar
Answer:
When the price of a bond is above the equilibrium price, there is an excess ________
bonds and price will ________.
A. demand for; rise
B. demand for; fall
C. supply of; fall
D. supply of; rise
Answer:
Everything else held constant, a decrease in net exports ________ aggregate ________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and
selling bonds will cause the demand for money to ________ and the demand for bonds
to ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
All other things held constant, premiums on options will increase when the
A. exercise price increases.
B. volatility of the underlying asset increases.
C. term to maturity decreases.
D. futures price increases.
Answer:
The gross domestic product is the
A. the value of all wealth in an economy.
B. the value of all goods and services sold to other nations in a year.
C. the market value of all final goods and services produced in an economy in a year.
D. the market value of all intermediate goods and services produced in an economy in a
year.
Answer:
Everything else held constant, when households save less, wealth and the demand for
bonds ________ and the bond demand curve shifts ________.
A. increase; right
B. increase; left
C. decrease; right
D. decrease; left
Answer:
If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is
A. 0.25.
B. 4.
C. 8.
D. 16.
Answer:
Bank’s make their profits primarily by issuing
A. equity.
B. negotiable CDs.
C. loans.
D. NOW accounts.
Answer:
Bank reserves include
A. deposits at the Fed and short-term treasury securities.
B. vault cash and short-term Treasury securities.
C. vault cash and deposits at the Fed.
D. deposits at other banks and deposits at the Fed.
Answer:
If the price of bonds is set ________ the equilibrium price, the quantity of bonds
demanded exceeds the quantity of bonds supplied, a condition called excess ________.
A. above; demand
B. above; supply
C. below; demand
D. below; supply
Answer:
The mismanagement of financial liberalization in emerging market countries can be
understood as a severe
A. principal/agent problem.
B. asymmetric information problem.
C. lemons problem.
D. free-rider problem.
Answer:
Since Regulation Q has been abolished, there have been doubts raised about the size of
the effect of the ________ channel.
A. balance sheet
B. bank lending
C. cash flow
D. unanticipated price level
Answer:
The Federal Reserve will engage in a repurchase agreement when it wants to ________
reserves ________ in the banking system.
A. increase; permanently
B. increase; temporarily
C. decrease; temporarily
D. decrease; permanently
Answer:
In a ________ banking system, commercial banks engage in securities underwriting,
but legal subsidiaries conduct the different activities. Also, banking and insurance are
not typically undertaken together in this system.
A) universal
B) British-style universal
C) short-fence
D) compartmentalized
Answer:
When a domestic currency is completely backed by a foreign currency and the
note-issuing authority establishes a fixed exchange rate to this foreign currency, then
the country is said to have
A) created a currency board.
B) undergone dollarization.
C) adopted a managed exchange system.
D) adopted an exchange rate monetary system.
Answer:
If the money supply is $500 and nominal income is $4,000, the velocity of money is
A. 1/20.
B. 1/8.
C. 8.
D. 20.
Answer:
Information plays an important role in asset pricing because it allows the buyer to more
accurately judge
A. liquidity.
B. risk.
C. capital.
D. policy.
Answer:
The process in which people seeking higher yielding securities take their funds out of
the banking system thus restricting the amount of funds banks can lend is called
A. capital mobility.
B. loophole mining.
C. disintermediation.
D. deposit jumping.
Answer:
Long-term debt has a maturity that is
A. between one and ten years.
B. less than a year.
C. between five and ten years.
D. ten years or longer.
Answer:
From 2000 to 2014, the dollar depreciated substantially against other currencies. This
drop in value most likely benefitted
A. European citizens traveling in the U.S.
B. U.S. citizens traveling in Europe.
C. U.S. manufacturers importing parts from abroad.
D. U.S. citizens purchasing foreign-made automobiles.
Answer:
Privatization of the Social Security system is being considered due to
A. the desire to reduce taxes.
B. demands to reduce the retirement age.
C. reduced life expectancy.
D. underfunding of the system.
Answer: