An American traveling to Europe will find it easier to make purchases now because:
A. most countries in Europe accept U.S. dollars.
B. most of the countries of Europe have adopted the British pounds as the standard
currency.
C. many of the countries in Europe now use the same currency, the euro.
D. all of the countries in Europe now use the same currency, the euro.
Answer:
Comparing monetary and fiscal policy:
A. fiscal policy has an advantage because it is faster to implement than monetary
policy.
B. fiscal policy is easier to implement.
C. monetary policy is easier to implement.
D. history has shown fiscal policy to be more effective at stabilization.
Answer:
When a country operates with a currency board, the central bank’s sole objective is to:
A. focus on domestic monetary policy.
B. maintain the domestic interest rate.
C. maintain the exchange rate.
D. maintain the target inflation rate.
Answer:
The fact that many companies employ supervisors to oversee the actions of workers is a
way to treat:
A. moral hazard.
B. adverse selection.
C. the law of diminishing returns.
D. the free-rider problem.
Answer:
During the 1990s, the money multipliers for M1 and M2:
A. decreased.
B. remained fairly constant even though the economy grew.
C. the M1 multiplier decreased while the M2 multiplier increased dramatically.
D. increased dramatically as the economy grew.
Answer:
Which of the following statements is most correct?
A. The Fed can control the amount of reserves, but cannot control the monetary base.
B. The Fed can control the makeup of the monetary base, but cannot affect the market
interest rate.
C. The Fed can control the size of the monetary base but not the price of its
components.
D. The Fed can control either the size of the monetary base or the price of its
components.
Answer:
When the Continental Congress issued currency to finance the Revolutionary War, the
Continental Congress:
A. issued too many “continentals,” eventually making the currency worthless.
B. tied the value of the “continental” to gold.
C. tied the value of the “continental” to gold to French “assignats.”
D. made “continentals” legal tender.
Answer:
Fiscal policy suffers from the problem of:
A. being formulated and implemented by politicians subject to short-run incentives.
B. being slow to implement.
C. being influenced by special interest groups.
D. all of the answers given are correct.
Answer:
For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other
$60 in non-interest-rate sensitive assets. The same bank has $50 for every $100 in
liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not
interest-rate sensitive. If the interest rate on assets increases from 5 to 6 percent, and the
interest rate on liabilities increases from 3 to 4 percent, the impact on the bank’s profits
per $100 of assets will be:
A. an increase of $0.10.
B. a decrease of $0.10.
C. a reduction of $1.00.
D. zero since the interest rates on assets and liabilities increased by the same amount.
Answer:
Diversification can eliminate:
A. all risk in a portfolio.
B. risk only if the investor is risk averse.
C. the systematic risk in a portfolio.
D. the idiosyncratic risk in a portfolio.
Answer:
The main risk that investment banks face from their underwriting services is:
A. the client will not pay for the service.
B. the company issuing the securities will go bankrupt.
C. the price investors pay for the security is less than the guaranteed price to the
issuing firm.
D. the price paid by investors exceeds the guaranteed price to the issuing firm.
Answer:
Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy
because:
A. customers will not want to obtain loans from this bank.
B. equity investors will not be able to sell the bank’s stock.
C. regulators will scrutinize the bank heavily looking for something wrong.
D. depositors will rush to the bank to withdraw their deposits and the bank under
normal situations would not have sufficient liquid assets on hand.
Answer:
The bank failures that occurred during the early years of the Great Depression:
A. hurt large depositors the most since it was the large money center banks that failed.
B. hurt small depositors the most since it was mainly small banks that failed.
C. hurt the government insurance funds since FDIC covered most of the losses of
depositors.
D. totaled about 30% of total bank customer deposits.
Answer:
A mortgage, where the monthly payments are the same for the duration of the loan, is
an example of a(n):
A. variable payment loan.
B. installment loan.
C. fixed payment loan.
D. equity security.
Answer:
The screening process a bank follows for a loan applicant:
A. uses information that anyone can obtain, the bank can usually obtain it cheaper.
B. includes information that can be available to other firms, as well as proprietary
information that only the bank would have.
C. is based on just public information.
D. uses only confidential information.
Answer:
History shows that:
A. countries with low rates of money growth have high rates of inflation.
B. money growth and inflation are not related.
C. countries with high rates of money growth have high rates of inflation.
D. money growth rates equal inflation rates.
Answer:
Which of the following statements is false?
A. Diversification can reduce risk.
B. Diversification can reduce risk but only by reducing the expected return.
C. Diversification reduces idiosyncratic risk.
D. Diversification allocates savings across more than one asset.
Answer:
In the long run, if we ignore changes in velocity, inflation will:
A. be zero.
B. equal the rate of money growth.
C. equal money growth less the growth in potential output.
D. equal money growth plus the growth in potential output.
Answer:
Over the two-year period during which the financial crisis occurred, the amount of
assets in the Federal Reserve balance sheet increased by:
A. 2.5 times.
B. 3 times.
C. 4.5 times.
D. 6 times.
Answer:
Each of the following is a transmission channel of monetary policy, except:
A. the balance-sheet channel.
B. the tax-impact channel.
C. the asset-price channel.
D. the exchange-rate channel.
Answer:
If M = the quantity of money, m the money multiplier, MB the Monetary Base, C =
Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess
reserves, then RR would equal:
A. MB.
B. D – C.
C. M/MB.
D. R – ER.
Answer:
An output gap occurs when:
A. aggregate demand does not equal short-run aggregate supply.
B. aggregate demand equals long-run aggregate supply.
C. aggregate demand equals short-run aggregate supply but not long-run aggregate
supply.
D. short-run aggregate supply equals long-run aggregate supply.
Answer:
You have two savings accounts at an FDIC insured bank. You have $225,000 in one
account and $40,000 in the other. If the bank fails, you will receive:
A. $225,000.
B. $40,000.
C. $115,000.
D. $250,000.
Answer:
The reinsurance market is characterized as having:
A. a few buyers and many sellers.
B. many buyers and sellers.
C. few buyers and sellers.
D. many buyers and a few sellers.
Answer:
A bank supervisor examines the bank’s portfolio of loans to see if the loans are being
repaid in a timely manner. In terms of the acronym CAMELS, this would be part of
rating the bank’s:
A. asset quality.
B. losses.
C. management.
D. earnings.
Answer:
The fact that U.S. currency is legal tender means:
A. U.S. currency is good anywhere in the world.
B. the only money the government will accept for settlement of debts is U.S. currency.
C. private businesses in the U.S. and the U.S. government must accept currency for
payment.
D. it cannot be backed by gold or other metals.
Answer:
A bank’s Return on Assets (ROA) is calculated by dividing:
A. the bank’s assets by its net worth.
B. the bank’s net profits after taxes by its assets.
C. the bank’s net worth by its assets.
D. the bank’s assets less its net profit after taxes by its net worth.
Answer:
Banks can effectively choose their regulators by deciding whether to:
A. be a private or public corporation.
B. be a member of the Federal Reserve or not.
C. purchase FDIC insurance or to forego the coverage.
D. be chartered at the national or state level.
Answer:
For a three-year period from October 1979 to October 1982; the FOMC:
A. primarily targeted reserves.
B. primarily targeted the real federal funds interest rate.
C. primarily targeted M2.
D. gave up targeting reserves entirely.
Answer:
Rank the following assets from most liquid to least liquid.
a) Common stock
b) Houses
c) Currency
d) Art
e) Savings accounts
f) Checking account deposits.
Answer:
Which of the books used at the FOMC meetings can be characterized as less
quantitative than the other two?
A. The teal book
B. The beige book
C. The green book
D. The white paper released to the press
Answer:
Most home mortgages are good examples of:
A. consols.
B. zero-coupon bonds.
C. coupon bonds.
D. fixed-payment loans.
Answer:
A consol is:
A. another name for a zero-coupon bond.
B. a bond with a maturity date exceeding 10 years.
C. a bond that makes periodic interest payments forever.
D. a form of a bond that is issued quite often by the U.S. Treasury.
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