Economists believe that as a saver’s wealth increases, the saver will generally
A) increase his or her holdings of all assets proportionately.
B) increase the fraction of wealth held as cash.
C) increase the fraction of wealth held as common stock.
D) decrease the fraction held as corporate bonds.
Answer:
Which is the best example of idiosyncratic risk?
A) a financial crisis
B) a lawsuit because the corporation produced a faulty product
C) a recession
D) rising interest rates
Answer:
Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco. If
the real exchange rate is one-third of a slice of U.S. pizza for one slice of British pizza,
how many pounds should you receive in exchange for $1?
A) 1/3
B) 1.5
C) 2
D) 3
Answer:
When economists refer to the role of money as a store of value, they mean that
A) money never loses its value, unlike other assets.
B) money allows value to be stored easily.
C) the value of money falls only when the quantity of money in circulation falls.
D) the value of money falls only when the quantity of money in circulation rises.
Answer:
Which of the following statements about checking deposits is true?
A) It is a liability for both households and banks.
B) It is an asset for both households and banks.
C) It is an asset for households but a liability for a bank.
D) It is a liability for households but an asset for a bank.
Answer:
Most of the TARP funds were used to
A) fund a stimulus package.
B) pay for losses incurred by Fannie Mae and Freddie Mac.
C) finance the operations of the Federal Reserve.
D) make direct purchases of preferred stock in banks to increase their capital.
Answer:
Under the gold standard, if the demand for U.S. goods increased, which of the
following would happen?
A) Gold would flow into the United States.
B) The U.S. monetary base would decline.
C) Prices in the United States would fall.
D) The United States would experience a balance of trade deficit.
Answer:
One difference between futures and options contracts is
A) funds change hands daily in the case of options but not with futures.
B) funds change hands daily in the case of futures, but not with options.
C) in the case of futures funds only change hands when they are exercised.
D) futures are designed to reduce risk while options are not.
Answer:
All of the following are examples of electronic funds EXCEPT
A) credit cards.
B) debit cards.
C) stored value cards.
D) e-cash.
Answer:
The new classical explanation of aggregate supply is also known as
A) Monetarism.
B) Keynesianism.
C) the misperception theory.
D) the adaptive expectations theory.
Answer:
A small open economy
A) is unable to affect the world real interest rate by its borrowing and lending decisions.
B) will always be a net borrower from abroad.
C) will always be a net lender abroad.
D) is almost never able to borrow abroad.
Answer:
Banks deal with problems of adverse selection by
A) charging high interest rates.
B) gathering information about the default risk of borrowers.
C) making only short-term loans.
D) making only long-term loans.
Answer:
Increases in interest rates are often blamed on
A) Congress.
B) the President.
C) the Fed.
D) the U.S. Treasury.
Answer:
Between late 2007 and 2012, the Fed’s balance sheet:
A) remained about the same
B) more than doubled
C) more than tripled
D) rose tenfold
Answer:
Reserve deposits are
A) assets for financial institutions, but liabilities for the Fed.
B) liabilities for financial institutions, but assets for the Fed.
C) assets for both financial institutions and the Fed.
D) liabilities for both financial institutions and the Fed.
Answer:
Fannie Mae and Freddie Mac both
A) sell bonds to investors and use the funds to purchase mortgages.
B) help regulate the banking system.
C) directly lend funds to people seeking mortgages.
D) reduce access to funds for mortgages by purchasing existing mortgages.
Answer:
If the Fed buys $2 billion of short-term securities issued by the government of Japan
and pays for them by writing a check for $2 billion,
A) its assets will rise by $2 billion and its liabilities will fall by $2 billion.
B) its assets will fall by $2 billion and its liabilities will rise by $2 billion.
C) its assets and liabilities will both fall by $2 billion.
D) its assets and liabilities will both rise by $2 billion.
Answer:
Which of the following is NOT a fixed-payment loan?
A) mortgage
B) car loan
C) student loan
D) corporate bond
Answer:
The reduction in average cost resulting from an increase in the volume of a good or
services produced is called:
A) information cost
B) transaction cost
C) diminishing returns
D) economies of scale
Answer:
If expected inflation declines by 2%, what should happen to nominal interest rates
according to the Fisher effect?
A) rise by 2%
B) fall by 2%
C) be cut in half
D) double in size
Answer:
Which of the following referred to derivatives as “financial weapons of mass
destruction?”
A) Ben Bernanke
B) Barack Obama
C) Warren Buffett
D) Michael Lewis
Answer:
The free-rider problem faced by private information-collection firms results in their
A) usually going out of business within a few years.
B) collecting less than all the available information about the firms they investigate.
C) being plagued by lawsuits.
D) charging fees higher than can be justified by market conditions.
Answer:
The process by which banks screen potential applicants by eliminating bad risks and to
obtain a pool of creditworthy borrowers is called:
A) gap analysis
B) duration analysis
C) credit-risk analysis
D) liquidity analysis
Answer:
Why has M2 grown more quickly than M1 in recent decades?
A) Currency in circulation has declined.
B) People own more shares of stock than in the past.
C) The amount of funds in CDs and money market mutual funds shares has grown
faster than currency or checking deposits.
D) Most people use debit cards instead of checking accounts.
Answer:
If there is an excess demand for bonds at a given price of bonds, then
A) the interest rate will fall.
B) the interest rate will rise.
C) the price of bonds will fall.
D) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer:
The expectations theory suggests that
A) the yield curve should usually be upward-sloping.
B) the yield curve should usually be downward-sloping.
C) the slope of the yield curve depends on the expected future path of short-term rates.
D) the slope of the yield curve reflects the risk premium incorporated into the yields on
long-term bonds.
Answer:
Which of the following has led to reduced use of ATMs?
A) some banks closing branches in low-income neighborhoods
B) some banks charging fees for transactions performed by tellers that could be done by
ATMs
C) increased use of debit card transactions
D) reductions in fees for overdrafts
Answer:
A specified amount of a claim that the insurance company does not need to pay is
called:
A) coinsurance
B) deductible
C) copayments
D) premium
Answer:
All of the following concerns have been raised about crowd funding EXCEPT:
A) possibility of fraud
B) lack of liquidity
C) information costs
D) limits access to funds for business start ups
Answer:
What regulatory change did Congress approve in 2010 to reduce counterparty risk in
the shadow banking system?
A) push more trading of derivatives onto exchanges
B) required investment banks to follow the same rules on leverage as commercial banks
C) require increased collateral for those trading derivatives
D) banned trading of mortgage-backed securities
Answer:
Hyperinflations are usually caused by large budget deficits financed by
A) selling bonds to private investors.
B) selling bonds to the central bank.
C) raising taxes.
D) borrowing from commercial banks.
Answer:
Which of the following is NOT considered a receipt in the balance of payments?
A) exports of goods
B) capital inflows
C) import of services
D) unilateral transfers to U.S. citizens
Answer:
If the FOMC’s directive indicates a change in monetary policy, the account manager at
the Fed’s Open Market Trading Desk must
A) design dynamic open market operations.
B) design defensive open market operations.
C) seek approval of the change from the Secretary of the Treasury.
D) seek approval of the change from a majority of the presidents of the Federal Reserve
district banks.
Answer: