There is ________ for any bond whose time to maturity matches the holding period.
A) no interest-rate risk
B) a large interest-rate risk
C) rate-of-return risk
D) yield-to-maturity risk
Answer:
The Baumol-Tobin analysis suggests that an increase 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; increase
D) decrease; decrease
Answer:
Under the Bretton Woods system, a country running a balance of payments ________
lost international reserves, and had to implement ________ monetary policy to
strengthen its currency.
A) surplus; expansionary
B) surplus; contractionary
C) deficit; expansionary
D) deficit; contractionary
Answer:
Researchers at the Federal Reserve found that M2 money demand functions performed
________ in the 1980s, with M2 velocity moving ________ with the opportunity cost
of holding M2.
A) poorly; erratically
B) poorly; closely
C) well; erratically
D) well; closely
Answer:
Velocity is defined as
A) P + M + Y.
B) (P × M)/Y.
C) (Y × M)/P.
D) (P × Y)/M.
Answer:
The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A) depreciate in the long run.
B) appreciate in the long run.
C) depreciate in the short run.
D) appreciate in the short run.
Answer:
The more interest-sensitive is money demand, the
A) more effective is fiscal policy relative to monetary policy.
B) more effective is monetary policy relative to fiscal policy.
C) steeper is the IS curve.
D) steeper is the LM curve.
Answer:
A bond that is bought at a price below its face value and the face value is repaid at a
maturity date is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer:
The January effect refers to the fact that
A) most stock market crashes have occurred in January.
B) stock prices tend to fall in January.
C) stock prices have historically experienced abnormal price increases in January.
D) the football team winning the Super Bowl accurately predicts the behavior of the
stock market for the next year.
Answer:
Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or
0.10, then the current stock price is
A) $20.
B) $50.
C) $100.
D) $150.
Answer:
Points on the IS curve satisfy ________ market equilibrium.
A) money
B) goods
C) stock
D) bond
Answer:
Everything else held constant, an expansionary ________ policy will cause the interest
rate to rise, while an expansionary ________ policy will cause the interest rate to fall.
A) monetary; monetary
B) monetary; fiscal
C) fiscal; monetary
D) fiscal; fiscal
Answer:
Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1
percent. The expectations theory of the term structure predicts that the current interest
rate on 3-year bond is
A) 1 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of a contractionary fiscal policy is to ________ real output and ________ the interest
rate.
A) not change; not change
B) decrease; decrease
C) decrease; not change
D) not change; decrease
Answer:
Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor.
B) A corporation buys a share of common stock issued by another corporation in the
primary market.
C) You buy a U.S. Treasury bill from the U.S. Treasury.
D) You make a deposit at a bank.
Answer:
When the Fed extends a $100 discount loan to the First National Bank, reserves in the
banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
Answer:
Which of the following is a true statement?
A) Money and income are flow variables.
B) Money is a flow variable.
C) Income is a flow variable.
D) Money and income are stock variables.
Answer:
Keynes reasoned that consumer expenditure is most closely related to
A) the level of interest rates.
B) the price level.
C) disposable income.
D) the marginal tax rate.
Answer:
If a security pays $110 next year and $121 the year after that, what is its yield to
maturity if it sells for $200?
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
Answer:
The British Banker’s Association average of interbank rates for dollar deposits in the
London market is called the
A) Libor rate.
B) federal funds rate.
C) prime rate.
D) Treasury Bill rate.
Answer:
An asset’s interest rate risk ________ as the duration of the asset ________.
A) increases; decreases
B) decreases; decreases
C) decreases; increases
D) remains constant; increases
Answer:
In both New Zealand and Canada, what has happened to the unemployment rate since
the countries adopted inflation targeting?
A) The unemployment rate increased sharply.
B) The unemployment rate remained constant.
C) The unemployment rate has declined substantially after a sharp increase.
D) The unemployment rate declined sharply immediately after the inflation targets were
adopted.
Answer:
In emerging market countries, many firms have debt denominated in foreign currency
like the dollar or yen. A depreciation of the domestic currency
A) results in increases in the firm’s indebtedness in domestic currency terms, even
though the value of their assets remains unchanged.
B) results in an increase in the value of the firm’s assets.
C) means that the firm does not owe as much on their foreign debt.
D) strengthens their balance sheet in terms of the domestic currency.
Answer:
Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock.
B) People buy shares in a mutual fund.
C) A pension fund manager buys a short-term corporate security in the secondary
market.
D) An insurance company buys shares of common stock in the over-the-counter
markets.
Answer:
The existence of lags prevents the instantaneous adjustment of the economy to policies
changing aggregate demand, thereby strengthening the case for
A) supply-side policy.
B) nonactivists.
C) activists.
D) demand-management policy.
Answer:
Periodic payments of net earnings to shareholders are known as
A) capital gains.
B) dividends.
C) profits.
D) interest.
Answer:
A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
Answer:
If a member of the nonbank public purchases a government bond from the Federal
Reserve in exchange for currency, the monetary base will ________, but reserves will
________.
A) remain unchanged; rise
B) remain unchanged; fall
C) rise; remain unchanged
D) fall; remain unchanged
Answer:
When the IS and LM curves are combined in the same diagram, the intersection of the
two curves determines the equilibrium level of ________ as well as the ________.
A) aggregate output; price level
B) aggregate output; interest rate
C) money supply; price level
D) consumer expenditures; interest rate
Answer:
The small-firm effect refers to the
A) negative returns earned by small firms.
B) returns equal to large firms earned by small firms.
C) abnormally high returns earned by small firms.
D) low returns after adjusting for risk earned by small firms.
Answer:
When financial institutions go on a lending spree and expand their lending at a rapid
pace they are participating in a
A) credit boom.
B) credit bust.
C) deleveraging.
D) market race.
Answer:
Suppose that the latest Consumer Price Index (CPI) release shows a higher inflation rate
in the U.S. than was expected. Everything else held constant, the release of the CPI
report would immediately cause the demand for U.S. assets to ________ and the U.S.
dollar would ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
With an interest rate of 6 percent, the present value of $100 next year is approximately
A) $106.
B) $100.
C) $94.
D) $92.
Answer: