The principal-agent problem is:
A. a form of adverse selection.
B. when stockholders are not acting in the best interest of managers.
C. a form of moral hazard.
D. due to managers not being able to monitor stockholder behavior.
Answer:
The potential output of a country would increase as a result of each of the following,
except:
A. an increase in population.
B. an increase in capital per worker.
C. technological innovation that increases labor productivity.
D. depreciation of the capital stock.
Answer:
If monetary policymakers are more concerned about output fluctuations than inflation
fluctuations:
A. they will choose a relatively steep monetary policy reaction curve in which
movements in the real interest rates are small.
B. they will choose a relatively flat monetary policy reaction curve in which
movements in the real interest rates are small.
C. they will choose a relatively steep monetary policy reaction curve in which
movements in the real interest rates are large.
D. they will choose a relatively flat monetary policy reaction curve in which
movements in the real interest rates are large.
Answer:
The shorter the time until a payment the:
A. higher the present value.
B. lower the present value because time is valuable.
C. lower must be the interest rate.
D. higher must be the interest rate.
Answer:
Money eliminates the need for:
A. a search for a double coincidence of wants.
B. government regulation.
C. specialization of labor.
D. financial Intermediaries.
Answer:
The Russian wheat crop fails, driving up wheat prices in the U.S. This is an example
of:
A. idiosyncratic risk.
B. diversification.
C. systematic risk.
D. quantifiable risk.
Answer:
If the federal government were to offer larger tax breaks on the purchase of new
equipment for businesses, all other factors constant, we would expect to see the:
A. bond demand curve shift right.
B. bond supply curve shift left.
C. bond supply curve shift right.
D. bond demand curve shift left.
Answer:
In May of 2003, the European Central Bank (ECB) decided to:
A. focus almost exclusively on money growth as their target.
B. downgrade the role of money growth in their policymaking strategy.
C. limit the role of interest rate targeting to be second in importance to money growth
targeting.
D. switch from an inflation target to a money growth target.
Answer:
If there were an increase in the number of bank failures, we should expect the amount
of excess reserves in the banking system to:
A. decrease.
B. increase.
C. not change.
D. decrease since failing banks lost theirs.
Answer:
The Dow Jones Industrial Average is a:
A. simple average.
B. price-weighted index.
C. value-weighted index.
D. total-value index.
Answer:
A borrower who obtains funds from a lender to purchase additional inventory but uses
the funds to finance a trip to Las Vegas for a weekend of gambling at the opening of a
new casino is an example of:
A. the problem of adverse selection.
B. the free-rider.
C. the moral hazard problem.
D. lax government regulation.
Answer:
Once a bond rating is assigned, it:
A. never changes over the life of the bond.
B. can change as the financial position of the issuer changes.
C. can only change if the rating change is approved by the securities and exchange
commission.
D. can change on the next bond from the issuer but is fixed for the current bond.
Answer:
The most a bank could lend at any time without altering its assets is an amount equal to
its:
A. checkable deposits.
B. reserves.
C. excess reserves.
D. net worth.
Answer:
The policy directive that is produced from the FOMC meeting:
A. details the exact amount of U.S. Treasury securities the System Open Market
Account Manager is to purchase or sell.
B. sets the specific discount rate for the next eight weeks.
C. sets the specific range that the target interest rate can fall within.
D. instructs the staff of the New York Fed on how to manage the Fed’s balance sheet.
Answer:
Higher stock prices can lead to greater investment spending by firms because:
A. the cost of external financing is lower.
B. the market value of a firm is now less than the replacement cost of the firm.
C. the firm gets 100 percent of the increase in the stock value.
D. the cost of internal financing is lower and the firm also gets 100 percent of the
increase in the stock value.
Answer:
The longest recession since the 1940’s began in:
A. 1952.
B. 1973.
C. 1981.
D. 2007.
Answer:
Permanent declines in inflation such as those seen in Chile and Sweden must have been
a result of:
A. an increase in the central bank’s inflation target.
B. a decrease in the central bank’s inflation target.
C. less independence for their central banks.
D. a change to targeting interest rates instead of inflation rates.
Answer:
Pension plans can be thought of as the opposite of life insurance because life insurance:
A. costs far more than pension plans.
B. companies spread risk while pension plans are only spread within the company.
C. pays off when you die while the pension plan pays off if you don’t.
D. pools the savings of many and pension plans do not.
Answer:
The use of money makes us more efficient because:
A. we spend more time trading and more time producing.
B. people can specialize in what they do well.
C. with money we borrow less.
D. money increases in value over time.
Answer:
Which of the following statements is most correct?
A. When a risk is difficult to predict, financial instruments are created to transfer these
risks.
B. Financial instruments are created to transfer risks that are relatively easy to predict.
C. Financial instruments require certainty of an event to be able to transfer risk.
D. Financial instruments eliminate the risk from uncertainty, they do not transfer it.
Answer:
Often times we see companies offering money back guarantees to customers if they are
not satisfied. These guarantees are a way to treat the problem of:
A. buyers having more information about the product than the seller.
B. the seller having more information about the product than the buyer.
C. symmetric information.
D. adverse selection.
Answer:
If M2 is four times larger than M1, the velocity of M1 should be:
A. one-fourth of the velocity of M2.
B. equal to the velocity of M2.
C. equal to four.
D. four times larger than the velocity of M2.
Answer:
The types of loans the Fed makes consist of each of the following, except:
A. primary credit.
B. conditional credit.
C. seasonal credit.
D. secondary credit.
Answer:
If we assume a ten percent required reserve rate, and banks not holding any excess
reserves and no change in currency holdings, an open market sale of $5 million of U.S.
Treasury securities by the Fed, will result in deposits:
A. decreasing by $50 million.
B. increasing by $5 million.
C. increasing by $50 million.
D. not changing.
Answer:
Which of the following statements is most correct?
A. We can always compute the ex post real interest rate but not the ex ante real rate.
B. We cannot compute either the ex post or ex ante real interest rates accurately.
C. We can accurately compute the ex ante real interest rate but not the ex post real rate.
D. None of the statements are correct.
Answer:
Each of the following factors contribute to the slope of the dynamic aggregate demand
curve, except the:
A. strength of the effect of inflation on real balances.
B. current level of technology.
C. extent to which monetary policymakers react to a change in current inflation.
D. size of the response of aggregate expenditures to changes in the interest rate.
Answer:
Most commercial paper is:
A. issued with maturities exceeding one year.
B. issued with maturities between 50 and 75 days.
C. used exclusively for short-term financing needs.
D. issued by foreign companies doing business in the United States.
Answer:
Monetary policy in Japan during the 1990s was:
A. highly effective at stemming the recession that occurred.
B. not used, policymakers preferring fiscal policy.
C. for the most part short-circuited by poor health of financial institutions.
D. responsible for the recession.
Answer:
In Hong Kong, the monetary authority can only increase the monetary base if they
accumulate more U.S. dollars because:
A. the currency of Hong Kong is the U.S. dollar.
B. the monetary authority in Hong Kong operates a currency board where its sole
objective is to fix the exchange rate between its currency and the U.S. dollar.
C. the IMF required Hong Kong to peg its currency to the U.S. dollar in order to obtain
a loan.
D. Hong Kong has received substantial funding from the U.S. Treasury and the loans
were conditional on maintaining the value of the Hong Kong currency.
Answer:
Purchasing power parity is a good theory of explaining exchange rate behavior:
A. over very short periods.
B. over periods lasting six to twelve months.
C. over very long periods, such as decades.
D. over both long and short periods.
Answer:
If central bankers raise the interest rate, the asset-price channel of monetary policy
implies:
A. stock prices will decrease.
B. stock prices will remain the same but bond prices will increase.
C. bond prices will remain flat.
D. stock prices will increase and bond prices will remain flat.
Answer:
If output and inflation are unrelated in the long run, the long-run aggregate supply curve
must be:
A. horizontal.
B. vertical.
C. upward sloping.
D. non-existent.
Answer:
The dividend-discount model predicts that stock prices:
A. should be high when dividends are high.
B. will be high when interest rates are high.
C. will be higher when the growth rate of dividends is low.
D. should be high when dividends are low.
Answer:
Under the expectations hypothesis, if expectations are for lower inflation in the future
than what it currently is, the yield curve’s slope will:
A. become more upward sloping.
B. become flat.
C. be negative.
D. be vertical.
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