The reserve requirement is applied to two-week balances on:
A. transactions deposits.
B. savings deposits.
C. both transactions deposits and savings deposits.
D. savings deposits and one-week balances on transactions deposits.
Answer:
Automated teller machines provided by financial intermediaries are an example of:
A. high transactions costs associated with financial intermediaries.
B. diseconomies of scale.
C. the ability of financial intermediaries to provide liquidity.
D. the ability of financial intermediaries to earn profits by raising transaction costs
above the norm.
Answer:
Globalization and trade:
A. expands economic potential in a similar fashion to productivity enhancing
technological progress.
B. shifts both the short-run and long-run aggregate supply curves to the right.
C. provide an opportunity to reduce inflation permanently.
D. all of the answers provided are correct.
Answer:
Which of the following statements is incorrect?
A. The point where the short-run and long-run supply curves intersect corresponds to
the potential level of output.
B. Any point on the short-run aggregate supply curve reflects current inflation equals
target inflation.
C. Inflation and output are unrelated in the long run.
D. In the long run, inflation is determined by monetary policy.
Answer:
If the Fed were to purchase euros for dollars and at the same time sell U.S. Treasury
securities in the open market, this would be an example of:
A. an unsterilized foreign exchange intervention.
B. the Fed not changing their balance sheet at all.
C. a sterilized foreign exchange intervention.
D. the Fed altering the domestic monetary base.
Answer:
A country running a current account deficit over a long time is likely to see its exchange
rate:
A. hold steady.
B. appreciate.
C. depreciate.
D. the rate can rise, fall, or hold steady; the current account and the exchange rate are
not linked.
Answer:
Recession can cause widespread bank crises for all of the following reasons except:
A. there is less business investment as banks make fewer loans.
B. borrowers’ default rates increase.
C. bank capital increases.
D. the negative effect on banks’ balance sheets.
Answer:
Which of the following makes fixed payments indefinitely?
A. Amortized loan
B. Consol
C. Coupon bond
D. Zero-coupon bond
Answer:
The Board of Governors of the Fed performs each of the following functions, except:
A. analyzing financial and economic conditions.
B. setting the reserve requirement.
C. approving bank merger applications.
D. making discount loans.
Answer:
A long-standing goal of financial regulators has been to:
A. prevent banks from growing too big and powerful.
B. minimize the competition that banks face.
C. encourage banks to grow as large as possible.
D. discourage small rural banks.
Answer:
Assume the Expectations Hypothesis regarding the term structure of interest rates is
correct. Then, if the current two-year interest rate is 5% and the current one-year rate is
6%, then investors expect the future one-year rate to be:
A. 4%.
B. 5%.
C. 6%.
D. 1%.
Answer:
Considering the data on real and nominal interest rates for the U.S. from 1979 to 2012,
which of the following statements is most accurate?
A. The real interest rate remains unchanged over time.
B. There have been times when the real interest rate has been negative.
C. Nominal interest rates higher in 2000 than they had been at any other point in time.
D. The inflation rate is always greater than the real interest rate.
Answer:
The government’s providing of deposit insurance and functioning as the lender of last
resort has significantly:
A. decreased the incentive for bank managers to take on risk.
B. increased the amount of regulation of banks required, but has had no effect on
bank’s incentive to take on risk.
C. increased the incentive for banks to take on risk, but has had no effect on the amount
of regulation of banks required.
D. increased the amount of regulation of banks required and increased the incentive for
banks to take on risk.
Answer:
Which of the following statements is most correct?
A. A sterilized foreign exchange intervention will alter the composition of a central
bank’s assets and alter commercial bank reserves.
B. A sterilized foreign exchange intervention will not alter the composition of a central
bank’s assets.
C. An unsterilized foreign exchange intervention will alter commercial bank reserves.
D. A sterilized foreign exchange intervention will leave the central bank’s holdings of
foreign reserves unchanged.
Answer:
At expiration, the time value of an option:
A. is equal to the intrinsic value.
B. is greater than the intrinsic value.
C. is zero.
D. is less than the intrinsic value.
Answer:
The value of $100 left in a savings account earning 5% a year, will be worth what
amount after ten years?
A. $150.00
B. $160.50
C. $159.84
D. $162.89
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:
In the late 1970s and early 1980s, the velocity of money increased significantly. The
main reason(s) for the increase was:
A. as presidential election years near the velocity of money increases.
B. the introduction of stock and bond mutual funds with draft writing privileges and
low nominal interest rates.
C. high nominal interest rates.
D. the introduction of stock and bond mutual funds with draft writing privileges along
with high nominal interest rates.
Answer:
All other things equal, a decrease in the equity risk premium leads to a(n):
A. increase in the required return on stock.
B. decrease in the present value of stock.
C. increase in the price of equity shares.
D. decrease in dividend growth.
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:
If the current market federal funds rate equals the target rate and the demand for
reserves increases, the likely response in the federal funds market will be:
A. a decrease in the market federal funds rate.
B. a market federal funds rate that will equal the target rate.
C. an increase in the market federal funds rate.
D. nothing; the Fed would act immediately and the market would not be affected.
Answer:
Which of the following regulates commercial banks as well as savings banks and
savings and loans?
A. The Federal Reserve System
B. Securities and Exchange Commission
C. The Office of the Comptroller of the Currency
D. The Internal Revenue Service
Answer:
When the price of a bond equals the face value the:
A. yield to maturity will be above the coupon rate.
B. yield to maturity will be below the coupon rate.
C. current yield is equal to the coupon rate.
D. yield to maturity is greater than the current yield.
Answer:
Most individuals save at banks rather than lend directly because:
A. the bank creates information asymmetry.
B. moral hazard exists only when individuals make loans directly to borrowers, it does
not occur when banks issue loans.
C. banks can reduce the cost of information asymmetry.
D. information asymmetry is a problem for individuals but not for banks.
Answer:
In the short run, the point on the aggregate demand curve where an economy will end
up depends on:
A. the money supply.
B. the long-run rate of inflation.
C. potential output.
D. the short-run aggregate supply curve.
Answer:
Which of the following statements is most correct?
A. A recession is officially defined as two consecutive quarters where the real growth
rate is negative.
B. A recession officially begins when unemployment exceeds 5.0 percent.
C. There is no hard and fast definition of a recession.
D. The official date of a recession is determined by the Federal Reserve Board, but
usually with at least a three-month delay.
Answer:
During the 1990s, the country of Chile required foreigners wishing to invest in the
country to make a one-year, zero-interest deposit in the Chilean central bank equal to at
least 20 percent of the investment. This is an example of:
A. a capital outflow control.
B. a capital inflow control.
C. an exchange rate mechanism.
D. a currency board.
Answer:
The high transaction costs associated with a barter system refers to the:
A. fact that, often times, these exchanges are taxed by governments.
B. risk associated with having to carry an inventory of goods to trade.
C. high cost associated with finding someone with whom to exchange.
D. cost of drawing up complete contracts.
Answer:
Considering U.S. commercial banks, loans account for:
A. about one-third of total assets.
B. one-half of total assets.
C. two-thirds of liabilities.
D. three-quarters of total assets.
Answer:
During the financial crisis of 2007-2009 the U.S. Federal Reserve used its powers in all
but which of the following ways:
A. lending to nonbanks.
B. accepting very illiquid collateral against its loans.
C. lowered bank reserve requirements.
D. lowered its policy rate to zero.
Answer:
A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon
payment. Assume the price of this bond decreases to $1,100 over the next year. The
one-year holding period return is equal to:
A. -9.17%.
B. -8.33%.
C. -4.17%.
D. -3.79%.
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: