Which of the following would cause the long-run aggregate supply curve to shift?
A) an increase in the price level
B) a decrease in the expected price level
C) an increase in labor productivity
D) an autonomous increase in consumption spending
Answer:
Which of the following is NOT a way in which power was divided up in the Federal
Reserve System?
A) between bankers and business interests
B) among states and regions
C) between importers and exporters
D) between government and the private sector
Answer:
Which of the following is most likely to have an impact on the growth of productivity?
A) a decrease in the price level
B) a decrease in real money balances
C) an increase in the labor supply
D) improvements in worker training
Answer:
A lender who is worried that its cost of funds might rise during the term of a loan it has
made can hedge against this rise without eliminating the chance to profit from a decline
in the cost of funds by
A) buying futures contracts on Treasury bills.
B) selling futures contracts on Treasury bills.
C) buying put options on Treasury bills.
D) buying call options on Treasury bills.
Answer:
Which of the following statements is true of rational expectations?
A) Rational expectations forecasts are always correct.
B) For a trader with rational expectations, the expectation of an asset’s price equals the
optimal price forecast.
C) If traders have rational expectations, any announcement by a company will have an
effect on its stock price, even if the market was already aware of the facts being
announced.
D) If a trader really has rational expectations, he or she was always earn a greater than
normal return on his or her financial portfolio.
Answer:
Congress established the FOMC because
A) a group was needed to set reserve requirements for member banks.
B) of a lack of coordination among district banks in carrying out open market
operations.
C) Congress was attempting to expand its influence within the Federal Reserve System.
D) a group was needed to coordinate the setting of discount rates by the district banks.
Answer:
The impact lag facing the Fed is
A) the delay before open market operations are able to affect the monetary base.
B) the delay before the Fed’s announcement of a new policy has an impact on the
decisions of the public.
C) the time required for monetary policy changes to affect output, employment, and
prices.
D) the delay before the impact of a recession on output and prices becomes clear to the
Fed.
Answer:
How can the Fed reduce the implicit tax on banks resulting from reserve requirements?
A) lowering the discount rate
B) paying interest on reserves
C) reducing the federal funds rate
D) increasing the federal funds rate
Answer:
In managing the monetary base, the Fed most often uses
A) open market purchases.
B) printing money.
C) discount loans.
D) tax increases.
Answer:
If AE > Y, which of the following will NOT occur?
A) inventories will decline
B) actual investment will be more than planned investment
C) employment will increase
D) GDP will increase
Answer:
A purchase of foreign assets by a central bank has the same impact on the monetary
base as:
A) an open market purchase of government securities
B) an open market sale of government securities
C) an increase in the discount rate
D) a reduction in the interest on reserves
Answer:
The idea that nominal interest rates rise or fall one-for-one with expected inflation is
known as
A) market risk.
B) systematic risk.
C) idiosyncratic risk.
D) the Fisher effect.
Answer:
Explain how each of the following might make use of the futures market.
(a) A lender who is worried that its cost of funds might rise during the term of a loan it
has made
(b) A speculator who believes strongly that interest rates will rise
Answer:
The currency premium in foreign-exchange markets
A) helps to offset anticipated declines in exchange rates.
B) helps to offset anticipated increases in exchange rates.
C) indicates investors’ collective preference for financial instruments denominated in
one currency relative to those denominated in another.
D) rises as domestic interest rates fall.
Answer:
Technical Analysis is a version of:
A) insider trading
B) adaptive expectations
C) rational expectations
D) efficient markets
Answer:
The total payment to a lender for a one-period simple loan is
A) (P + i)n.
B) P + i.
C) i(1 + i).
D) P(1 + i).
Answer:
Which investment caused the Reserve Primary Fund to incur heavy losses?
A) mortgage-backed securities
B) real estate investment trusts
C) commercial paper issued by Bear Stearns
D) commercial paper issued by Lehman Brothers
Answer:
According to the efficient markets hypothesis, the difference between today’s price for a
share of stock and tomorrow’s price is
A) predictable given currently available information.
B) equal to today’s price minus yesterday’s price.
C) unforecastable.
D) zero.
Answer:
If the federal government replaced the current income tax with a value-added tax
A) the prices of Treasury and municipal bonds would rise.
B) the prices of Treasury and municipal bonds would fall.
C) the prices of Treasury bonds would rise, while the prices of municipal bonds would
fall.
D) the prices of Treasury bonds would fall, while the prices of municipal bonds would
rise.
Answer:
Commodity money can best be described as
A) money used to purchase agricultural products
B) a good used as money that also has value independent of its use as money
C) standardized goods like gold that trade in a financial market
D) the form of money used in a barter system
Answer:
All of the following accurately describe microlending EXCEPT:
A) it involves small loans
B) lending is primarily undertaken by the government
C) the borrowers are people who are attempting to start or expand a small business
D) many economists think it has aided economic growth in many low-income countries
Answer:
The Bretton Woods system lasted from
A) 1801 to 1861.
B) 1863 to 1914.
C) 1945 to 1971.
D) 1981 to 1993.
Answer:
Money market deposit accounts are included in
A) only M1.
B) only M2.
C) M1 and M2.
D) neither M1 nor M2.
Answer:
Which of the following is NOT an accurate description of open market operations prior
to 2008?
A) It was used to affect the market for bank reserves.
B) It was used to control the federal funds rate.
C) It involved buying and selling of short-term Treasury securities.
D) It involved buying and selling long-term securities.
Answer:
Which of the following countries experienced hyperinflation during the 1920s?
A) The United States
B) Canada
C) Germany
D) England
Answer:
When market participants have rational expectations,
A) they use all information available to them.
B) they only slowly adjust their expectations to news which could affect prices or
returns.
C) they are less likely to make accurate forecasts than if they have adaptive
expectations.
D) they are able to forecast interest rates more accurately than inflation rates.
Answer:
Which investment bank avoided bankruptcy by being purchased by JP Morgan Chase in
March 2008?
A) Morgan Stanley
B) Lehman Brothers
C) Bear Stearns
D) Merrill Lynch
Answer:
Which of the following is the mandate of the European Central Bank?
A) high economic growth
B) price stability
C) low unemployment
D) a fixed exchange rate
Answer:
The fundamental value of a stock equals
A) the future value of all future dividends.
B) the present value of all future dividends.
C) the present value of current and future dividends.
D) the present value of all future capital gains.
Answer:
The very low interest rates following the financial crisis of 2007-2009 resulted in:
A) many people moving their funds from CDs and money market accounts to checking
accounts in order to have more liquidity without sacrificing much interest
B) funds being transferred from checking accounts to time deposits
C) further declines in checking accounts that began in the early 1970s
D) people switching their funds from checking deposits to CDs in the pursuit of higher
interest rates
Answer:
Which of the following is NOT considered one of the four groups in the Federal
Reserve System?
A) Federal Reserve banks
B) Federal Deposit Insurance Corporation
C) Board of Governors
D) Federal Open Market Committee
Answer:
Explicit provisions in a loan agreement that prohibit the borrower from engaging in
certain activities is called:
A) credit rationing
B) restrictive covenants
C) credit-risk analysis
D) adverse selection
Answer: