What effect would economic weakness in Europe due to a sovereign debt crisis have on
the U.S. economy?
A) IS shifts to the right
B) IS shifts to the left
C) potential GDP increases
D) potential GDP decreases
Answer:
A quota refers to:
A) a tax on imported goods
B) a limit on the amount of a good that can be imported
C) the range within which an exchange rate is allowed to fluctuate
D) a limit on the size of a trade deficit
Answer:
Individual investors who always want to hold gold are known as:
A) goldfinger
B) golden boys
C) gold bugs
D) goldilocks
Answer:
For a bank, the ration of after-tax profit to assets is its:
A) net interest margin.
B) return on assets.
C) return on equity.
D) spread.
Answer:
Currently, a three-year Treasury note pays 4.75%. Assuming that your tax rate is 20%,
what is the minimum interest rate that you would you need to earn on a tax-free
municipal bond in order to buy it instead?
A) 0.95%
B) 3.8%
C) 5.7%
D) 15.25%
Answer:
The Federal Reserve pursued an expansionary monetary policy during 1964 in order to
A) pull the United States out of a deep recession.
B) counteract the effects of a deep cut in federal income taxes.
C) keep interest rates from rising.
D) bring down the inflation rate.
Answer:
The proposition of monetary neutrality states that changes in the money supply have:
A) no impact on output in the short run
B) no impact on output in the long run
C) no impact on the price level in the short run
D) no impact on the price level in the long run
Answer:
Which of the following describes the relationship between the actual federal funds rate
and that suggested by Taylor’s rule following the recovery from the 2001 recession?
A) The federal funds rate was above that suggested by Taylor’s rule.
B) The federal funds rate was below that suggested by Taylor’s rule.
C) The federal funds rate was about equal to that suggested by Taylor’s rule.
D) There was not a clear relationship between the federal funds rate and that suggested
by Taylor’s rule.
Answer:
Which of the following is NOT a popular stock market index?
A) Dow Jones Industrial Average
B) NASDAQ
C) S&P 500
D) Moody’s Market Index
Answer:
Capital inflow restrictions
A) receive less support from economists than full capital controls.
B) may lessen domestic lending booms and risk-taking by domestic banks.
C) were imposed in the United States during the late 1990s.
D) were imposed in Europe in May 2000.
Answer:
Which of the following is a consequence of extending the payback period of a student
loan from 10 to 30 years?
A) higher monthly payments
B) more interest paid over the life of the loan
C) faster payoff of principal
D) lower monthly payments initially, but higher monthly payments in the future
Answer:
With respect to U.S. Treasury bills,
A) the bid price is always greater than the asked price.
B) the asked price is always greater than the bid price.
C) the bid price is only greater than the asked price if investors expect interest rates to
decline in the future.
D) the asked price is only greater than the bid price if investors expect interest rates to
decline in the future.
Answer:
How does an increase in the price level result in higher interest rates?
A) It increases the real money supply.
B) It decreases the real money supply.
C) It increases the real money demand.
D) It decreases the real money demand.
Answer:
In what sense do self-fulfilling expectations determine the acceptability of a medium of
exchange?
A) People like to do what the government expects them to do.
B) People value something as money only if they believe others will accept it from
them as payment.
C) People expect that money will never lose its value.
D) People expect that eventually every country will use the same medium of exchange.
Answer:
Which of the following is NOT an example of a supply shock?
A) a drought in the Midwest
B) a decline in natural gas prices following discovery of new fields
C) the introduction of a new line of computer-controlled machine tools in
manufacturing
D) a substantial increase in federal government spending on Medicare
Answer:
A Federal Reserve repurchase agreement involves
A) an agreement by a bank to repay a discount loan on a specific day.
B) an agreement by a dealer to buy back securities she has sold to the Fed.
C) an agreement between the Fed and the Treasury for the Fed to purchase a specified
amount of Treasury securities.
D) an agreement by a commercial bank to make a loan to another bank in the federal
funds market.
Answer:
Banks have a maturity mismatch since
A) they borrow long term, but lend short term.
B) they borrow short term, but lend long term.
C) some of their loans are short term while others are long term.
D) some of their borrowings are short term while others are long term.
Answer:
The world real interest rate is
A) set annually by a special commission at the United Nations.
B) set annually by a special commission at the International Monetary Fund.
C) determined in the international capital market.
D) determined daily on the New York Stock Exchange.
Answer:
The FOMC states its overall objectives for interest rates in
A) the Governors’ Order.
B) the Policy Directive.
C) the Federal Reserve Bulletin.
D) the Chairman’s Order.
Answer:
Banks with which type of loans were most likely to fail during the early 1930s?
A) mortgage loans
B) agricultural loans
C) commercial real estate loans
D) international loans
Answer:
If a central bank wishes to raise the foreign-exchange value of its currency, it will
A) buy domestic currency and sell foreign assets.
B) sell domestic currency and buy foreign assets.
C) attempt to reduce domestic interest rates.
D) attempt to raise the domestic price level relative to foreign price levels.
Answer:
Which of the following is NOT a reason for the weak recovery following the 2007-2009
recession?
A) Recessions started by financial crises are almost always severe.
B) The decline in the automobile industry appeared to be structural.
C) The collapse of the housing market was long lived.
D) The recession was caused by a decline in short-run aggregate supply.
Answer:
The existence of adverse selection results in:
A) reduced market efficiency
B) an increase in the likelihood of moral hazard
C) increase market transactions
D) higher transaction costs
Answer:
Banks use credit rationing rather than simply raising the interest rate charged borrowers
with higher default risks because
A) of fear of adverse selection problems.
B) of interest rate ceilings in many states.
C) of fear of offending the loan applicants.
D) use of credit rationing is encouraged by the Federal Reserve.
Answer:
A sustained decrease in the price level is known as
A) inflation.
B) disinflation.
C) reflation.
D) deflation.
Answer:
Open market operations generally involve
A) the Fed making discount loans to depository institutions.
B) the Fed buying and selling common stock in order to affect the liquidity of the stock
market.
C) the Fed buying and selling U.S. government securities.
D) private investors buying and selling securities directly on exchanges, rather than
through brokers.
Answer:
Under the efficient markets hypothesis, for news about a company’s prospects to have a
large impact on the price of the company’s stock the news must
A) have an impact on the company’s profitability in the short term.
B) have an impact on the company’s profitability in the long term.
C) significantly increase the likelihood that the company will go bankrupt.
D) significantly reduce the liquidity of the company’s stock.
Answer:
If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much
will you have in the account at the end of three years?
A) $8,396
B) $11,800
C) $11,910
D) $10,600
Answer:
Suppose that savers become much more willing to purchase a certain type of municipal
bond. The result will be that the bond’s price will
A) fall relative to the price of U.S. Treasury securities but rise relative to the price of
corporate bonds.
B) rise relative to the price of U.S. Treasury securities but fall relative to the price of
corporate bonds.
C) rise relative to the prices of U.S. Treasury securities and corporate bonds.
D) fall relative to the prices of U.S. Treasury securities and corporate bonds.
Answer:
Which of the following statements about checkable deposits is correct?
A) Checkable deposits are a larger fraction of banks’ funds today than in 1973.
B) Checkable deposits are a smaller fraction of banks’ funds today than in 1973.
C) All checkable deposits pay interest.
D) No checkable deposits pay interest.
Answer:
When you borrow stock from a broker and sell it now with plans to buy it back after it
drops in price, you are engaging in a
A) margin call
B) European option
C) American option
D) short sale
Answer:
As an option nears its expiration date, the size of the premium approaches
A) zero.
B) infinity.
C) its intrinsic value.
D) an amount which varies, depending on prevailing market interest rates on the
expiration date.
Answer:
All of the following are roles of a exchange EXCEPT
A) instituting margin requirements on futures contracts.
B) marking to market at the end of each day.
C) eliminate the need for buyers and sellers of futures contracts to be concerned about
the creditworthiness of each other.
D) reducing the default risk involving forward contracts.
Answer: