If the expected path of interest rates on one-year bonds over the next five years is 2%,
4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest
interest rate today is the one with a maturity of
A) one year.
B) two years.
C) three years.
D) five years.
Answer:
Suppose the GDP implicit price deflator was 112.7 in 2013 and 116.0 in 2014.
Therefore, the inflation rate in 2014 would be
A) 8%.
B) 9%.
C) 3%.
D) 16%.
Answer:
Which of the following interest rates tends to fluctuate the most?
A) interest rate on corporate bonds
B) interest rate on 10-year Treasury bonds
C) mortgage interest rate
D) federal funds rate
Answer:
If the Fed sells securities worth $10 million to a commercial bank, the Fed’s balance
sheet will show
A) an increase in securities held of $10 million and an increase in bank reserves of $10
million.
B) an increase in securities held of $10 million and a decrease in bank reserves of $10
million.
C) a decrease in securities held of $10 million and an increase in bank reserves of $10
million.
D) a decrease in securities held of $10 million and a decrease in bank reserves of $10
million.
Answer:
The bank lending channel
A) emphasizes the role of interest rates in the money supply process.
B) emphasizes the importance of borrowers’ net worth to the decision of lenders to
grant loans.
C) emphasizes the behavior of bank-dependent borrowers.
D) is another name for the interest rate channel.
Answer:
The Bank of the United States faced opposition from which of the following?
A) local banks who resented the Bank’s supervision
B) advocates of limited government who distrusted its power
C) farmers and small businesses who resented the Bank’s interference with their ability
to obtain loans
D) all of the above
Answer:
A bond’s price and its yield to maturity are inversely related because
A) discounting future payments at a higher rate reduces the present value of the
payments.
B) discounting future payments at a higher rate increases the present value of the
payments.
C) an increase in the yield to maturity will lower a bond’s coupon rate and hence its
price.
D) a fall in a bond’s price will lower its par value and hence its yield to maturity.
Answer:
As of October 2012, the value of currency in circulation was about
A) $1.1 billion.
B) $11 billion.
C) $1.1 trillion.
D) $11 trillion.
Answer:
Which of the following statements about the natural rate of unemployment is correct?
A) Currently, most economists think that the natural rate is between 5% and 6%.
B) Currently, most economists believe the natural rate is zero.
C) When unemployment is at its natural rate, then only frictional unemployment
remains.
D) When unemployment is at its natural rate, then only structural unemployment
remains.
Answer:
Speculators who think the euro is likely to decline over the next year can take all of the
following actions EXCEPT
A) buying put options on euros.
B) sell euro futures contracts.
C) sell euro forward contracts.
D) buying call options on euros.
Answer:
The seller of a futures contract
A) assumes the long position.
B) has the obligation to deliver the underlying financial instrument at the specified date.
C) has the obligation to receive the underlying financial instrument at the specified
future date.
D) may, at his or her option, deliver or receive the underlying financial instrument at the
specified date.
Answer:
If market participants rely only past stock prices to forecast future stock prices,
A) they will be better able to forecast future price increases than future price decreases.
B) they will be better able to forecast future price decreases than future price increases.
C) they have adaptive expectations.
D) they have rational expectations.
Answer:
Which of the following forms the largest share of household holdings of financial
assets?
A) corporate equities
B) bank deposits
C) pension funds reserves
D) life insurance
Answer:
A $10 million open market sale will decrease the monetary base by
A) $10 million.
B) $10 million times the money multiplier.
C) $10 million divided by the money multiplier.
D) an amount between $0 and $10 million, depending on the fraction of the purchase
the public wishes to hold as currency.
Answer:
Suppose an investment bank has a leverage ratio of 10 and the value of its securities
decline by 10%. What happens to its return on equity investment?
A) declines by 1%
B) increases by 1%
C) declines by 100%
D) increases by 100%
Answer:
When managers do not own very much of the net worth of the firm, then
A) there may be a principal-agent problem.
B) the firm will usually have to raise most of its funds in financial markets.
C) the firm will have to rely more on equity financing than debt financing.
D) the firm will have to rely more on debt financing than equity financing.
Answer:
Securities that banks sell and agree to repurchase are known as
A) federal funds.
B) discount loans.
C) repurchase agreements.
D) NOW accounts.
Answer:
Transaction and information costs
A) benefit borrowers at the expense of savers.
B) benefit savers at the expense of borrowers.
C) transaction costs hurt savers while information costs hurt borrowers.
D) create profit opportunities for those who can reduce these costs.
Answer:
When Ben Bernanke referred to the exit strategy of the Fed, he was referring to:
A) his plans to retire as chair of the Fed
B) when the Fed would stop implementing monetary policy
C) the process by which the Fed would shrink its balance sheet
D) increasing the federal funds rate back to where it was prior to the financial crisis
Answer:
When did Regulation Q finally disappear?
A) 1934
B) 1945
C) 1986
D) 2000
Answer:
The exchange rate system followed by the United States is known as
A) the gold standard.
B) a fixed exchange rate system.
C) a flexible exchange rate system.
D) a barter system.
Answer:
By the summer of 2008, about what percent of subprime mortgages were overdue by at
least 30 days?
A) 10%
B) 25%
C) 34%
D) 50%
Answer:
All of the following are potential benefits of defined contribution plans EXCEPT:
A) clear ownership rights to the balances of their 401Ks
B) lower risk for employees
C) if the employee’s investments are profitable, the employee can have high income
during retirement
D) contributions to traditional 401Ks are tax deductible
Answer:
By reducing transactions and information costs, financial intermediaries can
A) offer savers higher interest rates.
B) offer borrowers lower interest rates.
C) earn a profit.
D) all of the above.
Answer:
The attribute that distinguishes money from other assets is that only money
A) retains its value during times of inflation.
B) is counted in determining the size of an individual’s wealth.
C) serves as a medium of exchange.
D) may be used as collateral for a bank loan.
Answer:
The Bretton Woods system was expected to be more stable than the gold standard
because
A) the world supply of gold had increased greatly by the time the Bretton Woods
system was established.
B) large trade deficits and surpluses would be unlikely to occur under the Bretton
Woods system.
C) fewer countries were involved in the Bretton Woods system than had been involved
in the gold standard.
D) the IMF was set up to be a lender of last resort.
Answer:
Which of the following is an example of fiat money?
A) a cowry shell used as money on a South Pacific island
B) a gold coin used as money in nineteenth century England
C) a Federal Reserve Note used as money in the twenty-first century United States
D) a pound of salt used as money in medieval France
Answer:
A decrease in the price level will lead to
A) a decrease in the real interest rate and an increase in net exports.
B) an increase in the real interest rate and an increase in net exports.
C) a decrease in the real interest rate and a decrease in net exports.
D) an increase in the real interest rate and a decrease in net exports.
Answer:
Assuming a required reserve ratio of 10% and the Fed purchased $1 million worth of
mortgage-backed securities, make use of the simple deposit multiplier to determine how
much checking deposits would change.
A) increase by $1 million
B) increase by $10 million
C) decrease by $1 million
D) decrease by $10 million
Answer:
A one-year discount bond with a face value of $1000 that is currently selling for $900
has an interest rate of
A) 5.26%.
B) 10%.
C) 11.1%.
D) 100%.
Answer:
If the real interest rate is 2% and expected inflation is 2%, the nominal interest rate is:
A) 0%
B) 1%
C) 2%
D) 4%
Answer:
Which of the following prevented the Fed from reducing long-term real interest rates
during the Financial Crisis of 2007-2009?
A) an increase in expected inflation
B) an increase in the risk premium
C) the collapse in the housing market
D) the failure of the federal funds rate to respond to monetary policy
Answer:
Research has shown that nations with highly independent central banks tend to have
low
A) inflation.
B) interest rates.
C) economic growth.
D) unemployment.
Answer:
If the Japanese yen appreciates against the U.S. dollar,
A) Japanese businesses gain by a decrease in the dollar price of exports to the United
States.
B) Japanese consumers gain by a decrease in the yen price of U.S. exports to Japan.
C) Japanese consumers lose by an increase in the yen price of U.S. exports to Japan.
D) U.S. consumers gain by an decrease in the dollar price of Japanese exports to the
United States.
Answer:
The intrinsic value of an option
A) is equal to the option premium.
B) is the amount the option actually is worth if it is immediately exercised.
C) is the amount the option is expected to be worth on its expiration date.
D) is impossible to determine in the absence of information on the future prices of the
underlying asset.
Answer: