A foreign exchange intervention by a central bank affects the value of a country’s
currency if it:
A. alters banking system reserves.
B. leaves domestic interest rates unchanged.
C. results in a fixed exchange rate.
D. alters banking system reserves and it changes domestic interest rates.
Answer:
A counterparty to a financial instrument is always the:
A. issuer of the financial instrument.
B. government agency guaranteeing the value of the instrument.
C. person or institution that purchases the financial instrument.
D. person or institution that is on the other side of the financial contract.
Answer:
In a barter economy with “n” number of goods there will always be:
A. exactly “n” relative prices.
B. fewer than “n” relative prices.
C. more than “n” relative prices.
D. “n/2” relative prices.
Answer:
The monetary policy framework is:
A. the Law that created the Federal Reserve System.
B. the idea that central banks should be interconnected across countries.
C. a way to prioritize and implement the central bank’s objectives when they are in
conflict.
D. a growing belief that there should be one central bank headquartered at the World
Bank.
Answer:
Suppose that Ray Allen, a basketball player for the Miami Heat, will become a free
agent at the end of this NBA season. Suppose that Allen is considering two possible
contracts from different teams. Note that the salaries are paid at the end of EACH year.
The interest rate is 10%. Based on this information, which of the following is true?
A. Allen should take the Seattle contract because it has a higher present value.
B. Allen should take the Portland contract because it has a higher present value.
C. Allen is indifferent between the two contracts because they are both worth $12
million.
D. Allen is indifferent between the two contracts because they are both worth $10.9
million.
Answer:
In comparing money to a U.S. Treasury bond held by an individual, we can say:
A. the treasury bond is an asset but money is not.
B. money is an asset but the U.S. bond is a liability of the individual.
C. both are stores of value.
D. money is a store of value but the bond is not.
Answer:
Increases in the real interest rate will result in a(n):
A. increase in net exports because it will lead to a depreciation of the dollar.
B. decrease in net exports because it will lead to a depreciation of the dollar.
C. increase in net exports because it will lead to an appreciation of the dollar.
D. decrease in net exports because it will lead to an appreciation of the dollar.
Answer:
Given the following formula for the Taylor rule:
Target federal funds rate = 2 + current inflation + ½(inflation gap) + ½(output gap). If
output in the economy were to fall by an additional one percent below potential, the
target federal funds rate would:
A. Increase by 1.5%.
B. Decrease by 1.5%.
C. Remain at 2.5%.
D. Decrease by 0.5%.
Answer:
Fiscal policymakers may actually welcome some inflation for all of the following
reasons except:
A. it potentially raises tax revenues.
B. it reduces the real value of the national debt allowing governments to “default” on a
portion of their debt.
C. interest payments tend to be fixed so the real interest payments are reduced.
D. it weakens the independence of the central bank.
Answer:
When the Fed makes a discount loan, the impact on the Banking System’s balance sheet
is:
A. an increase in liabilities with no change in assets.
B. an increase in assets and a decrease in liabilities.
C. a decrease in assets and an increase in liabilities.
D. the same as that of an open market purchase.
Answer:
Recent policy statements by the FOMC announce and explain its:
A. targets for money growth with no mention of interest-rate targets.
B. short-term interest-rate and balance-sheet adjustments with no mention of money
growth targets.
C. decisions for long-term interest rates.
D. decisions for money-growth targets but also mentioning short-term interest-rate
decisions.
Answer:
Which of the following statements is true?
A. Adverse selection is a problem of monopoly and moral hazard is a problem of
information asymmetry.
B. Adverse selection and moral hazard are problems stemming from asymmetric
information.
C. Adverse selection is a problem that occurs after a transaction.
D. Moral hazard is a problem that occurs before a transaction.
Answer:
The theory of efficient markets implies:
A. stock prices should be highly unpredictable.
B. the price at which stocks currently trade only reflect past information.
C. expectations do not play a role in stock prices because this isn’t real information.
D. the chartists are in fact correct that there are patterns in stock prices.
Answer:
In dollar amounts:
A. the monetary base is larger than M2 and M1 is less than M2.
B. M1 is smaller than the monetary base and M2 is larger than both.
C. the monetary base is larger than M1 and M2.
D. the monetary base is smaller than M1 and M2 is larger than M1.
Answer:
The bond supply curve slopes upward because:
A. as bond prices rise people holding bonds are more tempted to hold them.
B. as bond prices rise yields increase.
C. for companies seeking financing, the higher the price of bonds the more attractive it
is to sell bonds.
D. as bond prices rise yields decrease.
Answer:
Which of the following statements is true?
A. The ECB’s marginal lending facility was the model for the Fed’s redesign of its
procedures for lending to banks.
B. The ECB’s success in controlling reserves by paying interest on them has led the
Fed to do the same.
C. The ECB’s weekly auctions include only a few of the largest banks in Europe.
D. The Fed’s redesign of its procedures for lending to banks was the model for the
ECB’s marginal lending facility.
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:
Which of the following does not contribute to the failure of the law of one price?
A. Tariffs
B. Transportation costs
C. Technical specifications
D. Tastes are similar across countries
Answer:
Interest-rate swaps are:
A. exchanges of equity securities for debt securities.
B. agreements between two parties to exchange periodic interest-rate payments over
some future period.
C. agreements involving swapping of option contracts.
D. agreements that allow both parties to convert floating interest rates to fixed interest
rates.
Answer:
Central banks are in a position to control risk in the economy because they:
A. control the unemployment rate.
B. control the economy’s real growth rate.
C. control short-term interest rates.
D. can change taxes.
Answer:
The total assets of commercial banks in 2013 amounted to:
A. three times nominal GDP in the U.S.
B. about one-half of nominal GDP in the U.S.
C. about four-fifths of nominal GDP in the U.S.
D. about one-tenth of nominal GDP in the U.S.
Answer:
Which of the following statements is incorrect?
A. A country cannot be open to international capital flows, control its domestic interest
rate and fix its exchange rate.
B. A country can be open to international capital flows and control its own domestic
interest rate but it can’t fix its exchange rate.
C. A country can be open to international capital flows, control its domestic interest
rate, and fix its exchange rate.
D. A country can be open to international capital flows and fix its exchange rate but
could not also control its own domestic interest rate.
Answer:
During the 1990s many countries developed a monetary policy framework that focused
on inflation targeting. This is an example of policymakers:
A. focusing exclusively on an intermediate target.
B. bypassing intermediate targets and focusing directly on an objective.
C. focusing on multiple numerical targets.
D. developing a new intermediate target.
Answer:
Which of the following statements regarding growth was brought out from the material
in Chapter 15?
A. Stability results in higher output growth rates.
B. Inflation volatility results in higher output growth rates.
C. There is no correlation between the volatility in growth rates and annual output
growth.
D. The more volatile the growth rate, the higher is the annual output growth.
Answer:
If the demand for reserves remains constant and the market federal funds rate is below
the target rate, the Fed would:
A. increase the supply of reserves.
B. decrease the supply of reserves.
C. do nothing; the Fed will let the market work.
D. alter the demand for reserves.
Answer:
If a borrower’s net worth increases:
A. the likelihood of moral hazard also increases.
B. the borrowers are likely to want to take less risk.
C. the moral hazard risk for the potential lenders decreases.
D. the supply of loans decreases.
Answer:
Which of the following best completes the statement? If people increase their currency
holdings, all else the same, the monetary base:
A. does not change but the quantity of M2 will decrease.
B. increases as does the quantity of M2.
C. decreases as does the quantity of M2.
D. does not change and neither does M2.
Answer:
All other factors held constant, an investment:
A. with more risk should offer a lower return and sell for a higher price.
B. with less risk should sell for a lower price and offer a higher expected return.
C. with more risk should sell for a lower price and offer a higher expected return.
D. with less risk should sell for a lower price and offer a lower return.
Answer:
Which of the following correctly portrays a bank’s balance sheet?
A. Total Bank Liabilities = Total Bank Capital + Total Bank Assets
B. Total Bank Assets = Total Bank Capital – Total Bank Liabilities
C. Total Bank Assets = Total Bank Liabilities – Total Bank Capital
D. Total Bank Assets = Total Bank Liabilities + Total Bank Capital
Answer:
People differ on the method by which stock should be valued. Some people are
chartists, others behaviorists. The basic difference between these groups is:
A. chartists rely on astrological charts to predict stock values, behaviorists rely on
psychology.
B. behaviorists are finance based, chartists study charts of investor psychology.
C. chartists study charts of stock prices; behaviorists focus on investor psychology and
behavior.
D. chartists and behaviorists are the same in their approach; essentially there aren’t any
differences.
Answer:
As of 2014, the euro had become the currency for:
A. 7 countries.
B. 12 countries.
C. 18 countries.
D. 25 countries.
Answer:
During the early years of the Great Depression, a study of the money aggregates reveals
that the money multiplier:
A. was at an all-time high.
B. increased from 1929 right through 1936.
C. decreased.
D. was constant from 1929 through 1936.
Answer:
Which of the following makes fixed payments indefinitely?
A. Amortized loan
B. Consol
C. Coupon bond
D. Zero-coupon bond
Answer:
Most economists agree that the target rate of inflation for the central banks should be:
A. between 7 and 9 percent.
B. less than zero.
C. above zero for fears of deflation.
D. something over 3 but less than 6 percent.
Answer:
The primary use of derivative contracts is:
A. for IRA and other pension plans since they only have value well into the future.
B. to shift risk among investors.
C. for investors seeking a greater return by taking greater risk.
D. to add to the profits an investor obtains through information asymmetry.
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer: