When the financial crisis started in August 2007, inflation was rising and the Fed began
an aggressive easing lowering of the federal funds rate, which indicated that
A. there was an upward movement along the monetary policy curve.
B. there was a downward movement along the monetary policy curve.
C. the monetary policy curve shifted upward.
D. the monetary policy curve shifted downward.
Answer:
There are ________ members of the Board of Governors of the Federal Reserve
System.
A. 5
B. 7
C. 12
D. 19
Answer:
Which of the following sequences accurately describes the evolution of the payments
system?
A. barter, coins made of precious metals, paper currency, checks, electronic funds
transfers
B. barter, coins made of precious metals, checks, paper currency, electronic funds
transfers
C. barter, checks, paper currency, coins made of precious metals, electronic funds
transfers
D. barter, checks, paper currency, electronic funds transfers
Answer:
Which of the following statements is TRUE?
A. A liquid asset is one that can be quickly and cheaply converted into cash.
B. The demand for a bond declines when it becomes less liquid, decreasing the interest
rate spread between it and relatively more liquid bonds.
C. The differences in bond interest rates reflect differences in default risk only.
D. The corporate bond market is the most liquid bond market.
Answer:
The government corporation that insures pension benefits is
A. Fannie Mae.
B. Ginnie Mae.
C. Penny Benny.
D. Sallie Mae.
Answer:
________ in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to depreciate, everything else held constant.
A. An increase; increase
B. An increase; decrease
C. A decrease; increase
D. A decrease; decrease
Answer:
Since 1980, ________ are subject to reserve requirements.
A. only commercial banks
B. only the member institutions of the Federal Reserve
C. only nationally chartered depository institutions
D. all depository institutions
Answer:
Several features distinguish hedge funds from traditional mutual funds, including
A. mutual funds have a minimum investment requirement of $1,000 or more; hedge
funds have no minimum investment requirement.
B. hedge funds typically charge investors large fees relative to mutual funds.
C. hedge fund investors need not commit their money for more than a few weeks at a
time, explaining why they pay higher fees.
D. hedge funds are significantly less risky relative to mutual funds.
Answer:
Adjustable rate mortgages
A. protect households against higher mortgage payments when interest rates rise.
B. keep financial institutions’ earnings high even when interest rates are falling.
C. benefit homeowners when interest rates are falling.
D. generally have higher initial interest rates than on conventional fixed-rate mortgages.
Answer:
An important financial institution that assists in the initial sale of securities in the
primary market is the
A. investment bank.
B. commercial bank.
C. stock exchange.
D. brokerage house.
Answer:
The Fed’s holdings of securities consist primarily of ________, but also in the past have
included ________.
a. Treasury securities; bankers’ acceptances
b. municipal securities; bankers’ acceptances
c. bankers’ acceptances; Treasury securities
d. Treasury securities; municipal securities
Answer:
A key finding of the economic analysis of financial structure is that
A) the existence of the free-rider problem for traded securities helps to explain why
banks play a predominant role in financing the activities of businesses.
B) while free-rider problems limit the extent to which securities markets finance some
business activities, nevertheless the majority of funds going to businesses are channeled
through securities markets.
C) given the great extent to which securities markets are regulated, free-rider problems
are not of significant economic consequence in these markets.
D) economists do not have a very good explanation for why securities markets are so
heavily regulated.
Answer:
Suppose the U.S. economy is producing at the natural rate of output. A depreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the depreciation
causes no effects in the supply side of the economy.)
A. an increase; an increase
B. a decrease; a decrease
C. no change; an increase
D. no change; a decrease
Answer:
When the price level falls, the ________ curve for nominal money ________, and
interest rates ________, everything else held constant.
A. demand; decreases; fall
B. demand; increases; rise
C. supply; increases; rise
D. supply; decreases; fall
Answer:
Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or
0.10, then the current stock price is
A. $20.
B. $50.
C. $100.
D. $150.
Answer:
The most important developments that reduced banks cost advantages include
A) the growth of the junk bond market.
B) the competition from money market mutual funds.
C) the growth of securitization.
D) the growth in the commercial paper market.
Answer:
Which of the following is included in both M1 and M2?
A. currency
B. savings deposits
C. small-denomination time deposits
D. money market deposit accounts
Answer:
The other checkable deposits component of the M1 measure reported by the Federal
Reserve includes
A. negotiable time deposits.
B. money market mutual fund shares.
C. automatic transfer from savings accounts.
D. money market deposit accounts.
Answer:
Of the four effects on interest rates from an increase in the money supply, the initial
effect is, generally, the
A. income effect.
B. liquidity effect.
C. price level effect.
D. expected inflation effect.
Answer:
Everything else held constant, a decrease in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for
U.S. government bonds.
A. increasing; increasing
B. increasing; decreasing
C. decreasing; increasing
D. decreasing; decreasing
Answer:
Assume you are holding Treasury securities and have sold futures to hedge against
interest-rate risk. If interest rates rise
A. the increase in the value of the securities equals the decrease in the value of the
futures contracts.
B. the decrease in the value of the securities equals the increase in the value of the
futures contracts.
C. both the securities and the futures contracts decrease in value.
D. both the securities and the futures contracts increase in value.
Answer:
Keynes’s liquidity preference theory indicates that the demand for money is
A. constant.
B. positively related to interest rates.
C. negatively related to interest rates.
D. negatively related to bond values.
Answer:
Inflation targets can increase the central bank’s flexibility in responding to declines in
aggregate spending. Declines in aggregate ________ that cause the inflation rate to fall
below the floor of the target range will automatically stimulate the central bank to
________ monetary policy without fearing that this action will trigger a rise in inflation
expectations.
A. demand: tighten
B. demand; loosen
C. supply; tighten
D. supply; loosen
Answer:
The concept of diversification is captured by the statement
A. don’t look a gift horse in the mouth.
B. don’t put all your eggs in one basket.
C. it never rains, but it pours.
D. make hay while the sun shines.
Answer:
If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to
2005 is
A. 20%.
B. 10%.
C. 0%.
D. -10%.
Answer:
________ money could be used for some other purpose other than as a medium of
exchange, for example, gold coins could be melted down and turned into gold jewelry.
A. Commodity
B. Fiat
C. Paper
D. Electronic
Answer:
Studies of the major developed countries show that when businesses go looking for
funds to finance their activities they usually obtain these funds from
A. government agencies.
B. equities markets.
C. financial intermediaries.
D. bond markets.
Answer:
The McFadden Act of 1927
A) effectively prohibited banks from branching across state lines.
B) required that banks maintain bank capital equal to at least 6 percent of their assets.
C) effectively required that banks maintain a correspondent relationship with large
money center banks.
D) separated the commercial banks and investment banks.
Answer:
Interest rates increased continuously during the 1970s. The most likely explanation is
A. banking failures that reduced the money supply.
B. a rise in the level of income.
C. the repeated bouts of recession and expansion.
D. increasing expected rates of inflation.
Answer:
The theory of purchasing power parity cannot fully explain exchange rate movements
in the short run because
A. all goods are identical even if produced in different countries.
B. monetary policy differs across countries.
C. some goods are not traded between countries.
D. fiscal policy differs across countries.
Answer:
The monetary policy strategy that does NOT allow the policy to focus on domestic
considerations is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
The ________ is the final amount that will be paid to the holder of a coupon bond.
A. discount value
B. coupon value
C. face value
D) present value
Answer:
The real interest rate for investments reflects not only the short-term real interest rate
set by the central bank, but also the financial frictions. When the policy rate has hit the
floor of zero, to stimulate the economy at given inflation rates, policymakers can
A. lower the financial frictions.
B. lower the short-term real interest rate.
C. lower both the short-term real interest rate and the financial frictions.
D. lower the policy rate.
Answer:
A tool for managing interest-rate risk that requires exchange of payment streams is a
A. futures contract.
B. forward contract.
C. swap.
D. micro hedge.
Answer: