A central bank that does NOT follow the Taylor principle will fail to raise nominal
interest rates by more than the increase in expected inflation. As a result, the monetary
policy curve is ________ sloping and the aggregate demand curve is ________ sloping.
A. upward; downward
B. downward; downward
C. upward; upward
D. downward; upward
Answer:
If reserves in the banking system increase by $100, then checkable deposits will
increase by $400 in the simple model of deposit creation when the required reserve
ratio is
A. 0.01.
B. 0.10.
C. 0.20.
D. 0.25.
Answer:
________ institutions are financial intermediaries that acquire funds at periodic
intervals on a contractual basis.
A. Investment
B. Contractual savings
C. Thrift
D. Depository
Answer:
Probably the most significant factor explaining the drastic drop in the number of bank
failures since the Great Depression has been
A. the creation of the FDIC.
B. rapid economic growth since 1941.
C. the employment of new procedures by the Federal Reserve.
D. better bank management.
Answer:
Everything else held constant, an increase in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Answer:
Everything else held constant, a change in workers’ expectations about inflation will
cause ________ to change.
A. aggregate demand
B. short-run aggregate supply
C. the production function
D. long-run aggregate supply
Answer:
Each Federal Reserve bank has nine directors. Of these ________ are appointed by the
member banks and ________ are appointed by the Board of Governors.
A. three; six
B. four; five
C. five; four
D. six; three
Answer:
Managers (________) may act in their own interest rather than in the interest of the
stockholder-owners (________) because the managers have less incentive to maximize
profits than the stockholder-owners do.
A) principals; agents
B) principals; principals
C) agents; agents
D) agents; principals
Answer:
The advantage of forward contracts over future contracts is that they
A. are standardized.
B. have lower default risk.
C. are more liquid.
D. are more flexible
Answer:
An agreement to exchange dollar bank deposits for euro bank deposits in one month is a
A. spot transaction.
B. future transaction.
C. forward transaction.
D. deposit transaction.
Answer:
Exchange-rate targeting allows a central bank to ________, thus this will ________ the
probability of policy developing a time-inconsistency problem.
A) be governed by a policy rule; decrease
B) follow discretionary policy; decrease
C) be governed by a policy rule; increase
D) follow discretionary policy; increase
Answer:
As the banking system in the United States evolves, it is expected that
A) the number and importance of small banks will increase.
B) the number and importance of large banks will decrease.
C) small banks will grow at the expense of large banks.
D) the number and importance of large banks will increase.
Answer:
On ________, October 19, 1987, the stock market experienced its worst one-day drop
in its entire history with the DJIA falling by 22%.
A. “Terrible Tuesday”
B. “Woeful Wednesday”
C. “Freaky Friday”
D. “Black Monday”
Answer:
Banks hold excess and secondary reserves to
A. reduce the interest-rate risk problem.
B. provide for unexpected deposit outflows.
C. satisfy margin requirements.
D. achieve higher earnings than they can with loans.
Answer:
Suppose that the Federal Reserve enacts expansionary policy. Everything else held
constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to
________.
A. increase; appreciate
B. decrease; appreciate
C. increase; depreciate
D. decrease; depreciate
Answer:
U.S. government bonds have no default risk because
A. they are issued in strictly limited quantities.
B. the federal government can increase taxes or print money to pay its obligations.
C. they are backed with gold reserves.
D. they can be exchanged for silver at any time.
Answer:
Aggregate output is ________ related to autonomous consumer expenditure, and is
________ related to the level of taxes.
A. negatively; negatively
B. negatively; positively
C. positively; negatively
D. positively; positively
Answer:
Which of the following are NOT assets on the Fed’s balance sheet?
a. discount loans
b. U.S. Treasury deposits
c. cash items in the process of collection
d. U.S. Treasury bills
Answer:
The Taylor Principle states that central banks raise nominal rates by ________ than any
rise in expected inflation so that real interest rates ________ when there is a rise in
inflation.
A. less; rise
B. more; fall
C. less; fall
D. more; rise
Answer:
You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A. you inherit $1 million from your Uncle Harry.
B. you expect interest rates to fall.
C. gold becomes more liquid.
D. stock prices are expected to fall.
Answer:
The number and availability of discount brokers has grown rapidly since the mid-1970s.
The efficient markets hypothesis predicts that people who use discount brokers
A. will likely earn lower returns than those who use full-service brokers.
B. will likely earn about the same as those who use full-service brokers, but will net
more after brokerage commissions.
C. are going against evidence suggesting that full-service brokers can help outperform
the market.
D. are likely to outperform the market by a wide margin.
Answer:
The Keynesian framework indicates that government can play an important role in
determining aggregate output by
A. changing the level of government spending or taxes.
B. raising consumer confidence.
C. raising investor confidence.
D. changing the money supply and interest rates.
Answer:
The recent Enron and Tyco scandals are an example of
A) the free-rider problem.
B) the adverse selection problem.
C) the principal-agent problem.
D) the “lemons problem.”
Answer:
If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive
liabilities then
A. an increase in interest rates will reduce bank profits.
B. a decrease in interest rates will reduce bank profits.
C. interest rate changes will not impact bank profits.
D. a decrease in interest rates will increase bank profits.
Answer:
Bonds that are sold in a foreign country and are denominated in the country’s currency
in which they are sold are known as
A. foreign bonds.
B. Eurobonds.
C. equity bonds.
D. country bonds.
Answer:
When financial intermediaries deleverage, firms cannot fund investment opportunities
resulting in
A. a contraction of economic activity.
B. an economic boom.
C. an increased opportunity for growth.
D. a call for government regulation.
Answer:
The condition that states that the domestic interest rate equals the foreign interest rate
minus the expected appreciation of the domestic currency is called
A. the purchasing power parity condition.
B. the interest parity condition.
C. money neutrality.
D. the theory of foreign capital mobility.
Answer:
A person’s house is part of her
A. money.
B. income.
C. liabilities.
D. wealth.
Answer:
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the long
run and ________ in inflation in the short run.
A. an increase; an increase
B. a decrease; a decrease
C. no change; a decrease
D. no change; no change
Answer:
Bonds issued by state and local governments are called ________ bonds.
A. corporate
B. Treasury
C. municipal
D. commercial
Answer:
When an investment bank ________ securities, it guarantees a price for a corporation’s
securities and then sells them to the public.
A. underwrites
B. undertakes
C. overwrites
D. overtakes
Answer:
Assuming the same coupon rate and maturity length, the difference between the yield
on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury
security provides insight into
A. the nominal interest rate.
B. the real interest rate.
C. the nominal exchange rate.
D. the expected inflation rate.
Answer:
Banks hold capital because
A. they are required to by regulatory authorities.
B. higher capital increases the returns to the owners.
C. it increases the likelihood of bankruptcy.
D. higher capital increases the return on equity.
Answer:
Thrift institutions importance as a source of funds for borrowers
A. has shrunk from around 40 percent of total credit advanced in the late 1970s to
below 30 percent by 2014.
B. has shrunk from over 20 percent of total credit advanced in the late 1970s to around
3 percent by 2014.
C. has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 25 percent by 2014.
D. has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 30 percent by 2014.
Answer: