The forward exchange market is
a. used by speculators to turn large profits on a small initial investment
b. used by traders of goods to hedge against exchange rate risk
c. used by traders in international assets to equalize returns between nations
d. all of the above
Answer:
The early Keynesian view of the monetary transmission mechanism was grounded on
a. the role of interest rates in determining the balance of trade
b. the role of market capitalization in determining issuance of new stock
c. the role of interest rates in determining investment expenditures
d. the role of portfolio imbalances in determining the balance of trade
Answer:
A general macroeconomic downturn generally causes velocity of money to
a. remain unchanged, or rise at a rate equal to the trend
b. increase at an above-trend rate
c. decline, or at least rise at a below-trend rate
d. do none of the above
Answer:
The sacrifice ratio is
a. the percentage of one year’s output that a nation must forego in order to reduce
inflation by one percentage point
b. the combined total of the inflation rate and the unemployment rate
c. the percentage decrease in output associated with a one percent increase in the rate of
unemployment
d. characterized by none of the above
Answer:
A feature of FDIC insurance that would work to promote efficiency is
a. zero deposit insurance premiums
b. insuring 100 percent of deposits
c. risk-based deposit insurance premiums
d. none of the above
Answer:
The incumbent president announces a future tax cut in order to stimulate consumer
spending, but instead raises taxes. This is an example of
a. the political business cycle
b. the recognition lag
c. the time inconsistency problem
d. all of the above
Answer:
One example of an instant credit line is
a. a credit card loan
b. a bank overdraft arrangement
c. both of the above
d. neither of the above
Answer:
If inflation turns out to be higher than expected
a. wealth will be redistributed from debtors to creditors
b. wealth will be redistributed from creditors to debtors
c. inflation will be neutral
d. all of the above
Answer:
If nominal GDP = $8,000 billion and the price level = 2.0, while the money stock =
$2,000 billion, then velocity must equal
a. 8
b. 6
c. 4
d. 2
Answer:
Corporate bonds:
a. are issued by thousands of U.S. corporations
b. cannot be resold once purchased
c. allow the holder to share in the earnings of the firm
d. represent partial ownership of a business enterprise
Answer:
In a weighted monetary aggregate, which of the assets listed below would likely receive
the least weight?
a. Treasury bonds
b. bankers’ acceptances
c. currency
d. money market mutual fund shares
Answer:
Accounts maintained at commercial banks by the U.S. Treasury
a. are not directly used for payment of salaries, tax refunds, and government purchases
b. are maintained to minimize infringement on the Fed’s control of the money stock
c. are called Tax and Loan accounts
d. all of the above are true
Answer:
An increase in expected inflation:
a. reduces the real return from lending at a given nominal interest rate, reducing lending
b. causes a rightward shift in the demand curve and a leftward shift of the supply of
loanable funds, thereby raising interest rates
c. reduces the real cost of borrowing at a given nominal interest rate, stimulating
borrowing
d. does all of the above
Answer:
Which of the following factors would reduce the actual deposit expansion multiplier?
a. the desire of banks to hold excess reserves
b. the desire of individuals to hold less cash
c. elimination of the reserve requirement
d. a reduction in the reserve requirement percentage
Answer:
The tremendous growth in the government budget deficit cannot be attributed to:
a. an increase in defense expenditures
b. a reduction in federal expenditures
c. supply-side tax cuts
d. all of the above
Answer:
Which of the following may indicate the existence of a stock market bubble?
a. an abnormally low PE ratio
b. an abnormally low dividend yield
c. an abnormally low price-to-book ratio
d. none of the above
Answer:
A recession characterized by stagflation must be predominantly caused by changes to
the ____ side of the economy.
a. supply
b. demand
c. both the demand and supply sides of the economy, together
d. not enough information is given to answer the question
Answer:
As a general rule, monetarists suggest that the most appropriate intermediate target for
the Fed to choose is
a. a money supply target
b. an interest rate target
c. both of the above
d. neither of the above
Answer:
In the loanable funds model, which of the following would lead to a reduction in
interest rates?
a. a cutback in federal entitlement expenditures
b. announcement of a surge in the money supply
c. an increase in business confidence
d. an increase in the public’s propensity to consume
Answer:
Suppose that during the week of April 15 the Treasury receives tax payments totaling
$600 million. To neutralize the impact of this fiscal action on the monetary base, the
Treasury will
a. increase its Treasury holdings of cash by $600 million
b. transfer $600 million from its account at the Fed to its tax and loan accounts
c. transfer $600 million from its tax and loan accounts to its account at the Fed
d. do none of the above
Answer:
Suppose that the Okun’s Law relationship is given by the following:
(GDP – GDPpotential)/GDP = 2(U – 5%). Then, if today’s unemployment rate is 3
percent,
a. output will be at potential
b. output will be above potential by 2 percent
c. output will be below potential by 4 percent
d. none of the above is true
Answer:
A glance at history indicates that most major legislation affecting the financial sector of
the U.S. economy
a. was forward-looking, drafted to head off anticipated new problems
b. was backward-looking, drafted in response to past problems or crises
c. has been unambiguously beneficial and has not introduced new problems
d. none of the above is true
Answer:
The act permitting freedom of bank merging is known as
a. the Depository Institutions Deregulation and Monetary Control Act
b. the McFadden Act
c. the Riegle-Neal Act
d. none of the above–there is no such legislation
Answer:
Assuming that banks rid themselves of all excess reserves, and assuming the reserve
requirement is 10 percent, then if the Fed buys $10 million of securities from the public,
deposits in the banking system will ultimately expand by
a. $1 million
b. $10 million
c. $90 million
d. $100 million
Answer:
Velocity provides
a. a link between money and nominal GDP
b. a link between money and interest rates
c. a link between interest rates and inflation
d. a link between inflation and unemployment
Answer:
Which of the following statements is correct?
a. m = M/(R + Cp)
b. m = (DDO + Cp)/B
c. M = m x B
d. all of the above
Answer:
According to Keynes, an increase in the money supply
a. raises interest rates
b. increases the number of potentially profitable investment projects
c. does not tend to stimulate investment spending
d. does none of the above
Answer:
The two sides of the Federal Reserve’s dual mandate imply that the Fed should focus on
maintaining
a. price stability
b. maximum sustainable employment
c. both of the above
d. neither of the above
Answer:
Which of the following statements is true?
a. When the money supply rises, investment tends to rise.
b. When the money supply rises, interest rates tend to fall.
c. When the money supply rises, GDP tends to rise.
d. All of the above are true.
Answer:
The “too big to fail” policy
a. compounded the moral hazard problem
b. reduced the equity stake in many financial institutions
c. tacitly raised federal deposit insurance thresholds for certain institutions
d. did all of the above
Answer:
A depreciation of the U.S. dollar in foreign exchange markets is likely to cause
a. aggregate demand to increase
b. aggregate demand to decrease
c. aggregate supply to increase
d. aggregate supply to decrease
Answer:
The smallest component of GDP expenditures is
a. consumption expenditures
b. net exports
c. investment expenditures
d. government expenditures
Answer:
Strong inflationary pressures and rising output following the end of World War II were
caused by
a. strong fiscal stimulus only
b. strong monetary stimulus only
c. strong fiscal and monetary stimulus
d. neither monetary nor fiscal stimulus
Answer:
Perhaps most in conflict with the public interest are bank mergers based on
a. economics of scope
b. economies of scale
c. market power
d. diversification
Answer: