If investors expect interest rates to fall significantly in the future, the yield curve will be
inverted. This means that the yield curve has a ________ slope.
A) steep upward
B) slight upward
C) flat
D) downward
Answer:
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A) 5 percent.
B) 8 percent.
C) 10 percent.
D) 40 percent.
Answer:
If stock prices are expected to drop dramatically, then, other things equal, the demand
for stocks will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets, but
did not lead to worsening financial market conditions in East Asia in 1997-1998 include
A) rise in interest rates abroad.
B) bankers’ lack of expertise in screening and monitoring borrowers.
C) deterioration of banks’ balance sheets because of increasing loan losses.
D) stock market decline.
Answer:
________ bubble is driven entirely by unrealistic optimistic expectations.
A) An irrational exuberance
B) A credit-driven
C) A stock
D) A debt-driven
Answer:
Complete Milton Friedman’s famous statement, “Inflation is always and everywhere a
________ phenomenon.”
A) recessionary
B) discretionary
C) repressionary
D) monetary
Answer:
Everything else held constant, in the market for reserves, decreases in the interest rate
paid on excess reserves affect the federal funds rate
A) when the funds rate is below the interest rate paid on excess reserves.
B) when the funds rate equals the interest rate paid on excess reserves.
C) when the funds rate is below the discount rate.
D) when the funds rate equals the discount rate.
Answer:
The modern commercial banking system began in America when the
A) Bank of United States was chartered in New York in 1801.
B) Bank of North America was chartered in Philadelphia in 1782.
C) Bank of United States was chartered in Philadelphia in 1801.
D) Bank of North America was chartered in New York in 1782.
Answer:
Equity contracts account for a small fraction of external funds raised by American
businesses because
A) costly state verification makes the equity contract less desirable than the debt
contract.
B) of the reduced scope for moral hazard problems under equity contracts, as compared
to debt contracts.
C) equity contracts do not permit borrowing firms to raise additional funds by issuing
debt.
D) there is no moral hazard problem when using a debt contract.
Answer:
Under a fixed exchange rate regime, if a country’s central bank runs out of international
reserves, it cannot keep its currency from
A) depreciating.
B) appreciating.
C) deflating.
D) inflating.
Answer:
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Keynes believed that changes in autonomous spending were dominated by unstable
fluctuations in ________, which are influenced by emotional waves of optimism and
pessimismfactors he referred to as “animal spirits.”
A) unplanned investment spending
B) actual investment spending
C) planned investment spending
D) autonomous consumer expenditures
Answer:
Holding everything else constant, if interest rates are expected to increase, the demand
for bonds ________ and the demand curve shifts ________.
A) increases; right
B) decreases; right
C) increases; left
D) decreases; left
Answer:
The LM curve will be vertical and fiscal policy ineffective when
A) the demand for money is unaffected by changes in the interest rate.
B) the demand for money is unaffected by changes in income.
C) investment is unaffected by changes in the interest rate.
D) investment is unaffected by changes in income.
Answer:
The quantity theory of inflation indicates that the inflation rate equals
A) the growth rate of the money supply minus the growth rate of aggregate output.
B) the level of the money supply minus the level of aggregate output.
C) the growth rate of the money supply plus the growth rate of aggregate output.
D) the level of the money supply plus the level of aggregate output.
Answer:
The Federal Home Loan Bank Board and the FSLIC, both of which failed in their
regulatory tasks, were abolished by the
A) Competitive Equality Banking Act of 1987.
B) Financial Institutions Reform, Recovery and Enforcement Act of 1989.
C) Office of Thrift Supervision.
D) Office of the Comptroller of the Currency.
Answer:
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:
If ten years ago the prices of the items bought last month by the average consumer
would have been much higher, then one can likely conclude that
A) the aggregate price level has declined during this ten-year period.
B) the average inflation rate for this ten-year period has been positive.
C) the average rate of money growth for this ten-year period has been positive.
D) the aggregate price level has risen during this ten-year period.
Answer:
The Fed’s use of the ________ as an operating target in the 1970s resulted in ________
monetary policy.
A) federal funds rate; countercyclical
B) federal funds rate; procyclical
C) M1 money supply; countercyclical
D) M1 money supply; procyclical
Answer:
The efficient markets hypothesis indicates that investors
A) can use the advice of technical analysts to outperform the market.
B) do better on average if they adopt a “buy and hold” strategy.
C) let too many unexploited profit opportunities go by if they adopt a “buy and hold”
strategy.
D) do better if they purchase loaded mutual funds.
Answer:
The strengthening of the dollar between 1980 and 1985 contributed to a ________ in
American competitiveness, putting pressure on the Fed to pursue a more ________
monetary policy.
A) decrease; contractionary
B) increase; expansionary
C) increase; contractionary
D) decrease; expansionary
Answer:
If an individual uses money from a demand deposit account to purchase a U.S. savings
bond,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 decreases and M2 decreases.
Answer:
The price of a barrel of oil doubled between 2007 and the middle of To make matters
worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the
following is true of the Chinese experience?
A) The worldwide decline in demand led to a collapse of Chinese exports.
B) Instead of relying solely on the economy’s self-correcting mechanism, much more
aggressive fiscal expansions than those of the U.S. (in addition to a substantial
monetary easing) served to shift the AD curve back to general equilibrium relatively
quickly.
C) The Chinese economy was better able than the U.S. economy to weather the
financial crisis with output growth starting to grow earlier and more quickly than that of
the U.S.
D) All of the above.
E) None of the above.
Answer:
According to the household liquidity effect, an expansionary monetary policy causes a
________ in the value of households’ financial assets, causing consumer durable
expenditure to ________.
A) decline; rise
B) rise; rise
C) rise; fall
D) decline; fall
Answer:
Which of the following is most likely to result from a stronger dollar?
A) U.S. goods exported aboard will cost less in foreign countries, and so foreigners will
buy more of them.
B) U.S. goods exported aboard will cost more in foreign countries and so foreigners
will buy more of them.
C) U.S. goods exported abroad will cost more in foreign countries, and so foreigners
will buy fewer of them.
D) Americans will purchase fewer foreign goods.
Answer:
Because Treasury bills pay a higher return than money and have no risk
A) the transactions demand for money may be zero.
B) the precautionary demand for money may be zero.
C) the speculative demand for money may be zero.
D) all three of the above motives for holding money will be zero.
Answer:
If the economy is on the LM curve, but is to the left of the IS curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Answer:
If prices in the bond market become more volatile, everything else held constant, the
demand curve for bonds shifts ________ and interest rates ________.
A) left; rise
B) left; fall
C) right; rise
D) right; fall
Answer:
For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is
A) $10,030.
B) $10,300.
C) $13,000.
D) $13,310.
Answer:
Which of the followings is a duty of the Board of Governors of the Federal Reserve
System?
A) Setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash.
B) Setting the maximum interest rates payable on certain types of time deposits under
Regulation Q.
C) Regulating credit with the approval of the president under the Credit Control Act of
1969.
D) All governors advise the president of the United States on economic policy.
Answer:
In the late 1990s and early 2000s, the Japanese economy has experienced
A) easy monetary policy as indicated by falling nominal interest rates.
B) easy monetary policy as indicated by short-term interest rates near zero.
C) tight monetary policy as indicated by falling asset prices.
D) tight monetary policy as indicated by short-term interest rates near zero.
Answer: