Which of the following are positively or directly related?
a. liquidity and yield
b. risk and yield
c. risk and liquidity
d. none of the above
Answer:
An increase in market interest rates will cause the excess reserve ratio to ____ and the
multiplier to ____.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
Answer:
The lack of a source of emergency reserves to the banking system
a. was responsible for numerous financial panics at the turn of the century
b. prompted creation of the Federal Reserve
c. often induced painful multiple contractions of deposits
d. contributed to all of the above
Answer:
Monetarists argue that, prior to the 1980s,
a. the Fed stabilized output more than it does today
b. the Fed stabilized output less than it does today
c. there has been no change in the Fed’s stabilizing of output
d. not enough information is given to answer the question
Answer:
A strong appreciation of the U.S. dollar, such as occurred during 1980-1985, has the
following consequences:
a. it tends to hurt foreign export firms trying to compete in the United States
b. it tends to reduce the U.S. trade deficit
c. it tends to reduce U.S. inflation
d. none of the above
Answer:
In countries with an inflation targeting regime, lower inflation tends to be paid for with
____ during the transitional period.
a. slower output growth
b. higher unemployment rates
c. both of the above
d. neither of the above
Answer:
If interest rates were to increase dramatically next year, S&Ls would not likely suffer
losses nearly as large as they did in the late 1980s and early 1990s because
a. the moral hazard problem is lower–S&Ls have more of their own equity at stake
today
b. the spread would fall more sharply than in the earlier period
c. S&Ls would jack up their new mortgage rates more quickly
d. all of the above would occur
Answer:
The largest volume of activity in foreign exchange markets is related to
a. exports and imports
b. firms building plants abroad
c. government transactions abroad
d. international flows of financial capital
Answer:
Reagan’s tax program of the 1980s was designed to
a. stimulate aggregate demand
b. stimulate aggregate supply
c. constrain aggregate demand
d. constrain aggregate supply
Answer:
Financial intermediaries:
a. generally borrow long-term and lend short-term
b. increase the problems of asymmetric information by adding another layer to the
savings-investment process
c. reduce risk by allowing for greater diversification
d. all of the above
Answer:
When a foreign government buys a jet aircraft from Boeing Company in Seattle with a
check drawn on its account at the Federal Reserve,
a. B decreases but R remains unchanged
b. R and B increase
c. R and B decrease
d. R increases but B remains unchanged
Answer:
The tool of open market operations allows the Fed to most accurately control
a. bank reserves and the monetary base
b. government bond yields
c. M1 and M2
d. unemployment and inflation
Answer:
Deferred availability cash items
a. are assets to the Fed
b. correspond to cash items in the process of collection on the Fed’s balance sheet
c. both of the above
d. neither of the above
Answer:
In the example in the text, Prudential Bank had a more liquid asset structure than
Imprudent Bank because Prudential Bank’s
a. marketable securities/total assets ratio was higher
b. capital/total assets ratio was lower
c. loans/total assets ratio was higher
d. total assets/total liabilities ratio was higher
Answer:
The monetary base
a. equals bank reserves plus currency held by the public
b. is the ratio of the money supply to the money multiplier
c. represents the net monetary liabilities of the monetary authorities
d. is represented by all of the above
Answer:
Antifederalist philosophy
a. believed that the path to greatest prosperity was through agriculture
b. strongly opposed the idea of a central bank
c. was suspicious of the commingling of finance and industry
d. involved all of the above
Answer:
In the short run:
a. bonds and stocks are equally risky
b. bonds are riskier than stocks
c. stocks are riskier than bonds
d. there is no consensus on the relative risk of stocks and bonds
Answer:
The strength and speed of the self-correcting mechanism relies on
a. the flexibility of wages and prices
b. the speed of the Fed’s response to shocks
c. the sensitivity of investment to interest rate changes
d. all of the above
Answer:
In the system of reserve requirements currently in place, the Fed makes life somewhat
easier for banks by allowing them to
a. average their reserve position over a two-week settlement period
b. carry over some excess or deficient reserves for one period
c. do both of the above
d. do neither of the above
Answer:
Today, our money serves as money only because it is:
a. partially backed by gold
b. fully backed by gold
c. declared to be legal tender
d. commonly acceptable as a means of payment
Answer:
Net suppliers of loanable funds in the U.S. are:
a. business firms and foreigners
b. business firms and households
c. government and business firms
d. foreigners and households
Answer:
Shocks that contributed to the S&L and commercial bank financial problems of the
1980s include
a. the decline of farm values
b. the oil price collapse in the mid-1980s
c. the severe recession of 1981-1982
d. all of the above
Answer:
Some inflation-targeting countries specify escape clauses so that the central bank can
deal with adverse
a. demand shocks
b. supply shocks
c. both of the above
d. neither of the above
Answer:
Commercial paper is:
a. a debt instrument
b. a money market instrument
c. issued by only a small minority of firms
d. all of the above
Answer:
One factor that helps explain the cyclical behavior of the velocity of money is the
following:
a. during expansions, permanent income exceeds current income
b. during expansions, money demand rises faster than income
c. interest rates fall in expansions and rise in recessions
d. interest rates rise in expansions and fall in recessions
Answer:
If the Fed adopts a 4 percent money growth rule and the economy experiences a 6
percent drop in velocity over the next year,
a. a recession is likely
b. nominal GDP will fall by 2 percent
c. deflation is possible
d. all of the above may occur
Answer:
The textbook indicates that the long-run trend of velocity in a large number of countries
is characterized by
a. a long and continuous upward trend of velocity
b. a long and continuous downward trend of velocity
c. a W-shaped pattern–that is, a series of ups and downs with no long-term trend
d. a U-shaped or V-shaped pattern
Answer:
Over time, the nature of bank deposits has shifted away from volatile demand deposits
toward stable time deposits. Banks have responded to this by ____ their desired excess
reserve ratio; ceteris paribus, this causes the multiplier to ____.
a. increasing; increase
b. decreasing; decrease
c. increasing; decrease
d. decreasing; increase
Answer:
The Federal Home Loan Bank Board
a. was annexed into the Office of the Comptroller of the Currency
b. still has chartering, supervisory, and regulatory responsibilities
c. was replaced by the Office of Thrift Supervision
d. none of the above
Answer:
An American importer of Japanese cameras might want to purchase yen in the forward
exchange market in order to hedge against a possible future
a. depreciation of the forward yen
b. depreciation of the spot yen
c. appreciation of the forward yen
d. appreciation of the spot yen
Answer:
The largest component of GDP expenditures is
a. net exports
b. investment expenditures
c. government expenditures
d. consumption expenditures
Answer:
Which theory of term structure asserts that lenders and borrowers have very strong
preferences for particular maturities?
a. segmented markets theory
b. preferred habitat theory
c. liquidity premium theory
d. pure expectations theory
Answer: