Holding many risky assets and thus reducing the overall risk an investor faces is called
A) diversification.
B) foolishness.
C) risk acceptance.
D) capitalization.
Answer:
Everything else held constant, aggregate demand increases when
A) taxes are cut.
B) government spending is reduced.
C) animal spirits decrease.
D) the money supply is reduced.
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:
If the interest rate on a bond is above the equilibrium interest rate, there is an excess
________ for bonds and the bond price will ________.
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
Answer:
Under the Basel Accord, assets and off-balance sheet activities were sorted according to
________ categories with each category assigned a different weight to reflect the
amount of ________.
A) 2; adverse selection
B) 2; credit risk
C) 4; adverse selection
D) 4; credit risk
Answer:
The monetary policy strategy that provides the least accountability is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
The Fed can exert more precise control over ________ than it can over ________.
A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money
Answer:
An increase in the expected inflation rate will ________ the ________ for gold,
________ its price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) increase; supply; increasing
D) decrease; supply; increasing
Answer:
Purchases and sales of government securities by the Federal Reserve are called
A) discount loans.
B) federal fund transfers.
C) open market operations.
D) swap transactions.
Answer:
An individual’s annual salary is her
A) money.
B) income.
C) wealth.
D) liabilities.
Answer:
A central feature of monetary policy strategies in all countries is the use of a nominal
variable that monetary policymakers use as an intermediate target to achieve an ultimate
goal such as price stability. Such a variable is called a nominal
A) anchor.
B) benchmark.
C) tether.
D) guideline.
Answer:
When the value of the dollar changes from £0.75 to £0.5, then the British pound has
________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Answer:
With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7
percent over the coming year, the expected return on dollar deposits in terms of the
dollar is
A) 3 percent.
B) 10 percent.
C) 5 percent.
D) 17 percent.
Answer:
Compared to interest rates on long-term U.S. government bonds, interest rates on
three-month Treasury bills fluctuate ________ and are ________ on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to decrease and the domestic currency to ________, everything else
held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer:
Which of the following is NOT an entity of the Federal Reserve System?
A) Federal Reserve Banks
B) The Comptroller of the Currency
C) The Board of Governors
D) The Federal Open Market Committee
Answer:
The policy of ________ exacerbated ________ problems as savings and loans took on
increasingly huge levels of risk on the slim chance of returning to solvency.
A) regulatory forbearance; moral hazard
B) regulatory forbearance; adverse hazard
C) regulatory agnosticism; moral hazard
D) regulatory agnosticism; adverse hazard
Answer:
In this type of arrangement, any balances above a certain amount in a corporation’s
checking account at the end of the business day are “removed” and invested in
overnight securities that pay the corporation interest. This innovation is referred to as a
A) sweep account.
B) share draft account.
C) removed-repo account.
D) stockman account.
Answer:
A decrease in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Answer:
Which of the following $1,000 face-value securities has the lowest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900
Answer:
In the Keynesian liquidity preference framework, an increase in the interest rate causes
the demand curve for money to ________, everything else held constant.
A) shift right
B) shift left
C) stay where it is
D) invert
Answer:
The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A) depreciate.
B) appreciate.
C) float.
D) do none of the above.
Answer:
Kevin purchasing concert tickets with his debit card is an example of the ________
function of money.
A) medium of exchange
B) unit of account
C) store of value
D) specialization
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
1%, increasing the interest rate paid on excess reserves from 1% to 2%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Answer:
Which of the following accurately summarize the empirical evidence about technical
analysis?
A) Technical analysts fare no better than other financial analysison average they do not
outperform the market.
B) Technical analysts tend to outperform other financial analysis, but on average they
nevertheless under-perform the market.
C) Technical analysts fare no better than other financial analysis, and like other
financial analysts they outperform the market.
D) Technical analysts fare no better than other financial analysis, and like other
financial analysts they under-perform the market.
Answer:
Which of the following are not contractual savings institutions?
A) Life insurance companies
B) Credit unions
C) Pension funds
D) State and local government retirement funds
Answer:
A serious consequence of a financial crisis is
A) a contraction in economic activity.
B) an increase in asset prices.
C) financial engineering.
D) financial globalization.
Answer:
A decline in the money ________ shifts the LM curve to the ________, causing the
interest rate to rise and output to fall, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
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:
If the yield curve slope is flat for short maturities and then slopes steeply upward for
longer maturities, the liquidity premium theory (assuming a mild preference for
shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) constant short-term interest rates in the near future and a decline further out in the
future.
Answer:
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes
equals $50, and the mpc equals 0.9.
Equilibrium output is reduced by an increase in
A) planned investment.
B) taxes.
C) government spending.
D) net exports.
Answer:
Everything else held constant, a decrease in the cost of production ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply
Answer:
When Americans or foreigners expect the return on ________ assets to be high relative
to the return on ________ assets, there is a higher demand for dollar assets and a
correspondingly lower demand for foreign assets.
A) dollar; dollar
B) dollar; foreign
C) foreign; dollar
D) foreign; foreign
Answer:
In its earliest years, the Federal Reserve’s guiding principle for the conduct of monetary
policy was known as the
A) real bills doctrine.
B) liberal liquidity doctrine.
C) free reserves doctrine.
D) quantity theory of money.
Answer: