Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the
velocity of money?
A) 0.143
B) 7
C) 12
D) 28
Answer:
The process by which investment banks guarantee a certain price to a firm issuing
stocks or bonds is known as:
A) underwriting
B) securitization
C) proprietary trading
D) microlending
Answer:
In a simple model of the economy, if the MPC is 0.8, the multiplier will equal
A) 0.2
B) 0.8
C) 1.25
D) 5
Answer:
Vault cash is a(an)
A) liability of the Fed and is counted as reserves.
B) asset of the Fed and is counted as reserves.
C) liability of the Fed and is not counted as reserves.
D) asset of the Fed and is not counted as reserves.
Answer:
What happened to real interest rates during the early 1930s?
A) They declined as nominal interest rates declined.
B) They rose as nominal interest rates rise.
C) They declined due to deflation.
D) They rose due to deflation.
Answer:
Requirements for information disclosure for firms that desire to sell securities in
financial markets
A) are very common in industrialized countries, including the United States.
B) are common in other industrialized countries, but have not yet been adopted in the
United States.
C) have been adopted in the United States, but have not yet been adopted in other
industrialized countries.
D) have yet to be adopted in the United States or other industrialized countries.
Answer:
Financial markets
A) channel funds indirectly between borrowers and lenders.
B) channel funds directly from lenders to borrowers.
C) act as go-betweens by holding a portfolio of assets and issuing claims based on that
portfolio to savers.
D) generally provide lenders with lower returns than do financial intermediaries.
Answer:
The efficient markets hypothesis implies that stock investments should have the same
expected return after adjusting for
A) risk.
B) information costs.
C) liquidity.
D) all of the above.
Answer:
The purpose of collateral and restrictive covenants is to reduce ________ in debt
contracts.
A) adverse selection
B) transactions costs
C) moral hazard
D) loan amounts
Answer:
All of the following are names for bonds receiving low ratings EXCEPT:
A) junk
B) garbage
C) high yield
D) speculative
Answer:
An investor who is considering hedging by selling Treasury futures can also hedge by:
A) buying Treasury put options
B) selling Treasury put options
C) buying Treasury call options
D) buying European Treasury options
Answer:
An investor who desired the ability to have quick and easy access to cash would prefer
to hold which type of asset?
A) risky
B) liquid
C) tax free
D) any form of bond
Answer:
The IS curve depicts the relationship between
A) aggregate output and the real interest rate.
B) investment demand and the real interest rate.
C) investment demand and the level of current output.
D) national saving and the level of current output.
Answer:
High employment spurs economic growth because high employment
A) usually reduces inflation.
B) discourages foreign imports.
C) often leads to a high birth rate.
D) often leads to high rates of investment.
Answer:
If the coefficient a in the new classical expression for short-run aggregate supply were
equal to zero,
A) aggregate output would always be at its full-employment level.
B) the short-run aggregate supply curve would slope down.
C) the short-run aggregate supply curve would be a horizontal line.
D) aggregate output would only differ from its full-employment level if the actual price
level did not equal the expected price level.
Answer:
Which of the following is the most important source of external financing for
corporations?
A) stock market
B) bond market
C) retained earnings
D) mortgages
Answer:
By how much did real GDP decline between 1929 and 1933?
A) 18%
B) 20%
C) 27%
D) 81%
Answer:
The Fed uses operating targets as well as intermediate targets because
A) the Federal Reserve Act of 1913 requires it to do so.
B) the Fed controls intermediate targets only indirectly.
C) the public is much more unfamiliar with the variables used as operating targets, so
for policy to be effective intermediate targets must also be announced.
D) if one set of targets proves ineffective in attaining policy goals, the other set is
available.
Answer:
Which of the following statements is true?
A) The more liquid the bond, the lower the yield.
B) Tax-free bonds normally have a higher interest rate than other types of bonds.
C) The price of a bond increases as it becomes more risky.
D) The yield curve illustrates the relative default risks of alternative types of bonds.
Answer:
The inflation gap can best be described as:
A) the percentage difference between GDP and its potential
B) the difference between inflation and its target
C) the change in the inflation rate from one year to the next
D) the difference between the inflation rate and the average inflation rate of that of the
nations with the 3 lowest inflation rates
Answer:
The main reason why banks are the leading source of external finance for businesses is
A) the interest rates on bank loans are usually lower than interest rates on corporate
bonds.
B) banks have an information-cost advantage in reducing adverse selection problems.
C) interest paid on bank loans is deductible against the corporate income tax, whereas
interest paid on corporate bonds is not.
D) government regulators encourage small businesses to obtain funding from banks.
Answer:
Which firm did the Treasury allow to fail during the financial crisis?
A) J.P. Morgan
B) Bear Stearns
C) Lehman Brothers
D) American International Group (AIG)
Answer:
Congress authorized a second Bank of the United States partly in response to:
A) difficulty in funding the American Revolution
B) difficulty in funding the War of 1812
C) difficulty in funding the Industrial Revolution
D) difficulty in funding the Civil War
Answer:
Most economists believe that the short-run aggregate supply curve
A) slopes down.
B) slopes up.
C) is a vertical line.
D) is a horizontal line.
Answer:
Due in part to record low interest rates on U.S. Treasury Bonds,
A) investors searching for higher yields bought corporate bonds
B) interest rates on corporate bonds rose
C) corporations faced higher borrowing costs
D) many corporations were at greater risk of defaulting
Answer:
What percentage of all banks in the United States belong to the Federal Reserve
System?
A) 5%
B) 38%
C) 75%
D) 90%
Answer:
If the expected gains on stocks rise, while the expected returns on bonds do not change,
then
A) the demand curve for bonds will shift to the left.
B) the supply curve for loanable funds will shift to the right.
C) the demand curve for loanable funds will shift to the left.
D) the equilibrium interest rate will fall.
Answer:
An advantage of a swap over futures and options is that
A) they can be written for long periods.
B) they are more liquid.
C) they carry less default risk.
D) there is no need to assess the creditworthiness of participants.
Answer:
All of the following are consequences of adverse selection on good firms EXCEPT
A) the cost of external financing increases.
B) firms need to rely more on internal funds.
C) firms need to rely more on accumulated profits.
D) firms will only be able to attain financing from the government.
Answer:
Finance companies
A) take in deposits from savers and make loans to borrowers.
B) sell commercial paper and securities and make loans to borrowers with the funds.
C) take in deposits from savers and purchase assets with the funds.
D) bring together small savers and large borrowers.
Answer:
Discount loans intended for banks that are not financially healthy are called
A) primary credit.
B) secondary credit.
C) seasonal credit.
D) repo loans.
Answer:
Which of the following things do banks do with the funds they acquire from savers?
A) invest in corporate stock
B) invest in corporate bonds
C) make loans to individuals
D) all of the above
Answer: