The government’s role of lender of last resort is directed to:
A. large manufacturing firms that employ thousands of people.
B. depositors; this is role the government plays when they insure depositors’ balances
in banks that fail.
C. developing countries that are trying to build their financial systems.
D. banks that experience sudden deposit outflows.
Answer:
The Gramm-Leach-Bliley Act:
A. repealed the Riegle-Neal Interstate Banking and Branching Efficiency Act.
B. repealed the Glass-Steagall Act’s prohibition of mergers between commercial banks
and insurance or securities firms.
C. repealed the McFadden Act’s restriction on bank branching.
D. reinforced the Glass-Steagall Act’s limitation on commercial banks’ availability to
merge with insurance or securities firms by increasing the penalties for doing so.
Answer:
For many of the countries that made up the Soviet Union, the period immediately
following the collapse of the Soviet Union in 1990 found these countries experiencing
extremely high rates of inflation. To solve this problem, a number of countries:
A. turned the authority to print money over to an independent central bank.
B. imposed price controls.
C. devalued their currencies.
D. returned to a gold standard.
Answer:
The Federal Reserve Act explicitly requires that the Board of Governors represents each
of the following, except:
A. commercial interests.
B. foreign interests.
C. financial interests.
D. agricultural interests.
Answer:
Based on the membership of the Eurosystem in 2014, the median country is likely to
be:
A. very large.
B. fairly small.
C. Italy.
D. growing more rapidly than the others.
Answer:
Based on the analysis of the equation of exchange, Irving Fisher, derived the quantity
theory of money which states that:
A. velocity changes always offset changes in the supply of money.
B. changes in the aggregate price level are caused solely by changes in velocity.
C. changes in the aggregate price level are caused solely by changes in the quantity of
money.
D. none of the answers given is correct.
Answer:
Many health insurers require a deductible where the policyholder pays the first part of
any loss. The use of a deductible most directly treats the problem of:
A. free riding.
B. adverse selection.
C. people going uninsured.
D. moral hazard.
Answer:
Key assumptions behind the quantity theory of money include:
A. the money supply is fixed.
B. the velocity of money is constant.
C. the percentage change in the price level equals the percentage change in real GDP.
D. the change in nominal GDP is zero.
Answer:
The Federal Deposit Insurance Corporation (FDIC) was created:
A. in 1933 as a part of the Glass-Steagall Act.
B. when the Federal Reserve was created in 1914.
C. prior to the stock market crash of 1929.
D. in 1927 as a part of the McFadden Act.
Answer:
During the Vietnam War, monetary policy officials reacted to the increases in aggregate
demand resulting from military expenditures by:
A. not shifting the monetary policy reaction function.
B. dramatically slowing money growth.
C. shifting the monetary policy reaction curve to the left.
D. keeping the same inflation target and raising the real interest rates.
Answer:
Which of the following is not considered to be a shadow bank?
A. Credit unions
B. Brokerages
C. Insurers
D. Money-market mutual funds
Answer:
If the equation of exchange is MV = PY the Y represents:
A. nominal GDP.
B. real GDP.
C. potential output.
D. economic growth.
Answer:
For a three-year period from October 1979 to October 1982; the FOMC:
A. primarily targeted reserves.
B. primarily targeted the real federal funds interest rate.
C. primarily targeted M2.
D. gave up targeting reserves entirely.
Answer:
In theory, lower real interest rates will tend to cause all but which of the following to
increase?
A. Consumption spending
B. Investment spending
C. Net exports
D. Government spending
Answer:
If foreigners are restricted in their ability to sell investments in a country then that
government is imposing:
A. controls on capital inflows.
B. controls on capital outflows.
C. controls on both capital inflows and outflows.
D. fixed exchange rates.
Answer:
Often times we see companies offering money back guarantees to customers if they are
not satisfied. These guarantees are a way to treat the problem of:
A. buyers having more information about the product than the seller.
B. the seller having more information about the product than the buyer.
C. symmetric information.
D. adverse selection.
Answer:
Between 1997 and mid-2013, U.S. policymakers intervened in the foreign exchange
markets:
A. almost constantly.
B. twice.
C. never.
D. once a year.
Answer:
One reason that financial regulations restrict the assets that banks can own is to:
A. combat the moral hazard that government safety nets provide.
B. limit the growth rate of banks.
C. prevent banks from being too profitable.
D. keep banks from spending lavishly on perks for executives.
Answer:
A central bank holds foreign exchange reserves for:
A. diversification purposes.
B. foreign exchange interventions.
C. safekeeping.
D. diversification and safekeeping.
Answer:
A cross-country analysis of money growth shows that the growth rate in the money
supply was:
A. lower in countries with lower inflation rates.
B. higher in countries with lower inflation rates.
C. lower in countries with higher inflation rates.
D. the same whether the countries had high or low inflation rates.
Answer:
Depreciation of the real exchange rate:
A. makes U.S. exports more expensive to foreigners.
B. makes U.S. exports less expensive to foreigners.
C. means a basket of U.S. goods would exchange for more foreign goods.
D. means an appreciation of the nominal exchange rate.
Answer:
A flight to quality should result in the:
A. price of U.S. Treasury Securities rising and the price of corporate bonds rising.
B. yield on U.S. Treasury Securities falling and the price of corporate bonds rising.
C. yield on corporate bonds falling and the price of U.S. Treasury Securities rising.
D. yield on U.S. Treasury securities falling and the price of corporate bonds falling.
Answer:
When healthy banks fail due to widespread bank panics, those who are likely to be hurt
are:
A. government regulators.
B. households and small businesses.
C. the FDIC.
D. the Federal Reserve.
Answer:
The ECB’s Governing Council has price stability as a primary objective. It has defined
price stability as:
A. a zero rate of inflation.
B. an inflation rate less than 5 percent.
C. an inflation rate below, but close to, 2 percent over the medium term.
D. an inflation rate in the three to five percent range.
Answer:
Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its
capital by $1 million and its assets by $10 million, then the bank’s:
A. risk increases and its leverage decreases.
B. liabilities decrease and its leverage increases.
C. leverage decreases and its liabilities increase.
D. leverage and risk increases.
Answer:
The CAMELS ratings are:
A. made public monthly to the financial markets so people can judge the relative
quality of banks.
B. published once a quarter in banking journals issued by the Federal Reserve.
C. included in the annual report of publicly owned banks.
D. not made public.
Answer:
The aggregate demand curve shows the quantity of:
A. nominal output demanded at each level of inflation.
B. real output demanded at each level of inflation.
C. output made available at each level of inflation.
D. real output demanded at each level of real interest rate.
Answer:
When Argentina fixed the exchange rate of their peso to the U.S. dollar, one outcome
was:
A. Argentinean central bankers regained control of their domestic interest rate.
B. Argentinean central bankers were finally able to focus their attention on domestic
monetary policy.
C. Argentinean central bankers effectively gave control of their domestic interest rate
to the FOMC.
D. Argentineans began using the U.S. dollar for all of their transactions.
Answer:
Secondary financial markets:
A. are financial markets for all financial instruments rated less than investment grade.
B. are financial markets where existing securities are bought and sold.
C. eliminate the transaction costs for buyers and sellers.
D. are only for stock.
Answer:
Which of the following statements is most true concerning economic policy in the
U.S.?
A. Monetary policymakers tend to have a long view while fiscal policymakers tend to
ignore the long-run inflationary ramifications of their actions.
B. Fiscal policymakers tend to focus on inflation and unemployment while monetary
policymakers focus most of their attention on the money supply and the exchange rate.
C. Fiscal policymakers tend to focus more on pleasing their constituents and so are
willing to sacrifice the short run for the long run.
D. Monetary policy independence is enshrined in the U.S. Constitution.
Answer:
Which of the following statements is not true of the yield curve for U.S. Treasury
securities?
A. The yield curve usually slopes upward.
B. The yield curve usually is inverted.
C. The yield curve shows the relationship among securities of different maturities.
D. The yield curve can shift over time.
Answer:
Whole life insurance has decreased in popularity due to:
A. many whole life insurance companies becoming bankrupt.
B. cheaper savings alternatives that have developed, making whole life policies
expensive savings vehicles.
C. mergers with property and casualty companies, raising the cost of all insurance.
D. lower interest rates on alternative savings vehicles.
Answer:
If it is the real rate of interest that savers and borrowers respond to, how does the Fed
impact a real rate by targeting a nominal rate of interest?
Answer:
How useful is M2 in tracking inflation? Explain.
Answer:
Briefly describe the foreign exchange market.
Answer:
Answer:
Explain why a riskier asset offers a higher expected return.
Answer:
We have a futures contract for the purchase of 10,000 bushels of wheat at $3.00 per
bushel. If the price of wheat were to increase to $3.50, explain what happens to the
parties involved in the contract in terms of marking to market. Be sure to identify who
is long and short and specifically how much is transferred.
Answer:
If reserves pay interest below the market federal funds rate, why would a bank hold any
excess reserves?
Answer:
Why does the theory of efficient markets imply that stock price movements are
unpredictable?
Answer:
Explain the following: Risk results from the fact that more outcomes could happen than
will happen.
Answer:
If buyers cannot distinguish a good used car, worth $15,000, from a “lemon,” worth
$5000; explain what will happen to the market for used cars.
Answer:
Explain how the asset-price channel of monetary policy works in real estate markets.
Answer:
The primary difference among various kinds of depository institutions is in the
composition of their loan portfolios. Agree or disagree? Explain.
Answer:
Consider two barter economies: Duos and Varietas. Duos produces two different goods,
whereas Varietas produces 80 different goods. Both countries have the same number of
people. In which barter economy is it more likely that the means of payment and the
units of account would be efficient? How many relative prices are there in Duos
compared with Varietas? Which economy would benefit more from adopting money?
Answer:
How does trading in over-the-counter markets increase systemic risk?
Answer:
How did the gold standard contribute to the spreading of the Great Depression of the
1930s?
Answer: