If a central bank does not want to allow the domestic currency to appreciate, it will
________ international reserves by selling its currency, thereby ________ the monetary
base and increasing the risk of higher inflation.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
Answer:
The efficient markets hypothesis suggests that investors
A. should purchase no-load mutual funds which have low management fees.
B. can use the advice of technical analysts to outperform the market.
C. let too many unexploited profit opportunities go by if they adopt a “buy and hold”
strategy.
D. act on all “hot tips” they hear.
Answer:
Which of the following is a TRUE statement?
A. Money or the money supply is defined as Federal Reserve notes.
B. The average price of goods and services in an economy is called the aggregate price
level.
C. The inflation rate is measured as the rate of change in the federal government budget
deficit.
D. The aggregate price level is measured as the rate of change in the inflation rate.
Answer:
The increase in the availability of ATMs has caused the cost of acquiring currency to
________ which will cause the currency ratio to ________, everything else held
constant.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
Answer:
Which of the following instruments are traded in a money market?
A. state and local government bonds
B. U.S. Treasury bills
C. corporate bonds
D. U.S. government agency securities
Answer:
Microprudential supervision focuses on the safety and soundness of
A. individual financial institutions.
B. the financial system as a whole.
C. the shadow banking system.
D. government credit agencies.
Answer:
Everything else held constant, when the current value of the domestic exchange rate
increases, the ________ of domestic assets ________.
A. quantity supplied; does not change
B. supply; decreases
C. quantity supplied; increases
D. supply; increases
Answer:
If a foreign bank operates a subsidiary bank in the U.S., the subsidiary bank is
A) subject to the same regulations as a U.S. owned bank.
B) only subject to the regulations of the country in which the foreign bank is chartered.
C) restricted to making loans to only foreign citizens in the U.S.
D) restricted to accepting deposits from foreign citizens living in the U.S.
Answer:
Under the Global Legal Settlement of 2002, the provision that requires, for a period of
five years, brokerage firms to contract with independent research firms to provide
information to their customers is an example of
A. regulate for transparency.
B. supervisory oversight.
C. separation of functions.
D. socialization of information production.
Answer:
High interest rates might ________ purchasing a house or car but at the same time high
interest rates might ________ saving.
A. discourage; encourage
B. discourage; discourage
C. encourage; encourage
D. encourage; discourage
Answer:
Everything else held constant, if total consumption increases from $600 to $800
because of an increase of disposable income of $400, then the mpc is equal to
A. 0.2.
B. 0.4.
C. 0.5.
D. 0.6.
Answer:
When the financial institution is hedging interest-rate risk on its overall portfolio, then
the hedge is a
A. macro hedge.
B. micro hedge.
C. cross hedge.
D. futures hedge.
Answer:
Part of the increase in currency holdings in the 1960s and 1970s can be attributed to
a. increases in income tax rates.
b. the switch from progressive to proportional income taxes.
c. the adoption of regressive taxes.
d. bracket creep due to inflation and progressive income taxes.
Answer:
A credit market instrument that pays the owner a fixed coupon payment every year until
the maturity date and then repays the face value is called a
A. simple loan.
B. fixed-payment loan.
C. coupon bond.
D. discount bond.
Answer:
Everything else held constant, if the sum of the required reserve ratio and the excess
reserve ratio is less than one, a decrease in the currency-deposit ratio causes the M1
money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Answer:
The theory of rational expectations, when applied to financial markets, is known as
A. monetarism.
B. the efficient markets hypothesis.
C. the theory of strict liability.
D. the theory of impossibility.
Answer:
The average number of times that a dollar is spent in buying the total amount of final
goods and services produced during a given time period is known as
A. gross national product.
B. the spending multiplier.
C. the money multiplier.
D. velocity.
Answer:
Pieces of property that serve as a store of value are called
A. assets.
B. units of account.
C. liabilities.
D. borrowings.
Answer:
As aggregate output rises, the demand for money ________ and the interest rate
________, so that money demanded equals money supplied and the money market is in
equilibrium.
A. increases; rises
B. increases; falls
C. decreases; rises
D. decreases; falls
Answer:
Prior to 1980, the Fed set an interest rate ________, a maximum limit, on the interest
rate that could be paid on time deposits.
A. floor
B. ceiling
C. wall
D. window
Answer:
The portfolio theories of money demand state that when income (and therefore, wealth)
is higher, the demand for the money asset will ________ and the demand for real
money balances will be ________.
A. rise; higher
B. rise; lower
C. fall; higher
D. fall; lower
Answer:
Everything else held constant, an increase in government spending ________ aggregate
________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
In the Gordon Growth Model, the growth rate is assumed to be ________ the required
return on equity.
A. greater than
B. equal to
C. less than
D. proportional to
Answer:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the required reserve ratio to
15% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 0.15 to 0.33
b. increase from 0.54 to 0.67
c. decrease from 0.73 to 0.71
d. decrease from 1.67 to 1.54
Answer:
Federal funds are
A. funds raised by the federal government in the bond market.
B. loans made by the Federal Reserve System to banks.
C. loans made by banks to the Federal Reserve System.
D. loans made by banks to each other.
Answer:
The ability of a central bank to set monetary policy instruments is
A. political independence.
B. goal independence.
C. policy independence.
D. instrument independence.
Answer:
A capital ________ can promote financial instability in an emerging-market country
because it can lead to a lending boom and excessive risk-taking on the part of banks,
which helps trigger a ________.
A) inflow; financial crisis
B) inflow; currency devaluation
C) outflow; financial crisis
D) outflow; currency devaluation
Answer:
If additional information is not used when forming an optimal forecast because it is not
available at that time, then expectations are
A. obviously formed irrationally.
B. still considered to be formed rationally.
C. formed adaptively.
D. formed equivalently.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A. inflation will be lower.
B. output will be at its potential.
C. output will be unchanged.
D. inflation will be unchanged.
Answer:
According to rational expectations
A. expectations of inflation are viewed as being an average of past inflation rates.
B. expectations of inflation are viewed as being an average of expected future inflation
rates.
C. expectations formation indicates that changes in expectations occur slowly over time
as past data change.
D. expectations will not differ from optimal forecasts using all available information.
Answer:
Everything else held constant, an increase in the currency ratio will mean ________ in
the M2 money multiplier and ________ in the M2 money supply.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease
Answer:
Financial markets promote economic efficiency by
A. channeling funds from investors to savers.
B. creating inflation.
C. channeling funds from savers to investors.
D. reducing investment.
Answer:
One factor contributing to the rapid growth of the commercial paper market since 1970
is
A. the fact that commercial paper has no default risk.
B. improved information technology making it easier to screen credit risks.
C. government regulation.
D. FDIC insurance for commercial paper.
Answer:
That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence
that these intermediaries
A. have been afforded special government treatment, since used car dealers do not
provide information that is valued by consumers of used cars.
B. are able to prevent potential competitors from free-riding off the information that
they provide.
C. have failed to solve adverse selection problems in this market because “lemons”
continue to be traded.
D. have solved the moral hazard problem by providing valuable information to their
customers.
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: