A system of barter has substantial transactions costs because
A) taxes under such a system are generally a large fraction of the value of output.
B) traders must spend considerable time searching for trading partners.
C) the uncertainties of trade result in high legal fees being incurred to draw up binding
contracts.
D) the uncertainties of trade result in high insurance premiums.
Answer:
A person’s earnings over a period of time is known as
A) money
B) income
C) wealth
D) all of the above
Answer:
Which of the following statements regarding member banks is true?
A) A majority of banks are part of the Federal Reserve System as well as a majority of
bank deposits.
B) A minority of banks are part of the Federal Reserve System, but they have a majority
of deposits.
C) A majority of banks are part of the Federal Reserve System, but they have a minority
of deposits.
D) A minority of banks are part of the Federal Reserve System as well as a minority of
deposits
Answer:
A falling dollar makes U.S. goods
A) more expensive abroad and increases the volume of U.S. exports.
B) less expensive abroad and increases the volume of U.S. exports.
C) less expensive abroad and decreases the volume of U.S. exports.
D) more expensive abroad and decreases the volume of U.S. exports.
Answer:
According to the Gordon-Growth model, what is the value of a stock with a dividend of
$2, required return on equity of 8% and expected growth rate of dividends of 4%?
A) $25
B) $26
C) $50
D) $52
Answer:
According to the equation of exchange, how can national income grow even though the
amount of money does not?
A) price level increases
B) real GDP decrease
C) velocity increases
D) velocity decreases
Answer:
When a country’s nominal exchange rate appreciates, the price of
A) that country’s goods abroad increases.
B) that country’s goods abroad decreases.
C) foreign goods sold in the country increases.
D) that country’s goods produced and sold at home increases.
Answer:
Banks require collateral for loans in order to
A) ensure that borrowers have significant amounts of their own funds invested in their
businesses.
B) charge higher interest rates on loans.
C) reduce their tax liability on the interest they collect on loans.
D) reduce the total amount they are obliged to lend to any one borrower.
Answer:
All of the following were took place during the German hyperinflation in the 1920s
EXCEPT
A) banks reduced lending.
B) some banks only made loans to customers who agreed to repay in terms of foreign
currencies or commodities.
C) Deutsche Bank had to lay off many workers due to lack of business.
D) households and firms increased their demand for loans.
Answer:
Securitization is the process of
A) issuing stocks to finance capital spending.
B) issuing bonds to finance purchases of equipment and structures.
C) reducing risk by decreasing corporate debt loads.
D) converting loans into securities.
Answer:
The first stage in the regulatory process is
A) a crisis.
B) response by the financial system.
C) regulation.
D) regulatory response.
Answer:
How can a global savings glut affect the United States?
A) It can reduce the world real interest rate, thus encouraging borrowing by Americans.
B) It can increase the world real interest rate, thus encouraging saving by Americans.
C) It can reduce the supply of loanable funds for the United States.
D) It can reduce the demand for loanable funds for the United States.
Answer:
Which of the following expressions gives the present value of future dividends for a
company whose current dividend is $5.00 and whose future dividends are expected to
grow at rate g?
A) [$5.00(1 – g)]/(i – g)
B) [$5.00(1 + g)]/(i + g)
C) [$5.00(1 – g)]/(i + g)
D) [$5.00(1 + g)]/(i – g)
Answer:
Limits on the value of the assets that commercial banks can acquire relative to their
capital is known as:
A) equity requirements
B) capital requirements
C) required reserves
D) asset requirements
Answer:
Which function of money eliminates the need for multiple prices for each good as in a
barter system?
A) store of value
B) standard of deferred payment
C) unit of account
D) valuable relative to its weight
Answer:
Which of the following is NOT a role of Federal Reserve Banks?
A) conduct discount lending
B) serve on the FOMC
C) set the interest rate on reserves
D) manage check clearing in the banking system
Answer:
Financial intermediaries are able to exploit economies of scale since
A) the equipment or expertise necessary for one transaction can be applied to other
transactions.
B) they have special licenses needed to perform financial transactions.
C) financial markets fail to do so.
D) they can reduce transactions cost, but not information costs.
Answer:
As the housing bubble began to burst in 2006-2008, investors would only buy
mortgage-backed securities at high yields to compensate for higher perceived default
risk. As a result::
A) banks suffered significant capital losses as the value of their holdings of
mortgage-backed securities declined
B) funds available for mortgages increased
C) bank profits rose as they earned higher interest on mortgages
D) the price of mortgage-backed securities tended to rise due to the higher yields
Answer:
The movement to set up a central bank in the United States was spurred by the financial
panic that occurred in
A) 1816
B) 1907
C) 1929
D) 1987
Answer:
The Employment Act of 1946 codified the federal government’s commitment to
A) promote high employment consistent with price stability.
B) promote high employment irrespective of the effects on price stability.
C) guarantee a job to every unemployed person.
D) fine companies that engage in excessive layoffs during recessions.
Answer:
Which of the following is NOT an implication of the theory of purchasing power
parity?
A) Exchange rates move to equalize the purchasing power of different currencies.
B) Exchange rates should be at a level that makes it possible to buy the same amount of
goods and services with the equivalent amount of any country’s currency in the long
run.
C) A country with a higher inflation rate should experience an appreciation of its
currency.
D) The real exchange rate should equal one.
Answer:
Forward transactions would be useful to
A) a government wanting to know the size of its future debt.
B) a household wanting to reduce its future tax liability.
C) a business wanting to know the cost of its funds on future loans.
D) a business wanting to expand its operations in overseas markets.
Answer:
When deciding between domestic and foreign financial investments, investors typically
consider
A) domestic and foreign inflation rates and expected changes in the exchange rate.
B) domestic and foreign budget deficits.
C) shifts in the relative demand for foreign and domestic goods.
D) domestic and foreign interest rates and expected changes in the exchange rate.
Answer:
Financial intermediaries
A) include banks and other depository institutions.
B) include the New York and American Stock exchanges.
C) directly issue claims on individual borrowers to savers.
D) are owned and operated by the federal government.
Answer:
As of 2012, carried interest was taxed as:
A) capital gains
B) dividends
C) interest income
D) ordinary income
Answer:
The financial crisis of 2007-2009 worsened after the failure of which firm?
A) General Motors
B) Lehman Brothers
C) Bear Stearns
D) American International Group (AIG)
Answer:
What was the approximate value of the U.S. current account balance in 2011?
A) +$10 billion
B) +$79 billion
C) -$380 billion
D) -$475 billion
Answer:
The initial deposit required by a buyer or seller of a futures contract is known as
A) credit.
B) margin requirement.
C) debit.
D) marking.
Answer:
Interest-rate risk can best be characterized as the risk that
A) you could have earned a higher interest rate if you waited to purchase a bond.
B) fluctuations in the price of a financial asset in response to changes in market interest
rates.
C) you could have gotten a lower interest rate if you waited to lock in a mortgage.
D) short-term interest rates may exceed long-term interest rates.
Answer:
In the late 2000s, which of the following was the primary source of external financing
for small to medium-size firms?
A) mortgages
B) bank loans other than mortgages
C) trade credit
D) other loans
Answer:
A person takes out a car loan at a bank, but actually uses the money to play the lottery.
This situation is an example of which problem banks face in lending?
A) adverse selection
B) moral hazard
C) interest rate risk
D) illiquidity
Answer:
Most of the increase in the monetary base between 2007 and 2012 was due to increases
in:
A) currency
B) bank deposits
C) excess reserves
D) Treasury bills
Answer: