The monetary base consists of
A) currency in circulation and Federal Reserve notes.
B) currency in circulation and the U.S. Treasury’s monetary liabilities.
C) currency in circulation and reserves.
D) reserves and Federal Reserve Notes.
Answer:
A ________ pays out cash flows from subprime mortgage-backed securities in different
tranches, with the highest-rated tranch paying out first, while lower ones paid out less if
there were losses on the mortgage-backed securities.
A) Collateralized debt obligation (CDO)
B) Adjustable-rate mortgage
C) Negotiable CD
D) Discount bond
Answer:
Risk premiums on corporate bonds tend to ________ during business cycle expansions
and ________ during recessions, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer:
To keep from running out of international reserves under the Bretton Woods system, a
country had to implement ________ monetary policy to ________ its currency.
A) expansionary; strengthen
B) expansionary; weaken
C) contractionary; strengthen
D) contractionary; weaken
Answer:
Irving Fisher’s view that velocity is fairly constant in the short run transforms the
equation of exchange into the
A) Friedman’s theory of income determination.
B) quantity theory of money.
C) Keynesian theory of income determination.
D) monetary theory of income determination.
Answer:
Prior to almost all recessions since 1900, there has been a drop in
A) inflation.
B) the money stock.
C) the growth rate of the money stock.
D) interest rates.
Answer:
Which of the following is not a goal of financial regulation?
A) Ensuring the soundness of the financial system
B) Reducing moral hazard
C) Reducing adverse selection
D) Ensuring that investors never suffer losses
Answer:
Everything else held constant, an increase in net taxes will cause the IS curve to shift to
the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
________ money could be used for some other purpose other than as a medium of
exchange, for example, gold coins could be melted down and turned into gold jewelry.
A) Commodity
B) Fiat
C) Paper
D) Electronic
Answer:
Corporate bonds are not as liquid as government bonds because
A) fewer corporate bonds for any one corporation are traded, making them more costly
to sell.
B) the corporate bond rating must be calculated each time they are traded.
C) corporate bonds are not callable.
D) corporate bonds cannot be resold.
Answer:
Anything that increases the demand for foreign goods relative to domestic goods tends
to ________ the domestic currency because domestic goods will only continue to sell
well if the value of the domestic currency is ________, everything else held constant.
A) depreciate; lower
B) depreciate; higher
C) appreciate; lower
D) appreciate; higher
Answer:
Everything else held constant, an increase in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for
U.S. government bonds.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Answer:
Everything else held constant, an increase in the required reserve ratio on checkable
deposits will cause
A) the money supply to rise.
B) the money supply to remain constant.
C) the money supply to fall.
D) checkable deposits to rise.
Answer:
Suppose, at a given federal funds rate, there is an excess supply of reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
Answer:
Everything else held constant, a weaker dollar will likely hurt
A) textile exporters in South Carolina.
B) wheat farmers in Montana that sell domestically.
C) automobile manufacturers in Michigan that use domestically produced inputs.
D) furniture importers in California.
Answer:
Which of the following is a long-term financial instrument?
A) A negotiable certificate of deposit
B) A repurchase agreement
C) A U.S. Treasury bond
D) A U.S. Treasury bill
Answer:
In the simple deposit expansion model, if the required reserve ratio is 20 percent and
the Fed increases reserves by $100, checkable deposits can potentially expand by
A) $100.
B) $250.
C) $500.
D) $1,000.
Answer:
Suppose that there is a negative aggregate demand shock and the central bank commits
to an inflation rate target. But if the commitment is not credible, then
A) the public’s expected inflation will remain unchanged.
B) the short-run aggregate supply curve will rise.
C) economic contraction will be worse.
D) all of the above.
E) both B and C.
Answer:
Which of the following is not included in the measure of M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Savings deposits
Answer:
In the model of the money supply process, the depositor’s role in influencing the money
supply is represented by
A) the currency holdings.
B) the currency holdings and excess reserve.
C) the currency holdings and borrowed reserve.
D) the market interest rate.
Answer:
Moral hazard and adverse selection problems increased in prominence in the 1980s
A) as deregulation required savings and loans and mutual savings banks to be more
cautious.
B) following a burst of financial innovation in the 1970s and early 1980s that produced
new financial instruments and markets, thereby widening the scope for risk taking.
C) following a decrease in federal deposit insurance from $100,000 to $40,000.
D) as interest rates were sharply decreased to bring down inflation.
Answer:
High unemployment is undesirable because it
A) results in a loss of output.
B) always increases inflation.
C) always increases interest rates.
D) reduces idle resources.
Answer:
In a bank panic, the source of contagion is the
A) free-rider problem.
B) too-big-to-fail problem.
C) transactions cost problem.
D) asymmetric information problem.
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves. Given this information, we can say First National
Bank faces a required reserve ratio of ________ percent.
A) ten
B) twenty
C) eighty
D) ninety
Answer:
Sweep accounts
A) have made reserve requirements nonbinding for many banks.
B) sweep funds out of deposit accounts into long-term securities.
C) enable banks to avoid paying interest to corporate customers.
D) reduce banks’ assets.
Answer:
According to rational expectations theory, forecast errors of expectations
A) are more likely to be negative than positive.
B) are more likely to be positive than negative.
C) tend to be persistently high or low.
D) are unpredictable.
Answer:
Interest-rate risk is the riskiness of an asset’s returns due to
A) interest-rate changes.
B) changes in the coupon rate.
C) default of the borrower.
D) changes in the asset’s maturity.
Answer:
In emerging market countries, the deterioration in bank’s balance sheets has more
________ effects on lending and economic activity than in advanced countries.
A) negative
B) positive
C) affirming
D) advancing
Answer:
As the costs associated with deposit outflows ________, the banks willingness to hold
excess reserves will ________.
A) decrease; increase
B) increase; decrease
C) increase; increase
D) decrease; not be affected
Answer:
If a forecast is made using all available information, then economists say that the
expectation formation is
A) rational.
B) irrational.
C) adaptive.
D) reasonable.
Answer:
Unlike banks, ________ have been allowed to branch statewide since
A) federally-chartered S&Ls
B) state-chartered S&Ls
C) financially troubled S&Ls
D) technically insolvent S&Ls
Answer:
Keynes’s theory of the demand for money implies that velocity is
A) not constant but fluctuates with movements in interest rates.
B) not constant but fluctuates with movements in the price level.
C) not constant but fluctuates with movements in the time of year.
D) a constant.
Answer:
An increase in the liquidity of corporate bonds, other things being equal, shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; left
D) left; right
Answer:
The Dodd-Frank legislation of 2010 permanently increased the federal deposit
insurance to
A) $40,000.
B) $100,000.
C) $200,000.
D) $250,000.
Answer: