International capital mobility refers to
A) the ease with which manufacturing equipment can be transported across countries.
B) the ease with cash may be transferred from one country to another without having to
be converted into a foreign currency.
C) the ease with which investors move funds among international financial markets.
D) the ease with which exchange rates may be adjusted to reflect changes in the relative
economic strengths of countries.
Answer:
Which group is hurt by inflation being less than expected?
A) holders of TIPS
B) lenders of fixed-rate mortgages
C) borrowers with fixed-rate mortgages
D) all of the above
Answer:
In late 2008, the average risk premium rose because
A) investors feared a revival of inflation.
B) large tax increases in the United States reduced corporate profits and led to fears of
increased defaults.
C) of the financial crisis.
D) of fraud in the market for municipal bonds.
Answer:
Why are corporations more likely to raise funds externally by debt instead of equity?
A) moral hazard is less of a problem with debt contracts
B) transactions costs tend to be higher in the stock market than bond market
C) to avoid paying dividends
D) interest rates tend to be lower than dividend rates
Answer:
In order to increase its target for the federal funds rate, the Fed would normally
A) conduct open market sales.
B) conduct open market purchases.
C) increase the discount rate.
D) increase reserve requirements.
Answer:
Excess volatility refers to
A) the unwillingness of financial analysts to consistently recommend the same stocks.
B) the greater volatility of futures prices compared to the volatility of prices of the
underlying assets.
C) the tendency for stocks with high rates of returns also to have quite variable returns.
D) the larger movements in market prices of stock than in their fundamental values.
Answer:
Loanable funds refers to
A) only those funds loaned from one bank to another.
B) only those funds loaned to banks by the Federal Reserve.
C) only those funds loaned by banks to private individuals.
D) all those funds changing hands between lenders and borrowers in the bond market.
Answer:
Which of the following is NOT an activity carried out by Federal Reserve district
banks?
A) open market operations
B) issuing new Federal Reserve Notes
C) making discount loans
D) examining state member banks
Answer:
The company that manufactures Screaming Chocolate Zonkers breakfast cereal finds
that its sales collapse, it is forced into bankruptcy, and it defaults on its bonds, as a
result of information on the filthy conditions in its factory, which had long been known
to management, leaking out to the general public. This incident is best thought of as an
example of
A) symmetric information in the financial markets.
B) asymmetric information in the financial markets.
C) moral hazard in the financial markets.
D) the generally poor state of sanitation in the food-processing industry in the United
States.
Answer:
Most of the Fed’s earnings come from
A) fees charged to financial institutions for check clearing.
B) interest on the securities it holds.
C) interest on discount loans.
D) congressional appropriations.
Answer:
The mathematicians and economists who have been hired by Wall Street firms to build
mathematical models to aid the pricing of derivatives are generally referred to as
A) speculators.
B) hedgers.
C) rocket scientists.
D) market makers.
Answer:
Inflation is an economic problem because it
A) leads inevitably to unemployment.
B) makes prices less useful as signals for resource allocation.
C) leads to recession.
D) results in rapid increases in the money supply.
Answer:
Situations of negative interest rates on short-term bonds resulted from:
A) high income tax rates
B) government regulations requiring financial firms to purchase government bonds
C) very low risk premiums
D) investors were looking for safe havens when other investments were perceived to be
very risky
Answer:
During an economic recession,
A) the bond demand and supply curves both shift to the left and the equilibrium interest
rate usually falls.
B) the bond demand and supply curves both shift to the right and the equilibrium
interest rate usually rises.
C) the bond demand curve shifts to the right, the bond supply curve shifts to the left,
and the equilibrium interest rate usually falls.
D) the bond demand curve shifts to the left, the bond supply curve shifts to the right,
and the equilibrium interest rate usually rises.
Answer:
Some economists have predicted that recent developments in energy production in the
United States are estimated to result in all of the following EXCEPT:
A) millions of new jobs
B) the United States having the lowest energy costs of any country in the industrialized
world
C) a substantial increase in GDP over time
D) significant increases in pollution
Answer:
The Federal Reserve district banks
A) do not engage in monetary policy.
B) engage in monetary policy directly through discount lending.
C) engage in monetary policy directly through open market operations.
D) engage in monetary policy directly through their membership on Federal Reserve
committees.
Answer:
The difference between a demand deposit and a NOW account is that
A) checks may not be written against NOW account balances.
B) demand deposits pay no interest.
C) NOW accounts pay no interest.
D) checks may not be written against demand deposit balances.
Answer:
If the U.S. dollar were to cease to be the leading international reserve currency,
A) U.S. households and businesses would be unaffected.
B) U.S. households and businesses would be subject to increased exchange rate risk.
C) interest rates in the U.S. would be lower.
D) the U.S. monetary base would contract.
Answer:
The term structure of interest rates
A) represents the relationship among the interest rates on bonds that are otherwise
similar but that have different maturities.
B) reflects differing tax treatment received by different instruments.
C) always results in an upward-sloping yield curve.
D) usually results in a downward-sloping yield curve.
Answer:
If the annual interest rate is 8%, what would you expect to pay for a bond paying a
lump sum of $10,000 in ten years?
A) $4,632
B) $9,259
C) $10,000
D) $21,589
Answer:
Andy can’t make a deal with Danny. Andy has a Alex Rodriguez baseball card and
would like to trade it to Danny for Danny’s Albert Pujols card, but Danny doesn’t want a
Alex Rodriquez card. Andy’s problem illustrates the drawback to a barter system known
as
A) the specialization problem.
B) the double coincidence of wants problem.
C) the many prices problem.
D) the transactions problem.
Answer:
By how much did real investment decline between 1929 and 1933?
A) 18%
B) 20%
C) 27%
D) 81%
Answer:
Which of the following accurately describes the relationship between excess reserves
and checkable deposits following the financial crisis of 2007-2009?
A) Excess reserves declined as the excess reserve ratio returned to near zero.
B) Excess reserves rose to nearly one-third of checkable deposits.
C) Excess reserves approached the same level as checkable deposits.
D) Excess reserves exceeded checkable deposits.
Answer:
Which of the following countries had an unemployment rate in excess of 20% as of late
2012?
A) Ireland
B) Spain
C) Portugal
D) Italy
Answer:
In 2006, the Bank of Japan adopted a policy framework focusing on
A) expected inflation one to two years in the future.
B) current inflation.
C) maintaining a fixed exchange rate.
D) the growth in the money supply.
Answer:
The MP curve represents
A) the Fed’s monetary policy actions in setting a target for the federal funds rate.
B) the relationship between the money supply and the price level.
C) a relationship between the real interest rate and manufacturing production.
D) the relationship between real interest rates and potential GDP.
Answer:
If a British automobile sells for £20,000 and the British pound is worth $1.50, then the
dollar price of the automobile is
A) $1.60.
B) $12,500.
C) $20,000.
D) $30,000.
Answer:
The unemployment that is caused by changes in the economy, such as shifts in
manufacturing techniques, increased use of computers and electronic machines, and
increases in the production of services instead of goods, is called
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural unemployment.
Answer:
Compounding refers to
A) the calculation of interest rates after the compounding effect of taxes has been
allowed for.
B) the paying back of both interest and principal during the life of a fixed payment loan.
C) the process of earning interest on both the interest and the principal of an
investment.
D) the increased value of an investment that arises from the payment of periodic
interest.
Answer:
Which of the following is NOT true of the yield curve for U.S. Treasury securities?
A) Typically, it slopes upward.
B) It depicts the relationship among yields on securities of different maturities.
C) Typically, it shifts up or down rather than twists.
D) Typically, it slopes downward.
Answer:
Which of the following is NOT covered by federal deposit insurance?
A) savings account
B) money market mutual funds
C) checking account
D) money market deposit account
Answer:
Currently, a three-month Treasury bill has a yield of 5% while the yield on a ten-year
Treasury bond is 4.7%. What is the risk premium of the typical A-rated ten-year
corporate bond with a yield of 5.5%?
A) 0.5%
B) 0.8%
C) 5.5%
D) 1.17%
Answer: