If brokerage commissions on stocks fall, everything else held constant, the demand for
bonds ________, the price of bonds ________, and the interest rate ________.
A) decreases; decreases; increases
B) decreases; decreases; decreases
C) increases; decreases; increases
D) increases; increases; increases
Answer:
When the yield curve is flat or downward-sloping, it suggest that the economy is more
likely to enter
A) a recession.
B) an expansion.
C) a boom time.
D) a period of increasing output.
Answer:
Which of the following bonds are considered to be default-risk free?
A) Municipal bonds
B) Investment-grade bonds
C) U.S. Treasury bonds
D) Junk bonds
Answer:
In the simple model of multiple deposit creation in which banks do not hold excess
reserves, the increase in checkable deposits equals the product of the change in reserves
and the
A) reciprocal of the excess reserve ratio.
B) simple deposit expansion multiplier.
C) reciprocal of the simple deposit multiplier.
D) discount rate.
Answer:
Economists closely follow the current account balance because they believe it can
provide information on the future movement of
A) interest rates.
B) gold flows.
C) exchange rates.
D) special drawing rights.
Answer:
An increase in spending that results from expansionary ________ policy causes the
interest rate to ________, everything else held constant.
A) fiscal; rise
B) fiscal; fall
C) incomes; rise
D) incomes; fall
Answer:
Suppose the Federal Reserve releases a policy statement today which leads people to
believe that the Fed will be enacting expansionary monetary policy in the near future.
Everything else held constant, the release of this statement would immediately cause
the demand for U.S. assets to ________ and the U.S. dollar to ________.
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
Answer:
The key factor leading to the financial crises in Mexico and the East Asian countries
was
A) a deterioration in banks’ balance sheets because of increasing loan losses.
B) severe fiscal imbalances.
C) a sharp increase in the stock market.
D) a sharp decline in interest rates.
Answer:
The Chairman of the Board of Governors is chosen from among the seven governors
and serves a ________ term.
A) one-year
B) two-year
C) four-year
D) eight-year
Answer:
In September 1992, the Bundesbank attempted to keep the mark from appreciating
relative to the British pound, but it failed because participants in the foreign exchange
market came to expect the
A) appreciation of the mark.
B) depreciation of the mark.
C) revaluation of the dollar.
D) end of the Exchange Rate Mechanism.
Answer:
If in an efficient market all prices are correct and reflect market fundamentals, which of
the following is a false statement?
A) A stock that has done poorly in the past is more likely to do well in the future.
B) One investment is as good as any other because the securities’ prices are correct.
C) A security’s price reflects all available information about the intrinsic value of the
security.
D) Security prices can be used by managers to assess their cost of capital accurately.
Answer:
As interest rates rise, the expected absolute return of money ________, money’s
expected return relative to bonds ________.
A) does not change; decrease
B) rises; decrease
C) does not change; increase
D) falls; decrease
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess supply of goods which will cause aggregate output to ________.
A) right; fall
B) right; rise
C) left; fall
D) left; rise
Answer:
Which of the following statements are true?
A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but
increases the demand for default-free bonds.
B) The expected return on corporate bonds decreases as default risk increases.
C) A corporate bond’s return becomes less uncertain as default risk increases.
D) As their relative riskiness increases, the expected return on corporate bonds
increases relative to the expected return on default-free bonds.
Answer:
The efficient markets hypothesis predicts that stock prices follow a “random walk.” The
implication of this hypothesis for investing in stocks is
A) a “churning strategy” of buying and selling often to catch market swings.
B) turning over your stock portfolio each month, selecting stocks by throwing darts at
the stock page.
C) a “buy and hold strategy” of holding stocks to avoid brokerage commissions.
D) following the advice of technical analysts.
Answer:
You have observed that the forecasts of an investment advisor consistently outperform
the other reported forecasts. The efficient markets hypothesis says that future forecasts
by this advisor
A) may or may not be better than the other forecasts. Past performance is no guarantee
of the future.
B) will always be the best of the group.
C) will definitely be worse in the future. What goes up must come down.
D) will be worse in the near future, but improve over time.
Answer:
The facility that was created in December of 2007 that banks can use to borrow from
the Fed that has less of a stigma for banks compared to borrowing from the discount
window is the
A) Term Securities Lending Facility.
B) Term Auction Facility.
C) Primary Dealer Credit Facility.
D) Commercial Paper Funding Facility.
Answer:
Suppose on any given day there is an excess supply of reserves in the federal funds
market. If the Federal Reserve wishes to keep the federal funds rate at its current level,
then the appropriate action for the Federal Reserve to take is a ________ open market
________, everything else held constant.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
Answer:
When the Fed supplies the banking system with an extra dollar of reserves, deposits
increase by more than one dollara process called
A) extra deposit creation.
B) multiple deposit creation.
C) expansionary deposit creation.
D) stimulative deposit creation.
Answer:
Suppose the U.S. economy is producing at the natural rate of output. An appreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the appreciation
causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Answer:
When Happy Feet Corporation announces that their fourth quarter earnings are up 10%,
their stock price falls. This is consistent with the efficient markets hypothesis
A) if earnings were not as high as expected.
B) if earnings were not as low as expected.
C) if a merger is anticipated.
D) the company just invented a new bunion product.
Answer:
By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) adverse selection.
B) moral hazard.
C) transactions costs.
D) diversification.
Answer:
The time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
Answer:
In a world with few impediments to capital mobility, the domestic interest rate equals
the sum of the foreign interest rate and the expected depreciation of the domestic
currency, a situation known as the
A) interest parity condition.
B) purchasing power parity condition.
C) exchange rate parity condition.
D) foreign asset parity condition.
Answer:
A debit card differs from a credit card in that
A) a debit card is a loan while for a credit card purchase, payment is made immediately.
B) a debit card is a long-term loan while a credit card is a short-term loan.
C) a credit card is a loan while for a debit card purchase, payment is made immediately.
D) a credit card is a long-term loan while a debit card is a short-term loan.
Answer:
According to the interest parity condition, if the domestic interest rate is 10 percent and
the foreign interest rate is 12 percent, then the expected ________ of the foreign
currency must be ________ percent.
A) appreciation; 4
B) appreciation; 2
C) depreciation; 2
D) depreciation; 4
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:
When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost
100 British pounds would have cost $130. With a weaker dollar, the same Shetland
sweater would have cost
A) less than $130.
B) more than $130.
C) $130, since the exchange rate does not affect the prices that American consumers
pay for foreign goods.
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in
price due to the stronger dollar.
Answer:
The classical economists’ conclusion that nominal income is determined by movements
in the money supply rested on their belief that ________ could be treated as ________
in the short run.
A) velocity; constant
B) velocity; variable
C) money; constant
D) money; variable
Answer:
State banking authorities have sole jurisdiction over state banks
A) without FDIC insurance.
B) that are not members of the Federal Reserve System.
C) operating as bank holding companies.
D) chartered in the 21st century.
Answer:
Which of the following is not a benefit to an individual purchasing a mutual fund?
A) reduced risk
B) lower transactions costs
C) free-riding
D) diversification
Answer:
Keynes argued that the precautionary component of the demand for money was
primarily determined by the level of people’s ________, which he believed were
proportional to ________.
A) incomes; wealth
B) incomes; age
C) transactions; income
D) transactions; age
Answer:
Of the following assets, the least liquid is
A) stocks.
B) traveler’s checks.
C) checking deposits.
D) a house.
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: