Which of the following is the most efficient means of trade?
A) barter
B) money
C) government rationing
D) the combination of barter with some government rationing
Answer:
Studies by economists suggest that
A) households do not increase their saving as the government’s dissaving increases.
B) households increase their saving, but not by the full amount of an increase in
government dissaving.
C) households also increase their dissaving when the government increases its
dissaving.
D) households also increase their saving when the government increases its saving.
Answer:
How can a bond investor hedge against a possible bear market in bonds?
A) sell futures contracts on Treasury notes
B) buy futures contracts on Treasury notes
C) going long in the spot market
D) going short in the spot market
Answer:
The portfolios that mutual funds offer to savers are
A) usually made up of bonds.
B) usually made up of common stocks.
C) tax free in most states.
D) usually more liquid than the underlying assets.
Answer:
What is the largest category of bank assets?
A) loans
B) reserves
C) securities
D) cash items in the process of collection
Answer:
The Glass-Steagall Act was designed to
A) legally separate investment banking from commercial banking.
B) promote mergers in the banking industry.
C) impose high capital ratios on investment banks.
D) promote the interests of community banks.
Answer:
Hedge funds have been criticized for
A) their heavy use of short selling.
B) their inability to mobilize a large amount of funds.
C) forcing quick price changes that reduce market inefficiencies.
D) excessive use of hedging strategies.
Answer:
Crowd funding can best be described as:
A) raising funds in a very large market
B) raising small amounts of money from large numbers of people
C) many firms competing for the same source of funds
D) making funds available for a large number of business start ups
Answer:
The margin requirement set by the Federal Reserve is the
A) proportion of the purchase price of a security that an investor must pay in cash.
B) difference between the interest rate banks may charge on loans and the interest rate
they receive from deposits.
C) same thing as the required reserve ratio on deposits.
D) difference banks must maintain between the value of their assets and the value of
their liabilities.
Answer:
An important problem facing the Fed is that
A) the goals for economic growth and price stability may conflict in the short run.
B) it lost effective control over the monetary base.
C) it has been given responsibility for meeting policy goals, but true control over
monetary policy remains with Congress.
D) it has been given responsibility for meeting policy goals, but true control over
monetary policy remains with the President.
Answer:
An increase in all of the following will increase aggregate demand EXCEPT
A) investment.
B) savings.
C) exports.
D) government spending.
Answer:
What accounted for much of policymakers’ concern over U.S. current account deficits
in the 1980s, 1990s, and 2000s?
A) The current account deficits were thought to be largely responsible for the federal
budget deficit.
B) Current account deficits lower U.S. interest rates, thereby leading to reduced
domestic saving.
C) Current account deficits require the United States to borrow funds from foreign
savers.
D) The United States had signed international agreements in which it had pledged not to
run a current account deficit for more than three years in a row.
Answer:
Which of the following groups is an investment bank NOT likely to visit during a “road
show”?
A) institutional investors
B) individual investors
C) university endowments
D) mutual funds
Answer:
A central bank may be reluctant to see its currency appreciate because
A) rising prices of imports will contribute to inflation.
B) falling prices of exports will contribute to inflation.
C) the country’s goods may become uncompetitive in world markets.
D) the country’s monetary base will increase.
Answer:
In what year did the economy return to normal conditions following the Great
Depression?
A) 1933
B) 1937
C) 1941
D) 1945
Answer:
The yield on a thirty-year Treasury bond is 8% at the same time as the yield on
two-year Treasury note is 5%. This occurrence
A) indicates that the yield curve is downward sloping.
B) is well explained by the segmented markets theory.
C) is largely explained by the favorable tax treatment of Treasury notes.
D) indicates that the bond market is anticipating that inflation will fall.
Answer:
If the Fed sells foreign assets, the monetary base will
A) fall by the amount of the sale, only if the Fed buys domestic bank deposits with the
proceeds.
B) fall by the amount of the sale, only if the Fed buys domestic currency with the
proceeds.
C) fall by the amount of the sale, whether the Fed buys domestic bank deposits or
domestic currency with the proceeds.
D) rise by the amount of the sale.
Answer:
The official settlement balance
A) is an amount that the IMF requires each member country to pay annually.
B) must by definition always be zero.
C) equals the current account balance divided by the capital account balance.
D) equals the net increase in a country’s official reserve assets.
Answer:
Suppose a company expects prices in general to rise by 5%, but the price of its product
rises by 2%. How will the company respond to the price change?
A) It will increase production since it’s getting a higher price for the product.
B) It will increase production more slowly since it’s price is rising more slowly than
average.
C) It will reduce production since it perceives a relative decline in the demand for its
product.
D) It will stop production and shut down until prices rise more quickly.
Answer:
One reason for the controversy surrounding the decision by the European Central Bank
to buy Greek bonds was that:
A) it may increase moral hazard by encouraging other European governments to issue
more debt than private investors were willing to buy
B) it may increase adverse selection by encouraging other European governments to
issue more debt than private investors were willing to buy
C) it may result in higher risk premiums as private investors anticipate a default by
Greece
D) it may worsen the Greek recession by increasing Greek interest rates
Answer:
The speculative attack on the German mark in 1971 resulted in
A) a large increase in the German monetary base.
B) a decline in the value of the mark relative to the dollar.
C) a decision to end the floating of the mark against the dollar.
D) a large decrease in the German monetary base.
Answer:
Which of the following would NOT shift the aggregate demand curve to the left?
A) an increase in money demand
B) a cut in federal government spending
C) a reduction in federal income taxes
D) a decrease in consumption spending
Answer:
The “lemons problem” in the used car market arises from
A) the difficulty U.S. producers have in making reliable cars.
B) the difficulty buyers have in distinguishing good cars from lemons.
C) the tendency of buyers of used cars to pay for them with bad checks.
D) the reluctance of many car dealers to handle used cars.
Answer:
Sally Jones lost her job at a steel company because of a permanent decline in the
demand for steel. Sally Jones is considered by economists to be
A) naturally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) frictionally unemployed.
Answer:
Generally,
A) countries with the most independent central banks have the lowest inflation rates.
B) countries with the least independent central banks have the lowest inflation rates.
C) countries without central banks have the lowest inflation rates.
D) the degree of independence of a country’s central banks has little to do with its
inflation rate.
Answer:
The paper currency of the United States is issued by
A) state governments and the Fed.
B) state governments and the U.S. Treasury.
C) the U.S. Congress.
D) the Fed.
Answer:
Who organized the Bank of the United States?
A) Alexander Hamilton
B) George Washington
C) Andrew Jackson
D) Woodrow Wilson
Answer:
Interest and capital gains are taxed differently in the United States in that
A) interest is exempt from state and local taxes.
B) interest is taxed as ordinary income, but capital gains are taxed only when realized.
C) interest is taxed as ordinary income, but capital gains are taxed as accrued.
D) capital gains when realized are exempt from state and local taxes.
Answer:
We would not expect a Japanese financial asset and a U.S. financial asset with identical
risk, liquidity, and information characteristics to have different expected returns because
A) the U.S. and Japanese governments have pledged themselves to avoid this outcome.
B) traders would buy the asset with the higher expected yield and sell the asset with the
lower expected yield until the yields were brought into equality.
C) traders would sell the asset with the higher expected yield and buy the asset with the
lower expected yield until the yields were brought into equality.
D) the exchange rate between the dollar and the yen would adjust automatically to
eliminate any difference in yields.
Answer:
Marking to market refers to
A) the determination of the prices of options contracts by the interaction of demand and
supply.
B) the determination of the prices of futures contracts by the interaction of demand and
supply.
C) the settlement of gains and losses on futures contracts each day.
D) the settlement of gains and losses on forward contracts each day.
Answer:
During the financial crisis, which type of risk was the biggest problem faced by
investment banks?
A) interest-rate risk
B) currency risk
C) hedging risk
D) credit risk
Answer:
George is trying to forecast the future price of IBM’s common stock. To do so he makes
use only of past prices of IBM stock. George
A) has adaptive expectations.
B) has rational expectations.
C) is likely to rapidly adjust his forecast to news affecting the future profitability of
IBM.
D) is likely to make forecasts that reflect closely IBM stock’s fundamental value.
Answer:
Which of the following will lead to a higher interest rate on a loan?
A) lower inflation
B) lower opportunity cost
C) increased perceived risk of default
D) reduced likelihood of borrower not paying the loan
Answer: