The interest rate on interbank loans is called the
A) discount rate.
B) federal funds rate.
C) repo rate.
D) prime rate.
Answer:
A put option is said to be “in the money” if
A) it is written on a Treasury bill or other money-market asset.
B) it has increased in price since it was first written.
C) the price of the underlying asset is currently less than the strike price.
D) the price of the underlying asset is currently less than the strike price plus the option
premium.
Answer:
Where do the FDIC’s funds come from?
A) Congress appropriates money for the FDIC, just as it does for other federal agencies.
B) The FDIC earns income through the insurance premiums paid by insured banks and
from investment earnings.
C) The FDIC sells bonds in the financial markets.
D) The FDIC relies on voluntary contributions from the banking community.
Answer:
The graph of the short-run relationship between the unemployment rate and inflation is
called a(n)
A) MP curve.
B) LM curve.
C) IS curve.
D) Phillips curve.
Answer:
Which of the following will NOT shift the aggregate demand curve to the right?
A) a decline in the price level
B) an increase in government expenditures
C) an increase in investment
D) an increase in the money supply
Answer:
The new classical explanation of aggregate supply in the short run builds on research by
A) Irving Fisher.
B) John Maynard Keynes.
C) Robert Lucas.
D) Robert Solow.
Answer:
Economists generally agree that in the long run changes in aggregate demand affect
A) aggregate output but not the price level.
B) the price level but not aggregate output.
C) both the price level and aggregate output.
D) neither the price level nor aggregate output.
Answer:
The trade balance is
A) by definition, identical to the current account balance.
B) is a major portion, but not the only component, of the current account balance.
C) almost invariably larger than the financial account balance.
D) the largest component of the financial account.
Answer:
You own a 2007 Ford Explorer. Although it has high mileage, you have maintained it
very well. You want to sell it, but after checking the prices other owners of 2007 Ford
Explorers are able to get for their cars in the used car market, you decide the prices are
too low and you decide not to sell. This is an example of
A) the “lemons problem.”
B) moral hazard.
C) economies of scale.
D) low information costs.
Answer:
For state residents, interest on most bonds issued by their state government is
A) exempt from state and federal income taxes.
B) exempt from state, but not from federal, income taxes.
C) exempt from federal, but not from state, income taxes.
D) subject to both state and federal income taxes.
Answer:
The National Monetary Commission
A) was created by Congress to study the setting up of a central bank.
B) authorizes open market operations.
C) oversees nationally chartered banks.
D) chooses Federal Reserve district bank presidents.
Answer:
The demand curve for loanable funds slopes down because
A) at lower bond prices more loanable funds will be supplied.
B) lower interest rates reduce the inflation rate.
C) an increase in the interest rate makes borrowers more willing and able to demand
more funds.
D) a decrease in the interest rate makes borrowers more willing and able to demand
more funds.
Answer:
The key assumption of the liquidity premium theory is that investors
A) view bonds of different maturities as perfect substitutes.
B) view bonds of different maturities as completely unsubstitutable.
C) always choose the bond with the highest expected return, regardless of maturity.
D) care about both expected returns and time to maturity.
Answer:
Under the efficient markets hypothesis, what would be the price per share of a company
whose current dividend is $10.00 and whose dividends are expected to grow by 3% per
year (assume the risk-adjusted interest rate is 10%)?
A) $74.62
B) $79.23
C) $142.86
D) $147.14
Answer:
Bank capital is equal to
A) the value of the capital originally invested in the bank by its owners.
B) the value of everything the bank owns.
C) the difference between the value of the bank’s assets and the value of its liabilities.
D) the value of the buildings and other physical assets the bank owns.
Answer:
When the Fed reduces the real interest rate, which of the following does NOT increase?
A) consumption
B) investment
C) government purchases
D) net exports
Answer:
Risk that is common to all assets of a certain type is referred to as
A) systematic risk.
B) unsystematic risk.
C) idiosyncratic risk.
D) structural risk.
Answer:
Standardization of derivative contracts
A) increases their liquidity.
B) is the rule with respect to contracts whose underlying asset is a financial security, but
not for contracts whose underlying asset is a commodity.
C) is the rule with respect to contracts whose underlying asset is a commodity, but not
for contracts whose underlying asset is a financial asset.
D) has been proposed many times by financial analysts, but has not yet been carried out
by the SEC.
Answer:
The purpose of diversification is to
A) increase the liquidity of a financial portfolio.
B) reduce the brokerage fees involved in managing a financial portfolio.
C) reduce risk.
D) reduce tax liability.
Answer:
Checks are
A) not acceptable for settling transactions in most industrialized countries.
B) less important than currency as a means of settling transactions.
C) promises to pay on demand money deposited with a financial institution.
D) promises to pay coins minted from precious metals on demand.
Answer:
If a bank grants you a mortgage, the mortgage is
A) an asset to you as well as an asset to the bank.
B) an asset to you, but a liability to the bank.
C) a liability to you, but an asset to the bank.
D) a liability to you as well as a liability to the bank.
Answer:
How long does it take prices of securities to adjust so as to eliminate arbitrage profits?
A) seconds
B) hours
C) days
D) months
Answer:
In a move up the IS curve,
A) investment rises.
B) output falls.
C) the real interest rate falls.
D) saving rises.
Answer:
How many Federal Reserve districts are there?
A) 1
B) 2
C) 12
D) 50
Answer:
All of the following represent returns to savers EXCEPT:
A) dividends on stocks
B) fees on loans
C) interest on deposits
D) coupon payments on bonds
Answer:
Many economists believe
A) the Fed could have reduced the severity of the Great Depression by raising interest
rates.
B) the Fed could have reduced the severity of the Great Depression by encouraging
banks to make fewer loans to insolvent businesses.
C) bank failures increased the severity of the Great Depression.
D) the severity of the Great Depression and the policies of the Fed were unrelated.
Answer:
Though useful, purchasing power parity does not completely explain long-run
movements in exchange rates due to
A) some goods being nontradeable.
B) changes in the real exchange rate.
C) differentiated products.
D) all of the above.
Answer:
The main argument in favor of Fed independence is that
A) interest rates would probably be lower if Congress controlled the Fed; thus hurting
savers.
B) the Constitution requires it.
C) monetary policy is too important and too technical to be determined in the political
arena.
D) congressional control of the Fed was tried during the 1960s and did not work well.
Answer:
Which group of investors vote for a corporation’s board of directors?
A) bond holders
B) holders of preferred stock
C) holders of common stock
D) both holders of common and preferred stock
Answer:
Which of the following is NOT considered to be a goal of monetary policy?
A) fair wages
B) high employment
C) economic growth
D) price stability
Answer: