The Fed operating procedures employed between 1979 and 1982 resulted in ________
swings in the federal funds rate and ________ swings in the M1 growth rate.
A. increased; increased
B. increased; decreased
C. decreased; decreased
D. decreased; increased
Answer:
Banks acquire the funds that they use to purchase income-earning assets from such
sources as
A. cash items in the process of collection.
B. savings accounts.
C. reserves.
D. deposits at other banks.
Answer:
Mutual funds are primarily held by
A. financial institutions.
B. households.
C. nonfinancial businesses.
D. the Social Security trust fund.
Answer:
If the expected path of 1-year interest rates over the next five years is 1 percent, 2
percent, 3 percent, 4 percent, and 5 percent, the expectations theory predicts that the
bond with the highest interest rate today is the one with a maturity of
A. two years.
B. three years.
C. four years.
D. five years.
Answer:
The regulatory system that has evolved in the United States whereby banks are
regulated at the state level, the national level, or both, is known as a
A. bilateral regulatory system.
B. tiered regulatory system.
C. two-tiered regulatory system.
D. dual banking system.
Answer:
Total reserves minus bank deposits with the Fed equals
A. vault cash.
B. excess reserves.
C. required reserves.
D. currency in circulation.
Answer:
In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A. $10.
B. $100.
C. $100 times the reciprocal of the required reserve ratio.
D. $100 times the required reserve ratio.
Answer:
The elimination of unexploited profit opportunities requires that ________ market
participants be well informed.
A. all
B. a few
C. zero
D. many
Answer:
All bonds that will not be held to maturity have interest rate risk which occurs because
of the change in the price of the bond as a result of
A. interest-rate changes.
B. changes in the coupon rate.
C. default of the borrower.
D. changes in the asset’s maturity date.
Answer:
In the early 1990s, M2 growth underwent a dramatic ________, which some
researchers believe ________ be explained by traditional money demand functions.
A. surge; cannot
B. surge; can
C. slowdown; cannot
D. slowdown; can
Answer:
Purchases and sales of government securities by the Federal Reserve are called
A. discount loans.
B. federal fund transfers.
C. open market operations.
D. swap transactions.
Answer:
Other things equal, a decrease in autonomous consumption shifts the ________ curve to
the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Answer:
An investment bank purchases securities from a corporation at a predetermined price
and then resells them in the market. This process is called
A. underwriting.
B. underhanded.
C. understanding.
D. undertaking.
Answer:
Dennis notices that jackets are on sale for $99. In this case money is functioning as a
A. medium of exchange.
B. unit of account.
C. store of value.
D. payments-system ruler.
Answer:
Suppose the U.S. economy is producing at the natural rate of output. A depreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the long run, everything else held constant. (Assume the depreciation 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:
________ is the narrowest monetary aggregate that the Fed reports.
A. M0
B. M1
C. M2
D. M3
Answer:
A rise in stock prices ________ the net worth of firms and so leads to ________
investment spending because of the reduction in moral hazard.
A. raises; higher
B. raises; lower
C. reduces; higher
D. reduces; lower
Answer:
Ending the “Great Inflation” era in the 1970s is an example of
A. inflation targeting.
B. exchange rate targeting.
C. central bank independence.
D. appointment of a more conservative central banker.
E. all of the above.
Answer:
The ________ interest rate more accurately reflects the true cost of borrowing.
A. nominal
B. real
C. discount
D. market
Answer:
Each Fed bank president attends FOMC meetings; although only ________ Fed bank
presidents vote on policy, all ________ provide input.
A. three; ten
B. five; ten
C. three; twelve
D. five; twelve
Answer:
State banks that are not members of the Federal Reserve System are most likely to be
examined by the
A. Federal Reserve System.
B. FDIC.
C. FHLBS.
D. Comptroller of the Currency.
Answer:
The Phillips curve indicates that when the labor market is ________, production costs
will ________ and aggregate supply increases.
A. easy; rise
B. easy; fall
C. tight; fall
D. tight; rise
Answer:
Financing government spending by selling bonds to the public, which pays for the
bonds with currency,
A. leads to a permanent decline in the monetary base.
B. leads to a permanent increase in the monetary base.
C. leads to a temporary increase in the monetary base.
D. has no net effect on the monetary base.
Answer:
A financial crisis occurs when an increase in asymmetric information from a disruption
in the financial system
A. causes severe adverse selection and moral hazard problems that make financial
markets incapable of channeling funds efficiently.
B. allows for a more efficient use of funds.
C. increases economic activity.
D. reduces uncertainty in the economy and increases market efficiency.
Answer:
Under the European System of Central Banks, the Governing Council is similar in
structure to the ________ of the Federal Reserve System.
A. Board of Governors
B. Federal Open Market Committee
C. Federal Reserve Banks
D. Federal Advisory Council
Answer:
The “lemons problem” exists because of
A. transactions costs.
B. economies of scale.
C. rational expectations.
D. asymmetric information.
Answer:
An increase in U.S. Treasury deposits at the Fed reduces both ________ and the
________.
a. reserves; monetary base
b. Fed liabilities; money multiplier
c. Fed assets; monetary base
d. Fed assets; money multiplier
Answer:
In Irving Fisher’s quantity theory of money, velocity was determined by
A. interest rates.
B. real GDP.
C. the institutions in an economy that affect individuals’ transactions.
D. the price level.
Answer:
A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A. 8 percent.
B. 10 percent.
C. 12 percent.
D. 14 percent.
Answer:
The General Motors Acceptance Company (GMAC) is a
A. sales finance company.
B. consumer finance company.
C. business finance company.
D. public finance company.
Answer: