The decision by inflation targeters to choose inflation targets ________ zero reflects the
concern of monetary policymakers that particularly ________ inflation can have
substantial negative effects on real economic activity.
A. below; high
B. below; low
C. above; high
D. above; low
Answer:
Everything else held constant, which of the following does NOT cause aggregate
demand to increase?
A. an increase in net exports
B. an increase in government spending
C. an increase in taxes
D. an increase in consumer optimism
Answer:
Of the sources of external funds for nonfinancial businesses in the United States,
corporate bonds and commercial paper account for approximately ________ of the
total.
A. 5%
B. 10%
C. 32%
D. 50%
Answer:
The originate-to-distribute business model has a serious ________ problem since the
mortgage broker has little incentive to make sure that the mortgagee is a good credit
risk.
A. principal-agent
B. debt deflation
C. democratization of credit
D. collateralized debt
Answer:
One purpose of regulation of financial markets is to
A. limit the profits of financial institutions.
B. increase competition among financial institutions.
C. promote the provision of information to shareholders, depositors and the public.
D. guarantee that the maximum rates of interest are paid on deposits.
Answer:
It is true that inflation is a
A. continuous increase in the money supply.
B. continuous fall in prices.
C. decline in interest rates.
D. continually rising price level.
Answer:
Which of the following policy measures forced credit-rating agencies to provide reports
to the SEC when their employees go to work for a company that has been rated by them
in the last twelve months?
A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B. Sarbanes-Oxley Act of 2002
C. Global Legal Settlement of 2002
D. Gramm-Leach-Bliley Act of 1999
E. Riegle-Neal Act of 1994
Answer:
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the M1 money
multiplier is
a. 2.5.
b. 2.8.
c. 2.0.
d. 0.67.
Answer:
One of the problems experienced by the savings and loan industry during the 1980s was
A. managers lack of expertise to manage risk in new lines of business.
B. heavy regulations in the new areas open to S&Ls.
C. slow growth in lending.
D. close monitoring by the FSLIC.
Answer:
Which of the following are NOT reported as assets on a bank’s balance sheet?
A. cash items in the process of collection
B. deposits with other banks
C. U.S. Treasury securities
D. checkable deposits
Answer:
A simple deposit multiplier equal to four implies a required reserve ratio equal to
A. 100 percent.
B. 50 percent.
C. 25 percent.
D. 0 percent.
Answer:
The equivalent to the Federal Reserve’s discount rate in the European System of Central
Banks is the
A. federal funds rate.
B. marginal lending rate.
C. deposit facility rate.
D. lombard rate.
Answer:
A policy in which the money supply is kept growing at a constant rate regardless of the
state of the economy is
A. a Taylor rule.
B. a discretionary policy.
C. a policy rule advocated by monetarists.
D. advocated by activists.
Answer:
The money multiplier is
a. negatively related to high-powered money.
b. positively related to the excess reserves ratio.
c. negatively related to the required reserve ratio.
d. positively related to holdings of excess reserves.
Answer:
Which of the following $5,000 face-value securities has the highest yield to maturity?
A. a 6 percent coupon bond selling for $5,000
B. a 6 percent coupon bond selling for $5,500
C. a 10 percent coupon bond selling for $5,000
D. a 12 percent coupon bond selling for $4,500
Answer:
If the ________ curve is relatively more unstable than the ________ curve, a money
supply target is preferred.
A. IS; IS
B. IS; LM
C. LM; IS
D. LM; LM
Answer:
In the basic closed-economy ISLM model, the money market can be described by the
A. money demand function.
B. money supply.
C. money market equilibrium condition.
D. all of the above.
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the right and the domestic currency to ________, everything
else held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer:
When a corporation wishes to sell new securities, it usually employs
A. a takeover specialist.
B. a finance company.
C. an investment bank.
D. a commercial bank.
Answer:
The major criticism of the view that expectations are formed adaptively is that
A. this view ignores that people use more information than just past data to form their
expectations.
B. it is easier to model adaptive expectations than it is to model rational expectations.
C. adaptive expectations models have no predictive power.
D. people are irrational and therefore never learn from past mistakes.
Answer:
Which of the following appears in the capital account part of the balance of payments?
A) a gift to an American from his English aunt
B) a purchase by the Honda corporation of a U.S. Treasury bill
C) a purchase by the Bank of England of a U.S. Treasury bill
D) income earned by the Honda corporation on its automobile plant in Ohio
Answer:
Periodic payments of net earnings to shareholders are known as
A. capital gains.
B. dividends.
C. profits.
D. interest.
Answer:
The global financial crisis lead to a decline in stock prices because
A. of a lowered expected dividend growth rate.
B. of a lowered required return on investment in equity.
C. higher expected future stock prices.
D. higher current dividends.
Answer:
The opportunity cost of holding money is
A. the level of income.
B. the price level.
C. the interest rate.
D. the discount rate.
Answer:
The German central bank gained international reserves in the early 1970s because it
sold ________ to prevent mark ________.
A) marks; appreciation
B) dollars; appreciation
C) marks; depreciation
D) dollars; depreciation
Answer:
Risk sharing is profitable for financial institutions due to
A. low transactions costs.
B. asymmetric information.
C. adverse selection.
D. moral hazard.
Answer:
The main advantage of using options on futures contracts rather than the futures
contracts themselves is that interest-rate risk is
A. controlled while preserving the possibility of gains.
B. controlled, while removing the possibility of losses.
C. not controlled, but the possibility of gains is preserved.
D. not controlled, but the possibility of gains is lost.
Answer:
Examples of off-balance-sheet activities include
A. trading activities.
B. extending loans to depositors.
C. borrowing from other banks.
D. selling negotiable CDs.
Answer:
Which of the following are reported as liabilities on a bank’s balance sheet?
A. reserves
B. checkable deposits
C. consumer loans
D. deposits with other banks
Answer:
Measuring the sensitivity of bank profits to changes in interest rates by multiplying the
gap for several maturity subintervals times the change in the interest rate is called
A. basic gap analysis.
B. the maturity bucket approach to gap analysis.
C. the segmented maturity approach to gap analysis.
D. the segmented maturity approach to interest-exposure analysis.
Answer:
A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any
other asset is just an open market ________ of these assets, ________ the monetary
base.
a. purchase; raising
b. sale; raising
c. purchase; lowering
d. sale; lowering
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one
million dollars in required reserves. Given this information, we can say First National
Bank faces a required reserve ratio of ________ percent.
A. ten
B. twenty
C. eighty
D. ninety
Answer: