The relationship between the output gap and the cyclical rate of unemployment is
known as
A) the Phillips curve.
B) the LM curve.
C) Murphy’s law.
D) Okun’s law.
Answer:
When the price of a coupon bond increases,
A) the coupon rate declines
B) the coupon rate increases
C) the current yield declines
D) the current yield increases
Answer:
A rising dollar makes U.S. goods
A) more expensive abroad and increases the volume of U.S. exports.
B) less expensive abroad and increases the volume of U.S. exports.
C) less expensive abroad and decreases the volume of U.S. exports.
D) more expensive abroad and decreases the volume of U.S. exports.
Answer:
What was the goal of Operation Twist?
A) to reduce long-term interest rates and increase short-term interest rates
B) to reduce short-term interest rates and increase long-term interest rates
C) to reduce both short-term and long-term interest rates
D) to increase both short-term and long-term interest rates
Answer:
Which of the following statements regarding futures is true?
A) trading futures contracts on agricultural and mineral commodities makes up a
majority of all trading.
B) trading in financial futures involves more transactions than trading in commodity
futures.
C) futures trading is allowed only for financial assets.
D) futures trading is allowed only for commodities.
Answer:
An asset is
A) the same thing as a liability.
B) a thing of value that can be owned.
C) money, as opposed to stock or bonds.
D) anything that never declines in value.
Answer:
A one-year discount bond with a par value of $1000 sold today, at issuance, for $943
has a yield to maturity of
A) 4.30%.
B) 5.70%.
C) 6.04%.
D) 9.43%.
Answer:
Why is adverse selection more likely in financial markets when interest rates rise?
A) The remaining borrowers are more likely to be risky.
B) Higher interest rates are likely to hurt the economy.
C) If firms have to pay higher interest rates, they may choose to use the funds
differently than they first intended.
D) Banks eliminate risky borrowers by raising interest rates.
Answer:
Why might Congress benefit from the Fed being self-financed?
A) Self-financing increases Congressional control over the Fed.
B) Self-financing reduces the Fed’s exposure to external pressures.
C) Self-financing gives the Fed an incentive to expand the money supply, which
ultimately results in Congress having additional funds to spend.
D) Congress does not benefit from the Fed being self-financed; Congress is obliged by
the Constitution to allow the Fed to be self-financed.
Answer:
A firm’s principals are its
A) shareholders.
B) management.
C) values.
D) customers.
Answer:
A closed economy is one in which
A) investment spending is zero.
B) government spending is zero.
C) there are no imports or exports.
D) demand equals supply in every market.
Answer:
Under the Bretton Woods system, an asymmetry in the ability of central banks to defend
their exchange rates existed because
A) a country experiencing a balance of payments surplus was limited in its ability to
defend its exchange rate by its stock of international reserves.
B) a country experiencing a balance of payments deficit was limited in its ability to
defend its exchange rate by its stock of international reserves.
C) central banks were allowed by the IMF to adjust their exchange rates upward
whenever they chose, but were rarely allowed to adjust their exchange rates downward.
D) central banks were allowed by the IMF to adjust their exchange rates downward
whenever they chose, but were rarely allowed to adjust their exchange rates upward.
Answer:
In managing its liabilities to deal with liquidity problems, banks trade off
A) credit risk against interest rate risk.
B) adverse selection against moral hazard.
C) the need for available funds to meet deposit outflows against the desire for greater
profit.
D) present tax liabilities against future tax liabilities.
Answer:
When did the Fed first begin to use open market operations as a policy tool?
A) the 1920s
B) the 1930s
C) the 1960s
D) the 1980s
Answer:
The ratio of bank capital to bank assets is known as the bank’s
A) leverage ratio.
B) net interest margin.
C) return on equity.
D) return on capital.
Answer:
Which of the following can best be characterized as a “Black Swan” event?
A) decline in stock prices due to a recession
B) rising market interest rates as the Fed tightens monetary policy
C) a financial crisis causing credit to dry up
D) an individual firm unexpectedly filing for bankruptcy
Answer:
In comparing the views of economists on stabilization policy in the 1960s with the
current views of economists on stabilization policy, one can say
A) few economists in the 1960s favored stabilization policy, while most economists
currently favor stabilization policy.
B) economists’ views on stabilization policy have changed very little since the 1960s.
C) fewer economists currently believe it is possible to use stabilization policy to
fine-tune the economy than in the 1960s.
D) almost no economists in the currently believe stabilization policy should be used.
Answer:
If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the
same time purchases $1 billion of short-term securities issued by the U.S. Treasury,
A) the monetary base will decline by $1 billion.
B) the monetary base will rise by $1 billion.
C) the Fed has conducted an unsterilized foreign-exchange intervention.
D) the Fed has conducted a sterilized foreign-exchange intervention.
Answer:
The recession that became the Great Depression began
A) two months prior to the stock market crash of 1929.
B) with the stock market crash of 1929.
C) one year after the stock market crash of 1929.
D) with the banking panics of the early 1930s.
Answer:
A checkable deposit that pays no interest is known as a
A) demand deposit.
B) certificate of deposit.
C) NOW account.
D) time deposit.
Answer:
If the Fed sterilizes the purchase of foreign assets,
A) its assets and liabilities rise by the same amount.
B) its assets and liabilities fall by the same amount.
C) the composition of its assets changes, but its liabilities are unaffected.
D) the composition of its liabilities changes, but its assets are unaffected.
Answer:
Economists define risk as
A) the difference between the interest rate borrowers pay and the interest rate lenders
receive.
B) the chance that the value of financial assets will change from what you expect.
C) the ease with which an asset can be exchanged for other assets or for goods and
services.
D) the difference between the return on common stock and the return on corporate
bonds.
Answer:
Mutual funds
A) take in deposits from savers and make loans to borrowers.
B) sell shares to savers and purchase assets with the funds.
C) take in deposits from savers and purchase assets with the funds.
D) bring together small savers and small borrowers.
Answer:
Why may a central bank intervene in the foreign exchange market when its currency is
appreciating?
A) concerns about the country’s exports becoming less competitive
B) concerns about inflation
C) concerns about imports becoming less competitive
D) to sterilize the effects on the domestic economy
Answer:
When the yield curve is downward-sloping,
A) short-term yields are higher than long-term yields.
B) long-term yields are higher than short-term yields.
C) the bond market is anticipating the U.S. Treasury may default on its obligations.
D) the inflation rate is expected to rise.
Answer:
Which of the following is a single statistic that summarizes a rating agency’s view of
the issuer’s likely ability to make the required payments on its bonds?
A) grade
B) bond rating
C) speculation
D) yield
Answer:
Regulation Q was intended to
A) maintain banks’ profitability by limiting competition for funds.
B) increase the reserves banks would hold against demand deposits.
C) increase the reserves banks would hold against time deposits.
D) eliminate the need for discount loans.
Answer:
In a call options contract, the
A) seller has the obligation to deliver the instrument at a specified time.
B) buyer has the obligation to receive the instrument at a specified time.
C) seller may choose whether or not to deliver the instrument at a specified time.
D) buyer will choose to exercise his option only if the value of the underlying security
falls.
Answer:
When market participants have rational expectations, the deviation of the expected
price from the actual future price is
A) zero.
B) predictable, provided all relevant information is made use of.
C) not predictable.
D) predictable under certain circumstances, but not under others.
Answer:
A simple loan involves
A) interest payments from the borrower to the lender periodically during the life of the
loan.
B) no payment of interest by the borrower to the lender.
C) payment of interest by the borrower to the lender only at the time the loan matures.
D) payment only of principal. by the borrower to the lender at maturity.
Answer:
In the bond market, the buyer is considered to be
A) the lender.
B) the borrower.
C) the lender or the borrower, depending upon the use to which the funds are put.
D) the lender or the borrower, depending upon whether interest rates are rising or
falling.
Answer: