Which of the following is NOT an important criterion for whether a good will be usable
as a medium of exchange?
A) The good must be of standardized quality.
B) The good must be valuable relative to its weight.
C) The good must have value even if it were not being used as money.
D) The good must be durable so that value is not lost through product spoilage.
Answer:
Geographic restrictions on banks
A) reduce their ability to take advantage of economies of scale.
B) raise the costs of their providing risk-sharing, liquidity, and information services.
C) reduce their exposure to credit risk.
D) reduce the amount of local lending they undertake.
Answer:
Some claim that ratings agencies have a conflict of interest since:
A) they rate the quality of their own bonds
B) since agencies charge firms for their services rather than investors, they have an
incentive to give high ratings to gain business
C) government began to include bond ratings as part of regulations of mutual funds,
banks, and financial firms
D) they issued many of the mortgages that were later securitized into bonds
Answer:
Suppose that Google announces that its profits for the third quarter of 2013 were $1.6
billion. As a result of this announcement the price of Google’s stock declines. The best
explanation of this is
A) market participants expected Google’s profits to be greater than $1.6 billion for the
third quarter.
B) market participants expected Google’s profits to be less than $1.6 billion for the third
quarter.
C) the stock market is not an efficient market.
D) market participants have adaptive expectations.
Answer:
In derivative markets, trade takes place in
A) assets such as bonds or common stock that derive their value from the value of the
companies which issue them.
B) assets whose rates of returns must be derived from information published in
financial tables.
C) assets that derive their value from underlying assets.
D) assets which are not allowed to be traded on organized exchanges.
Answer:
A bond that is generally agreed to have higher default risk will experience all of the
following EXCEPT:
A) declining demand
B) declining supply
C) higher yield
D) lower price
Answer:
What do many economists see finance companies as having an advantage in?
A) purchasing commercial paper
B) selling long-term securities
C) monitoring the value of collateral
D) charging consumers particularly low interest rates
Answer:
The distinguishing feature of a well-functioning financial market is the
A) continual increase in the liquidity of most assets.
B) continual reduction in the riskiness of most assets.
C) increased ease of converting common stocks into bonds.
D) incorporation of available information into asset prices.
Answer:
Which of the following will NOT shift the short-run aggregate supply function?
A) changes in labor costs
B) changes in the costs of nonlabor inputs
C) changes in the price level
D) changes in the expected price level
Answer:
The Fed’s goal of interest rate stability
A) was formally abandoned in 1998.
B) is motivated by political pressure as well as by a desire for a stable saving and
investment environment.
C) is undermined by actions the Fed takes to further its goal of stability in financial
markets and institutions.
D) is undermined by actions the Fed takes to further its goal of price stability.
Answer:
U.S. Treasury bonds
A) carry no risk of default and are therefore not risky investments.
B) have constant yields to maturity and are therefore not risky investments.
C) have constant coupon rates and are therefore not risky investments.
D) are subject to fluctuations in their market prices and are therefore risky investments.
Answer:
Large commercial banks are considered to be market makers because:
A) without them, there would be no foreign exchange market
B) they can easily manipulate the value of currencies in the foreign exchange market
C) they are willing to buy and sell major currencies at any time
D) they created the foreign exchange market
Answer:
In the United States the stake of top management in firms’ ownership usually is
A) less than 5%.
B) more than 25%.
C) more than 50%.
D) more than 75%.
Answer:
What was the decline in the value of mutual funds held by households during the depths
of the financial crisis, between the third quarter of 2008 and the first quarter of 2009
A) $2 million
B) $2 billion
C) $200 billion
D) $2 trillion
Answer:
The Federal Reserve System was created inA) 1836B) 1863C) 1913D) 1945
Answer:
As of 2012, about how many banks were there in the United States?
A) 57
B) 2000
C) 6200
D) 14,000
Answer:
Which of the following is a liability of the Fed?
A) reserves
B) U.S. government securities
C) discount loans to banks
D) checkable deposits in commercial banks
Answer:
Banks use repurchase agreements to
A) ensure that payments on consumer loans are made on time.
B) borrow funds from business firms or other banks.
C) guard against price fluctuations on long-term bonds.
D) ensure that they always have enough funds on hand to meet their federal tax
liabilities.
Answer:
A nation with an official settlements balance of $50 billion is likely to experience a:
A) balance of payments surplus and accumulate $50 billion in international reserves
B) balance of payments deficit and accumulate $50 billion in international reserves
C) balance of payments surplus and a decline of $50 billion in international reserves
D) balance of payments deficit and a decline of $50 billion in international reserves
Answer:
If traders in a market have rational expectations, then
A) the price of an asset equals its fundamental value.
B) prices of riskier assets are higher than prices of less risky assets.
C) past prices of assets do not affect market participants’ expectations of future asset
prices.
D) they make use of less information than they would if they had adaptive expectations.
Answer:
Historically, the leading official reserve asset was
A) gold.
B) the U.S. dollar.
C) the British pound.
D) the German mark.
Answer:
The speculative attack on the British pound in 1967 succeeded because
A) the pound was seriously undervalued relative to the dollar.
B) Britain decided to drop out of the Bretton Woods system.
C) British exports greatly exceeded British imports, causing a large inflow of gold.
D) the Bank of England lacked the international reserves to defend the existing
exchange rate indefinitely.
Answer:
Which of the following does NOT lead to an increase in potential GDP?
A) labor force grows
B) technological change takes place
C) new machinery and equipment are installed
D) aggregate expenditures increase
Answer:
Which best describes the Federal Reserve district banks?
A) They are private ventures.
B) They are government ventures.
C) Some are private while others are government.
D) They are private-government joint ventures.
Answer:
If there were no adverse selection problems in the stock market,
A) some well-run firms would pay more to raise funds.
B) some poorly-run firms would pay less to raise funds.
C) the willingness of savers to invest in the market would be increased.
D) the volume of new stock issues would be lower.
Answer:
Owners of small firms in countries with weak banking systems have to rely on funds
from all of the following EXCEPT:
A) their own savings
B) local lenders who charge high interest rates
C) global investors
D) the savings of relatives and friends
Answer:
In what year did the United States go off the gold standard?
A) 1933
B) 1945
C) 1981
D) 2001
Answer:
Which central bank has its exchange rate as a focus of its monetary policy?
A) Bank of Canada
B) Bank of England
C) European Central Bank
D) Federal Reserve
Answer:
As wealth increases in the economy, savers are willing to
A) hold more cash relative to their holdings of bonds.
B) buy fewer bonds at any given price.
C) lend more at any given interest rate.
D) lend less at any given interest rate.
Answer:
During an economic recession,
A) the demand and supply curves for loanable funds both shift to the right and the
equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the
equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable
funds shifts to the left, and the equilibrium interest rate usually falls.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable
funds shifts to the right, and the equilibrium interest rate usually rises.
Answer:
Why do governments want to maintain the health of the banking system?
Answer:
How does the use of collateral and net worth help reduce the problem of adverse
selection?
Answer:
Make use of a T-account to show the effect of the Fed’s sale of $500 million worth of
government securities on the Fed’s balance sheet. (assume the Fed receives a check
from the sale of securities)
Answer:
