Bank capital has both benefits and costs for the bank owners. Higher bank capital
________ the likelihood of bankruptcy, but higher bank capital ________ the return on
equity for a given return on assets.
A) reduces; reduces
B) increases; increases
C) reduces; increases
D) increases; reduces
Answer:
The most common definition that monetary policymakers use for price stability is
A) low and stable deflation.
B) an inflation rate of zero percent.
C) high and stable inflation.
D) low and stable inflation.
Answer:
The aggregate demand curve is downward sloping because a higher inflation rate leads
the central bank to ________ real interest rates, thereby ________ the level of
equilibrium aggregate output., everything else held constant.
A) raise; lowering
B) raise; raising
C) reduce; lowering
D) reduce; raising
Answer:
The large number of banks in the United States is an indication of
A) vigorous competition within the banking industry.
B) lack of competition within the banking industry.
C) only efficient banks operating within the United States.
D) consumer preference for local banks.
Answer:
Suppose the U.S. economy is operating at potential output. A negative supply shock that
is accommodated by an open market purchase by the Federal Reserve will cause
________ in real GDP in the long run and ________ in inflation in the long run,
everything else held constant.
A) no change; an increase
B) no change; a decrease
C) an increase; an increase
D) a decrease; a decrease
Answer:
Depositors have a strong incentive to show up first to withdraw their funds during a
bank crisis because banks operate on a
A) last-in, first-out constraint.
B) sequential service constraint.
C) double-coincidence of wants constraint.
D) everyone-shares-equally constraint.
Answer:
According to PPP, the real exchange rate between two countries will always equal
A) 0
B) 0.5
C) 1
D) 1.5
Answer:
The Bush tax cut reduced the top income tax bracket from 39% to 35% over a ten-year
period. Supply and demand analysis predicts the impact of this change was a ________
interest rate on municipal bonds and a ________ interest rate on Treasury bonds.
A) higher; lower
B) lower; lower
C) higher; higher
D) lower; higher
Answer:
Which of the following instruments are traded in a capital market?
A) U.S. Government agency securities
B) Negotiable bank CDs
C) Repurchase agreements
D) U.S. Treasury bills
Answer:
During the 2007-2009 financial crisis the excess reserve ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.
Answer:
Fisher’s quantity theory of money suggests that the demand for money is purely a
function of ________, and ________ no effect on the demand for money.
A) income; interest rates have
B) interest rates; income has
C) government spending; interest rates have
D) expectations; income has
Answer:
The financial intermediaries that the average person interacts with most frequently are
A) exchanges.
B) over-the-counter markets.
C) finance companies.
D) banks.
Answer:
If there are four goods in a barter economy, then one needs to know ________ prices in
order to exchange one good for another.
A) 8
B) 6
C) 5
D) 4
Answer:
If float is predicted to decrease because of good weather, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
Answer:
The efficient markets hypothesis implies that prices in the stock market
A) follow a definite pattern.
B) are more likely to go up than down.
C) always undervalue the true assets of a corporation.
D) are unpredictable.
Answer:
The equation of exchange states that the quantity of money multiplied by the number of
times this money is spent in a given year must equal
A) nominal income.
B) real income.
C) real gross national product.
D) velocity.
Answer:
In practice, the Fed’s policy of targeting money market conditions in the 1960s proved
to be
A) countercyclical, helping to stabilize the economy.
B) procyclical, destabilizing the economy.
C) procyclical, helping to stabilize the economy.
D) countercyclical, destabilizing the economy.
Answer:
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, one million dollars in required reserves,
and faces a required reserve ratio of ten percent. Given this information, we can say
First National Bank has ________ million dollars in excess reserves.
A) two
B) eight
C) nine
D) ten
Answer:
The equation that represents M2 in the model of the money supply process is
A) M2 = C + D.
B) M2 = C + D + T – MMF.
C) M2 = C + D – T + MMF.
D) M2 = C + D + T + MMF.
Answer:
On paper, the Bank of Canada has ________ instrument independence and ________
goal independence when compared to the Federal Reserve System.
A) less; less
B) less; more
C) more; less
D) more; more
Answer:
Excessive volatility refers to the fact that
A) stock returns display mean reversion.
B) stock prices can be slow to react to new information.
C) stock price tend to rise in the month of January.
D) stock prices fluctuate more than is justified by dividend fluctuations.
Answer:
Suppose the economy is producing at the natural rate of output. An increase in
consumer and business confidence will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Answer:
The subprime financial crisis caused a recession because of the ________ in adverse
selection and moral hazard problems and the ________ in housing prices.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer:
The Second Bank of the United States was denied a new charter by
A) President Andrew Jackson.
B) Vice President John Calhoun.
C) President Benjamin Harrison.
D) President John Q. Adams.
Answer:
That several hundred S&Ls were not even examined once in the period January 1984
through June 1986 can be explained by
A) Congress’s unwillingness to allocate the necessary funds to thrift regulators.
B) regulators’ reluctance to find the specific problem thrifts that they knew existed.
C) slower growth in lending meant that less regulation was needed.
D) Congress’s unwillingness to listen to campaign contributors.
Answer:
The public’s fear of centralized power and distrust of moneyed interests led to the
demise of the first two experiments in central banking, otherwise known as
A) the First Bank of the United States and the Second Bank of the United States.
B) the First Bank of the United States and the Central Bank of the United States.
C) the First Central Bank of the United States and the Second Central Bank of the
United States.
D) the First Bank of North America and the Second Bank of North America.
Answer:
The quantity of reserves demanded equals
A) required reserves plus borrowed reserves.
B) excess reserves plus borrowed reserves.
C) required reserves plus excess reserves.
D) total reserves minus excess reserves.
Answer:
People have a strong incentive to form rational expectations because
A) they are guaranteed of success in the stock market.
B) it is costly not to do so.
C) it is costly to do so.
D) everyone wants to be rational.
Answer:
When regulators chose to allow insolvent S&Ls to continue to operate rather than to
close them, they were pursuing a policy of
A) regulatory forbearance.
B) regulatory kindness.
C) ostrich reasoning.
D) ignorance reasoning.
Answer:
Of the four sources of external funding for nonfinancial businesses, the least often used
in the U.S. is
A) bank loans.
B) nonbank loans.
C) bonds.
D) stock.
Answer: