If the target federal funds rate reaches zero:
A. the FOMC would run out of policy options.
B. monetary policy would no longer be of use.
C. the FOMC would turn to unconventional measures, such as forward guidance.
D. the FOMC would simply reset the target.
Answer:
The fact that people can write drafts (checks) from many stock and money market
accounts has:
A. increased the transactions demand for money.
B. decreased the transactions demand for money.
C. not affected the transactions demand for money.
D. increased the cost of converting non-money assets to a means of payment.
Answer:
The interest-rate channel of monetary policy transmission appears to be:
A. weak because the investment component of total spending isn’t very sensitive to
interest rates.
B. weak because the investment component of total spending is very sensitive to
interest rates.
C. strong because the investment component of total spending isn’t very sensitive to
interest rates.
D. strong because the investment component of total spending is very sensitive to
interest rates.
Answer:
The required stock return an investor seeks can best be represented by which of the
following?
A. Risk Premium – Risk-free Return
B. Risk-free Return × Risk Premium
C. (Risk-free Return + Risk Premium)/(1 + i)
D. Risk-free Return + Risk Premium
Answer:
The slope of the monetary policy reaction curve is determined by:
A. how strongly the economy reacts to changes in the nominal interest rate.
B. how strongly the inflation rate impacts peoples’ decisions.
C. how aggressively policymakers change interest rates in response to deviations
between current and target inflation rates.
D. people’s expectations for inflation.
Answer:
The value of a financial instrument rises as:
A. the size of the payment promised decreases.
B. the promised payment is made sooner rather than later.
C. it is less likely the payment will be made.
D. the payments are made when the prospective investor needs them least.
Answer:
If M = the quantity of money, m the money multiplier, MB the Monetary Base, C =
Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess
reserves, then m would equal:
A. R/ER.
B. M/MB.
C. C + D.
D. D – C
Answer:
A baker of bread has a long-term fixed-price contract to supply bread. Which of the
following would NOT reduce her risk?
A. Taking the long position in wheat futures contract
B. Hedging this risk in the wheat futures market
C. Finding a wheat farmer who will take the short position in a wheat futures contract
D. Finding a wheat farmer who will take the long position in a wheat futures contract
Answer:
The specific goals of central banks include each of the following, except:
A. high and stable real growth.
B. low and stable inflation.
C. high levels of exports.
D. low and stable unemployment.
Answer:
Insurance companies perform all of the following functions performed by financial
intermediaries except:
A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
D. supplying liquidity.
Answer:
Each of the following can contribute to the change in the supply of loans resulting from
an interest rate change, except:
A. changes in the percentage of loan payment to income.
B. changes in the potential of moral hazard.
C. changes in borrowers’ net worth.
D. increases in the demand for loans.
Answer:
If a negative supply shock is associated with a decline in potential output, policymakers
need to:
A. raise the real interest rate by even less than they would in the case of a recessionary
gap.
B. raise the real interest rate by even more than they would in the case of a
recessionary gap.
C. raise the real interest rate by the same amount as they would in the case of a
recessionary gap.
D. not shift the monetary policy reaction curve.
Answer:
Compared to an independent central bank, elected officials are likely to:
A. favor long-run stability over short-term prosperity.
B. sacrifice short-term growth to keep future inflation low.
C. choose monetary policies that are overly accommodative.
D. prefer interest rates to vary more often.
Answer:
When a business purchases a $50,000 computer system by writing a check, the
business’s balance sheet will:
A. only show an increase in liabilities of $50,000.
B. show an increase in assets and liabilities for $50,000.
C. not reflect any increase in assets or liabilities, only a change in the composition of
assets.
D. only show an increase in assets of $50,000.
Answer:
Stock prices are:
A. set by the company issuing the stock.
B. set by the central bank.
C. determined by market transactions.
D. unrelated to the value of the company issuing the stock.
Answer:
Which of the following statements is true?
A. Unsecured loans generally involve very high interest rates as a result of the
free-rider problem.
B. Unsecured loans generally involve very high interest rates as a result of adverse
selection.
C. Unsecured loans are no longer made; all loans now must have some form of
collateral.
D. Unsecured loans are only made to individuals with very high net worth because it is
the only way to limit the risk.
Answer:
The fact that central bankers tend to respond to higher rates of inflation by increasing
the real interest rate is:
A. one reason the dynamic aggregate demand curve shifts left.
B. one reason the dynamic aggregate demand curve slopes downward.
C. one reason the dynamic aggregate demand curve shifts right.
D. why the monetary policy reaction curve has a negative slope.
Answer:
The bank-lending channel of monetary policy focuses on:
A. the interest rate banks charge their largest customer.
B. the banks’ willingness and ability to lend.
C. how central bank policy influences the solvency of banks.
D. the deposit insurance premiums banks will end up paying.
Answer:
With a call option that is described as in the money:
A. the market price of the stock is below the strike price.
B. the market price of the stock equals the strike price.
C. the market price of the stock is above the strike price.
D. the option has been exercised.
Answer:
Concrete likely does not follow the law of one price due to:
A. technical differences.
B. lack of information regarding prices.
C. tariffs.
D. high transportation costs.
Answer:
Financial intermediaries pool the resources of many small savers so that they can:
A. charge fees to these small savers and earn substantial income.
B. obtain the funds necessary to make loans to borrowers seeking large amounts.
C. lower their transaction costs of obtaining funds.
D. avoid paying any interest to obtain funds to lend.
Answer:
The demand for money varies:
A. directly with the liquidity of other financial assets.
B. inversely with the liquidity of other financial assets.
C. not all with the liquidity of other assets since money is liquid.
D. inversely with wealth.
Answer:
Large companies seeking to raise funds often will use a well-known investment bank
because:
A. the investment bank’s reputation identifies the company as being credit worthy.
B. they are required to by government regulation.
C. the investment bank is paying the company for the publicity and goodwill it will
generate.
D. this minimizes moral hazard.
Answer:
Suppose the economy has an inverted yield curve. According to the Liquidity Premium
Theory, which of the following interpretations could be used to explain this?
A. Interest rates are expected to rise in the future.
B. Investors expect an economic slowdown.
C. Investors are indifferent between bonds with different time horizons.
D. The term spread has increased.
Answer:
An expected appreciation of the dollar, everything else held constant, should cause:
A. the supply of dollars to increase.
B. the demand for dollars to increase.
C. the demand for dollars to decrease.
D. the dollar to depreciate now relative to other currencies.
Answer:
A country that exports less than it imports will:
A. have a current account deficit and a capital account deficit.
B. have a current account surplus and a capital account deficit.
C. have a current account surplus and a capital account surplus.
D. have a current account deficit and a capital account surplus.
Answer:
Unit banks are:
A. banks with no branches.
B. more numerous in the United States than they were in previous decades.
C. no longer permitted to exist in the United States.
D. commercial banks that have combined into one unit with an investment bank.
Answer:
Over the two-year period during which the financial crisis occurred, the amount of
assets in the Federal Reserve balance sheet increased by:
A. 2.5 times.
B. 3 times.
C. 4.5 times.
D. 6 times.
Answer:
The movement away from bank lending towards asset-backed securities has:
A. increased the importance of the bank-lending channel of monetary policy.
B. eliminated the bank-lending channel as a mechanism for monetary policy.
C. decreased the importance of the bank-lending channel.
D. led the FOMC to abandon interest-rate targets.
Answer:
During the financial crisis of 2007-2009 in the United States it was revealed that the
function of a lender of last resort had not kept pace with the evolving financial system
because:
A. financial intermediaries had grown sufficiently large so as not to need a lender of
last resort.
B. shadow banks lacked access to the financial resources available through the lender
of last resort.
C. banks were sufficiently linked to one another that the need for a lender of last resort
had diminished.
D. banks had become sufficiently diversified so as to be able to provide for their own
liquidity.
Answer:
An investment pays $1,500 half of the time and $500 half of the time. Its expected
value and variance respectively are:
A. $1,000; 500,000 dollars
B. $2,000; (250,000 dollars)2
C. $1,000; 250,000 dollars
D. $1,000; 250,000 dollars2
Answer:
Fixed exchange rate regimes include each of the following, except:
A. the Bretton Woods exchange rate system.
B. exchange rate pegs.
C. dollarization.
D. currency boards.
Answer:
When the amount of direct and indirect financing are summed, the result is usually:
A. greater than 100% of GDP.
B. equal to GDP.
C. less than GDP.
D. approximately 50% of GDP.
Answer: