All else the same, if a bank’s liabilities are more sensitive to interest rate fluctuations
than are its assets, then ________ in interest rates will ________ bank profits.
A. an increase; increase
B. an increase; reduce
C. a decline; reduce
D. a decline; not affect
Answer:
The concept of adverse selection helps to explain all of the following EXCEPT
A. why firms are more likely to obtain funds from banks and other financial
intermediaries, rather than from the securities markets.
B. why indirect finance is more important than direct finance as a source of business
finance.
C. why direct finance is more important than indirect finance as a source of business
finance.
D. why the financial system is so heavily regulated.
Answer:
If unplanned investment is negative, firms will ________ production and output will
________.
A. cut; rise
B. cut; fall
C. increase; rise
D. increase; fall
Answer:
The upward trend in the currency-deposit ratio during 1994-2007 can be explained by
a. the increased holdings of U.S. currency by foreigners.
b. bank panics.
c. a drop in the rate of interest paid on checking deposits.
d. high taxes and illegal activities.
Answer:
Banks responded to disintermediation by
A. supporting the elimination of interest rate regulations, enabling them to better
compete for funds.
B. opposing the elimination of interest rate regulations, as this would increase their cost
of funds.
C. demanding that interest rate regulations be imposed on money market mutual funds.
D. supporting the elimination of interest rate regulations, as this would reduce their cost
of funds.
Answer:
When the Federal Reserve extends a discount loan to a bank, the monetary base
________ and reserves ________.
A. remains unchanged; decrease
B. remains unchanged; increase
C. increases; increase
D. increases; remain unchanged
Answer:
If aggregate demand is less than the level of aggregate output, then ________ inventory
investment will be ________.
A. planned; positive
B. actual; positive
C. actual; negative
D. planned; negative
Answer:
An individual’s annual salary is her
A. money.
B. income.
C. wealth.
D. liabilities.
Answer:
Decisions by depositors to increase their holdings of ________, or of banks to hold
excess reserves will result in a ________ expansion of deposits than the simple model
predicts.
A. deposits; smaller
B. deposits; larger
C. currency; smaller
D. currency; larger
Answer:
The trend in recent years is that more and more governments
A. have been granting greater independence to their central banks.
B. have been reducing the independence of their central banks to make them more
accountable for poor economic performance.
C. have mandated that their central banks focus on controlling inflation.
D. have required their central banks to cooperate more with their Ministers of Finance.
Answer:
A feature of Bitcoin, a new type of electronic money, that make it attractive as a
medium of exchange is
A. anonymous transactions.
B. volatility of value.
C. heavy regulations by the central bank.
D. wide acceptance by businesses.
Answer:
One of the assumptions of the Gordon Growth Model is that dividends will continue
growing at ________ rate.
A. an increasing
B. a fast
C. a constant
D. an escalating
Answer:
Thrift institutions include
A. banks, mutual funds, and insurance companies.
B. savings and loan associations, mutual savings banks, and credit unions.
C. finance companies, mutual funds, and money market funds.
D. pension funds, mutual funds, and banks.
Answer:
In financial markets an IPO is an
A. investment portfolio option.
B. initial public offering.
C. initial portfolio offering.
D. investment portfolio offering.
Answer:
As default risk increases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant.
A. increases; less
B. increases; more
C. decreases; less
D. decreases; more
Answer:
From 2004 to 2007, the growth rates of M1 and M2
A. were identical.
B. both increased but at different rates.
C. both decreased but at different rates.
D. moved in opposite directions.
Answer:
The real bills doctrine was the guiding principle for the conduct of monetary policy
during the
A. 1910s.
B. 1940s.
C. 1950s.
D. 1960s.
Answer:
Unemployment resulting from a mismatch of workers’ skills and job requirements is
called
A. frictional unemployment.
B. structural unemployment.
C. seasonal unemployment.
D. cyclical unemployment.
Answer:
By taking the short position on a futures contract of $100,000 at a price of 96 you are
agreeing to ________ a ________ face value security for ________.
A. sell; $100,000; $96,000.
B. sell; $96,000; $100,000.
C. buy; $100,000; $96,000.
D. buy; $96,000; $100,000.
Answer:
Compared to commercial banks and thrift institutions, finance companies are
A. heavily regulated.
B. able to attract small depositors.
C. prevented from making relatively small loans.
D. virtually unregulated.
Answer:
Banks can lower the cost of information production by applying one information
resource to many different services. This process is called
A. economies of scale.
B. asset transformation.
C. economies of scope.
D. asymmetric information.
Answer:
A debt instrument sold by a bank to its depositors that pays annual interest of a given
amount and at maturity pays back the original purchase price is called
A. commercial paper.
B. a certificate of deposit.
C. a municipal bond.
D. federal funds.
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S.
dollars.
A. 0.02
B. 1.20
C. 7.00
D. 49.0
Answer:
The concept of ________ is based on the common-sense notion that a dollar paid to you
in the future is less valuable to you than a dollar today.
A. present value
B. future value
C. interest
D. deflation
Answer:
Everything else held constant, a shift in tastes in the U.S. toward Mexican goods will
________ net exports in the U.S. and cause the quantity of aggregate output demanded
to ________ in Mexico.
A. decrease; rise
B. decrease; fall
C. increase; rise
D. increase; fall
Answer:
Discovery of new gold in Alaska will ________ the ________ of gold, ________ its
price, everything else held constant.
A. increase; demand; increasing
B. decrease; demand; decreasing
C. decrease; supply; increasing
D. increase; supply; decreasing
Answer:
Asset transformation can be described as
A. borrowing long and lending short.
B. borrowing short and lending long.
C. borrowing and lending only for the short term.
D. borrowing and lending for the long term.
Answer:
The yield to maturity is ________ than the ________ rate when the bond price is
________ its face value.
A. greater; coupon; above
B. greater; coupon; below
C. greater; perpetuity; above
D. less; perpetuity; below
Answer:
The amount of deposits that banks must hold in reserve is
A. excess reserves.
B. required reserves.
C. total reserves.
D. vault cash.
Answer:
Real business cycle theorists are critical of monetarist reduced-form evidence because
they believe
A. money is the most important cause of changes in aggregate demand.
B. there is reverse causation from the business cycle to money.
C. there is reverse causation from money to the business cycle.
D. business cycles do not exist.
Answer:
The effectiveness lag is
A. the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B. the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C. the time it takes to pass legislation to implement a particular policy.
D. the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E. the time it takes for the policy actually to have an impact on the economy.
Answer:
If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if
the reserve requirement is 20 percent, then the bank has actual reserves of
A. $11,000.
B. $20,000.
C. $21,000.
D. $26,000.
Answer:
When the Treasury bond market becomes more liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A. right; right
B. right; left
C. left; right
D. left; left
Answer:
If the required reserve ratio is 25 percent, the simple deposit multiplier is
A. 5.0.
B. 2.5.
C. 4.0.
D. 10.0.
Answer:
Direct finance involves the sale to ________ of marketable securities such as stocks and
bonds.
A. households
B. insurance companies
C. pension funds
D. financial intermediaries
Answer: