Which of the following is a function performed by the twelve Federal Reserve banks?
a. conducting research on regional and national economic issues
b. clearing checks
c. withdrawing old or damaged currency from circulation
d. all of the above
Answer:
Suppose that economic data reveal rising output and falling prices. This data should
lead you to believe that
a. aggregate demand has increased
b. aggregate supply has increased
c. aggregate demand has decreased
d. aggregate supply has decreased
Answer:
Other things being equal, a recession is most likely to be triggered by
a. an adverse supply shock
b. an increase in the budget deficit
c. a decline in interest rates
d. a depreciation of the dollar on foreign exchange markets
Answer:
The existence of financial intermediaries
a. raises the overall level of saving and investment
b. transmits the benefits of diversification to even the smallest savers
c. reduces the need for borrowers and lenders to have identical maturity preferences
d. all of the above
Answer:
Which group of economists believes that only fiscal policy could have revived the
economy during the Great Depression?
a. Keynesians
b. monetarists
c. neoclassicals
d. supply-siders
Answer:
Which of the following can the Fed most quickly and accurately influence?
a. the inflation rate
b. M2
c. the real Treasury bond yield
d. the nonborrowed monetary base
Answer:
Of all the forms of nonmarketable U.S. government debt, the largest portion is in the
form of:
a. state and local government series
b. government account series
c. U.S. Treasury notes
d. savings bonds and notes
Answer:
If, in a given year, the money supply increases 5 percent and velocity decreases 1
percent, while the price level rises by 2 percent, then
a. real GDP will rise by 2 percent
b. nominal GDP will rise by 2 percent
c. both of the above will occur
d. neither of the above will occur
Answer:
When interest rates fall, the dollar tends to ____ and net exports tend to ____.
a. depreciate; rise
b. depreciate; fall
c. appreciate; rise
d. appreciate; fall
Answer:
Assuming a 10% reserve requirement, a bank deposit of $1,000 in cash made by a
member of the public will immediately cause
a. total reserves to rise by $900
b. required reserves to rise by $900
c. excess reserves to rise by $900
d. none of the above
Answer:
This measure of a firm’s value compares the market value of a firm’s stock to the
liquidated value of the firm:
a. price to book value
b. price earnings (PE) ratio
c. equity risk premium
d. none of the above
Answer:
Competitive Corporation’s stock sells for $40 a share, earns profits of $5 per share, and
pays an annual dividend of $2 per share. What is Competitive Corporation’s dividend
yield?
a. 5 percent
b. 8 percent
c. 12.5 percent
d. not enough information is given to answer the question
Answer:
Which act authorized banks to begin underwriting equities and offering full-service
financial services to their customers?
a. the Riegle-Neal Act
b. the Gramm-Leach-Bliley Act
c. the Competitive Equality in Banking Act
d. the Bank Holding Company Act
Answer:
When the Fed buys $25,000 of securities in the open market, the money supply will
eventually
a. increase $25,000
b. increase more than $25,000
c. decrease $25,000
d. decrease more than $25,000
Answer:
An increase in the monetary base will lead to a less-than-proportional increase in M if
the increase in the base produces a
a. decrease in rr
b. decrease in k
c. increase in re
d. any or all of the above will lead to a less-than-proportional increase in M
Answer:
Assume a 10 percent reserve requirement and no initial excess reserves. A withdrawal
of $500 from a checking account at the Fifth Third Bank will cause that bank’s
a. excess reserves to fall by $450
b. required reserves to fall by $500
c. reserves to fall by $50
d. all of the above are true
Answer:
Calculate the price of a bond with a coupon rate of 8 percent which matures in 3 years
if market interest rates on similar instruments are 10 percent.
a. $800.00
b. $950.25
c. $1000.00
d. $1050.25
Answer:
The change in the number of banks over the last 20 years can be primarily attributed to
a. a large number of bank mergers being authorized
b. a large number of bank failures
c. a large number of new bank charters being issued
d. none of the above
Answer:
In an attempt to stave off the initial S&L crisis, regulators quickly
a. authorized S&Ls to issue MMDAs
b. broadened the range of assets that S&Ls could hold
c. phased out deposit interest ceilings
d. did all of the above
Answer:
The “wealth effect”:
a. stimulates current consumption only if both incomes and stock prices rise
b. results in higher levels of both consumption and saving
c. only increases consumption by households–never decreases consumption
d. is the effect of changes in individuals’ net worth on consumption and saving
decisions
Answer:
When the Federal Reserve sells securities in the open market
a. the federal funds rate rises and the Treasury bill yield rises
b. the federal funds rate rises and the Treasury bill yield falls
c. the federal funds rate falls and the Treasury bill yield rises
d. the federal funds rate falls and the Treasury bill yield falls
Answer:
Data on countries that now practice inflation targeting show that
a. nearly all of them had very high inflation before adoption of an inflation targeting
plan
b. nearly all of them had very low inflation before adoption of an inflation targeting
plan
c. there was a wide range of levels of inflation prior to adoption of an inflation targeting
plan
d. not enough information is given to answer the question
Answer:
The size of the U.S. money supply varies directly with the magnitude of
a. B
b. k
c. re
d. rr
Answer:
Which factor served to reduce the spread between mortgage rates and the rates payable
on deposits during the late 1970s and early 1980s?
a. removal of Regulation Q
b. the growth of money market mutual funds
c. the growth of mortgage securitization
d. all of the above
Answer:
Concerning the cyclical behavior of interest rates,
a. short-term rates are more volatile than long-term rates
b. long-term rates decline during cyclical expansions
c. short-term rates rise during recessions
d. none of the above
Answer:
The M3 money stock would probably be most likely to be chosen as an intermediate
target of policy by
a. a hardcore Keynesian
b. a hardcore monetarist
c. both of the above
d. neither of the above
Answer:
Aggregate bank reserves in the banking system are determined primarily by
a. the Treasury
b. the public
c. the Federal Reserve
d. banks
Answer:
The case for an independent central bank is based in large part on the premise that
a. the public knows more about economics than politicians do
b. the public is unable to evaluate monetary policy
c. politicians know more about economics than bankers do
d. the public has an irrational fear of inflation
Answer:
Which of the following potential intermediate monetary policy target variables scores
highest on the criterion of controllability?
a. long-term interest rates
b. the monetary aggregates
c. net free reserves
d. nonborrowed reserves
Answer:
To anticipate movements in the economy, the Federal Reserve may refer to
a. leading indicators
b. data series that fluctuate in advance of economic activity
c. surveys done with households and professional economists
d. all of the above
Answer: