Due to the nature of its asset structure, the industry most vulnerable to the high interest
rates of the early 1980s was the ____ industry.
a. credit union
b. commercial banking
c. money market mutual fund
d. savings and loan
Answer:
In the loanable funds model, which of the following would tend to cause an increase in
interest rates?
a. an increasingly thrifty population
b. an increase in preference for present goods over future goods
c. a reduction in the federal deficit
d. none of the above
Answer:
Due to its impact on the currency and desired excess reserve ratios, an increase in
market interest rates causes the money supply multiplier to
a. fall
b. rise
c. move in an uncertain direction, because the currency and desired excess reserve
ratios are pulled in opposite directions
d. an increase in market interest rates will have no effect on the money supply
multiplier
Answer:
Criticisms of the reserve requirement tool include
a. its uneven regional influence
b. its neutrality
c. its lack of flexibility
d. all of the above
Answer:
The FOMC directive is implemented by
a. the Board of Governors
b. the Fed Advisory Board
c. the Fed’s New York district bank
d. the Fed’s twelve district banks
Answer:
Most early studies find very few bank economies of scale once total deposits exceed
a. $1 billion
b. $20 billion
c. $100 million
d. $400 million
Answer:
A strong depreciation of the U.S. dollar, such as occurred in the late 1970s, has the
following consequences:
a. it tends to boost the U.S. trade deficit
b. it tends to create hardship in import-competing firms in the United States
c. it tends to increase the inflation rate in the United States
d. all of the above
Answer:
Which of the following statements is true about the capital market?
a. State and local government bonds have a higher amount outstanding than corporate
equities.
b. The capital market is usually where funds are obtained to finance long-term capital
expenditures.
c. The capital market encompasses corporate bonds, mortgages, and federal funds.
d. The capital market encompasses corporate equities, corporate bonds, and commercial
paper.
Answer:
Choose the response below for which the assets are properly ordered from least risky to
most risky.
a. savings deposit, government agency bond, treasury note
b. treasury note, treasury bill, banker’s acceptance
c. government bond, corporate bond, common stock
d. checking account deposit, common stock, corporate bond
Answer:
If interest rates rise in France, ceteris paribus,
a. the dollar will appreciate relative to the euro
b. the dollar will depreciate relative to the euro
c. nothing predictable will happen to the dollar/euro exchange rate
d. not enough information is given to answer the question
Answer:
The primary use of funds in the savings and loan industry is:
a. commercial loans
b. real estate loans
c. consumer loans
d. junk bond purchases
Answer:
In constructing today’s measures of money, the Federal Reserve has put the most weight
on which item?
a. currency
b. time deposits
c. demand deposits
d. none of the above–all items included in a measure of money have the same weight
Answer:
One advantage of a fiat money system is that
a. government has no power to mismanage the money stock in a fiat money system
b. the money can always be redeemed for an underlying substance
c. precious resources can be put to good use rather than being tied up in the form of
money
d. there are no advantages to a fiat money system
Answer:
Federal Reserve Board members
a. are appointed by the president and approved by the House of Representatives
b. may concurrently serve a seven-year term as Chairman of the Board of Governors
c. normally serve one fourteen-year term
d. all of the above are true
Answer:
People hold a larger fraction of annual expenditures in money
a. as interest rates rise
b. as they are paid less frequently
c. as their income rises
d. in none of the above instances
Answer:
A chief concern about large budget deficits is that they may lead to:
a. lower living standards in the future
b. deflation in the future
c. lower interest rates in the present
d. all of the above
Answer:
Suppose the real interest rate remains constant at 3 percent while expected inflation
increases from 4 percent to 6 percent. Then the nominal interest rate:
a. increases from 1 percent to 3 percent
b. increases from 4 percent to 6 percent
c. increases from 7 percent to 9 percent
d. does none of the above
Answer:
According to the text, the long-term changes in the variability of the growth rate of the
monetary base suggests that, since the 1950s,
a. the Fed is placing increasing emphasis on interest rates
b. the Fed is placing increasing emphasis on monetary aggregates
c. the Fed is placing increasing emphasis on net free reserves
d. none of the above is correct
Answer:
The behavior of the money supply multiplier over the past thirty years can be attributed
primarily to
a. decreases in the currency ratio
b. decreases in reserve requirements
c. increases in the excess reserve ratio
d. none of the above
Answer:
The criteria on which to judge the merits of a variable as an intermediate target of
monetary policy include
a. controllability
b. importance
c. measurability
d. all of the above
Answer:
The last period of general deflation in the United States occurred from
a. 1910 to 1913
b. 1929 to 1933
c. 1941 to 1945
d. 1996 to 1999
Answer:
The interest rate:
a. is a single rate mandated by the central bank that does not change
b. is affected solely by Fed policy
c. consists of many interest rates that are all equal
d. is the cost of borrowing
Answer:
The main difference between the pure expectations and liquidity premium theories of
term structure is that the liquidity premium theory accounts for:
a. reinvestment risk
b. default risk
c. institutional characteristics of investors
d. market risk
Answer:
The liquidity premium theory is a modified version of which theory of term structure?
a. segmented markets
b. preferred habitat
c. pure expectations
d. the liquidity premium theory is not a modified version of any theory
Answer:
To trigger a multiple contraction of deposits, the Fed should
a. sell securities
b. buy securities
c. the Fed cannot trigger a multiple contraction of deposits by buying or selling
securities
d. not enough information is given to answer the question
Answer:
Which of the following is true about inflation and deflation?
a. Inflation is often associated with low levels of output.
b. Inflation is often associated with high levels of unemployment.
c. Deflation is often associated with stagnant or falling levels of output.
d. Deflation is often associated with high levels of employment.
Answer:
Suppose the public withdraws $200 million from checking accounts. The monetary base
a. decreases $200 million
b. increases $200 million
c. increases $200 million times the money multiplier
d. remains unchanged
Answer:
Those opposed to Federal Reserve independence argue that
a. the secrecy of the Federal Reserve serves no purpose except to cover potential
mistakes
b. independence stands in the way of effective monetary and fiscal policy coordination
c. historically, the lack of accountability has made the Fed a “loose cannon”
d. all of the above are true
Answer:
If changes in M always induce changes in velocity in exact inverse proportion to the
changes in M, then
a. monetary policy is impotent
b. fiscal policy is impotent
c. the Fed should increase M at a constant rate
d. none of the above is necessarily true
Answer:
At a recent FOMC meeting, the discount rate is increased by one-half percent. Given
other factors, this should lead to
a. no change in re
b. an increase in re
c. a decrease in re
d. not enough information is given to answer the question
Answer:
Government regulation of financial intermediaries is generally aimed at
a. increasing the flow of information to investors
b. making intermediaries more stable and less likely to fail
c. improving the central bank’s ability to control the money supply
d. all of the above
Answer: