The ________ is defined as the payments to the owner plus the change in a security’s
value expressed as a fraction of the security’s purchase price.
A) yield to maturity
B) current yield
C) rate of return
D) yield rate
Answer:
The primary liabilities of depository institutions are
A) premiums from policies.
B) shares.
C) deposits.
D) bonds.
Answer:
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in ________ percent.
A) dollar; euros is 3
B) euro; dollars is 1
C) dollar; euros is 1
D) euro; dollars is 3
Answer:
If Treasury deposits at the Fed are predicted to fall, 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:
When good weather speeds the check-clearing process, float tends to ________ causing
the Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; sales
C) decrease; defensive; purchases
D) increase; dynamic; purchases
Answer:
Keynes was especially interested in explaining movements of ________ because he
wanted to explain why the Great Depression had occurred and how government policy
could be used to increase ________ in a similar economic situation.
A) aggregate output; wages
B) aggregate output; employment
C) wage rates; wages
D) wage rates; employment
Answer:
When we say that money is a stock variable, we mean that
A) the quantity of money is measured at a given point in time.
B) we must attach a time period to the measure.
C) it is sold in the equity market.
D) money never loses purchasing power.
Answer:
The long-run aggregate supply curve shifts to the right when there is
A) an increase in the total amount of capital in the economy.
B) an increase in the available technology.
C) a decrease in the natural rate of unemployment..
D) A and B.
E) A, B, and C.
Answer:
Another way to state the efficient markets condition is: in an efficient market,
A) unexploited profit opportunities will be quickly eliminated.
B) unexploited profit opportunities will never exist.
C) arbitragers guarantee that unexploited profit opportunities never exist.
D) every financial market participant must be well informed about securities.
Answer:
Which of the following is not a form of e-money?
A) a debit card
B) a credit card
C) a stored-value card
D) a smart card
Answer:
The disruption to financial markets starting in August 2007 that caused both consumer
and business spending to fall
A) shifted the aggregate demand curve to the right.
B) shifted the aggregate demand curve to the left.
C) shifted the aggregate supply curve to the right.
D) shifted the aggregate supply curve to the left.
Answer:
Because ________ are less liquid for the depositor than ________, they earn higher
interest rates.
A) money market deposit accounts; time deposits
B) checkable deposits; passbook savings
C) passbook savings; checkable deposits
D) passbook savings; time deposits
Answer:
The economist who proposed that, “Inflation is always and everywhere a monetary
phenomenon” was
A) John Maynard Keynes.
B) John R. Hicks.
C) Milton Friedman.
D) Franco Modigliani.
Answer:
The long-run neutrality of money refers to the fact that in the long run, monetary policy
A) changes only real output.
B) changes only the real interest rate.
C) changes both real output and the real interest rate.
D) has no effect on either real output or the real interest rate.
Answer:
If a forecast made using all available information is not perfectly accurate, then it is
A) still a rational expectation.
B) not a rational expectation.
C) an adaptive expectation.
D) a second-best expectation.
Answer:
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information in Situation 20-1, if aggregate output is equal to $10,000, then
unplanned inventory investment equals
A) -$1000
B) -$100
C) $0
D) $100
Answer:
A bank has no excess reserves and demand deposit liabilities of $100,000 when the
required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank’s
excess reserves will now be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
Answer:
Financial innovation has caused
A) banks to suffer declines in their cost advantages in acquiring funds, although it has
not caused a decline in income advantages.
B) banks to suffer a simultaneous decline of cost and income advantages.
C) banks to suffer declines in their income advantages in acquiring funds, although it
has not caused a decline in cost advantages.
D) banks to achieve competitive advantages in both costs and income.
Answer:
Under Keynesian analysis, aggregate demand can be written as
A) Yad = C + I + G + NX.
B) Yad = C + I + G – NX.
C) Yad = C – I – G – NX.
D) Yad = C + I – G – NX.
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of a fall in net exports is to ________ real output and ________ the interest rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
Answer:
According to the segmented markets theory of the term structure
A) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds.
B) buyers of bonds do not prefer bonds of one maturity over another.
C) interest rates on bonds of different maturities do not move together over time.
D) buyers require an additional incentive to hold long-term bonds.
Answer:
Keynes’s theory of the demand for money is consistent with
A) countercyclical movements in velocity.
B) a constant velocity.
C) procyclical movements in velocity.
D) a relatively stable velocity.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the discount rate from 5% to 4%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Answer:
A fall in the level of prices
A) does not affect the value of money.
B) has an uncertain effect on the value of money.
C) increases the value of money.
D) reduces the value of money.
Answer:
In asset markets, an asset’s price is
A) set equal to the highest price a seller will accept.
B) set equal to the highest price a buyer is willing to pay.
C) set equal to the lowest price a seller is willing to accept.
D) set by the buyer willing to pay the highest price.
Answer:
If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the
loan amount is
A) $1000.
B) $1210.
C) $2000.
D) $2200.
Answer:
In an agreement to exchange dollars for euros in three months at a price of $0.90 per
euro, the price is the
A) spot exchange rate.
B) money exchange rate.
C) forward exchange rate.
D) fixed exchange rate.
Answer:
Three factors explain the risk structure of interest rates:
A) liquidity, default risk, and the income tax treatment of a security.
B) maturity, default risk, and the income tax treatment of a security.
C) maturity, liquidity, and the income tax treatment of a security.
D) maturity, default risk, and the liquidity of a security.
Answer:
The increase in the availability of ATM’s has caused the cost of acquiring currency to
________ which will cause the currency ratio to ________, everything else held
constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer:
Using the one-period valuation model, assuming a year-end dividend of $0.11, an
expected sales price of $110, and a required rate of return of 10%, the current price of
the stock would be
A) $110.11.
B) $121.12.
C) $100.10.
D) $100.11
Answer:
________ in the domestic interest rate causes the demand for domestic assets to shift to
the right and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer: