Suppose Exxon-Mobil announces that its profits in the third quarter of 2013 were $40
billion. This will cause the price of Exxon-Mobil stock to
A) rise.
B) fall.
C) remain unchanged.
D) rise, fall, or remain unchanged depending on the expectations of market participants
before the announcement.
Answer:
When a central bank buys foreign assets,
A) its holdings of foreign assets rise by the amount of the purchase, but the monetary
base is unaffected.
B) its holdings of foreign assets and the monetary base rise by the amount of the
purchase.
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary
base rises by the amount of the purchase times the money multiplier.
D) the monetary base falls by the amount of the purchase.
Answer:
Adverse selection and moral hazard are examples of:
A) transaction costs
B) information cost
C) symmetric information
D) financial market efficiency
Answer:
Which of the following is NOT a benefit of derivatives?
A) risk sharing
B) guaranteed minimum profit
C) liquidity
D) information services
Answer:
According to the aggregate demand-aggregate supply model, what is the short-run
impact of a reduction in the money supply by the Fed?
A) Current output will fall, but the price level will rise.
B) Current output will rise, but the price level will fall.
C) Current output and the price level will both rise.
D) Current output and the price level will both fall.
Answer:
Which interest rate is typically the lowest?
A) 3-month Treasury bills
B) 2-year Treasury notes
C) 10-year Treasury bonds
D) 30-year Treasury bonds
Answer:
If the government increases taxes while holding expenditures constant,
A) the bond supply curve will shift to the left and the equilibrium interest rate will fall.
B) the bond supply curve will shift to the right and the real interest rate will fall.
C) government borrowing will be increased.
D) the government’s deficit will increase.
Answer:
A matched sale-purchase transaction is also known as a
A) reverse repo.
B) discount loan.
C) put option.
D) federal funds loan.
Answer:
When banks hold excess reserves, the size of the money multiplier
A) is less than the simple deposit multiplier would suggest.
B) is greater than the simple deposit multiplier would suggest.
C) is equal to the size of the simple deposit multiplier.
D) becomes infinite.
Answer:
A discount bond resembles a simple loan in that
A) the interest on neither is taxable.
B) the borrower repays in a single payment.
C) both represent assets to the borrowers who issue them.
D) both have par values greater than their face values.
Answer:
The marginal propensity to consume can best be described as:
A) consumption/income
B) the impact of a change in income on GDP
C) the change in income divided by the change in consumption
D) the change in consumption divided by the change in income
Answer:
In the bank lending channel, an important reason for output increases in the short run
after an expansionary monetary policy is that
A) the funds directly available for households and firms to spend will increase.
B) prices will increase, making increased production more profitable for firms.
C) the increase in government spending from an expansionary monetary policy
increases output through the multiplier effect.
D) the ability of banks to make loans will increase.
Answer:
The benchmark default-free interest rate of the financial system is generally considered
to be:
A) the federal funds rate
B) the interest rate on the 10-year Treasury note
C) the discount rate
D) the 30-year fixed rate mortgage
Answer:
When interest rates in the bond market rise,
A) adverse selection problems increase.
B) adverse selection problems are mitigated.
C) moral hazard problems increase.
D) moral hazard problems are mitigated.
Answer:
Suppose there’s an 80% chance of a stock rising by 20% and a 20% chance of it falling
by 40%. Which type of investor would prefer an investment with a guaranteed return of
5%?
A) risk loving investor
B) risk neutral investor
C) risk averse investor
D) risk is not relevant in this example
Answer:
Bonds receiving one of the top four ratings are considered:
A) junk
B) speculative
C) AAA
D) investment grade
Answer:
As a result of the financial crisis, checkable deposits:
A) became a smaller portion of overall liabilities
B) experienced little change
C) hit a new record high in terms of the percent of liabilities
D) nearly doubled in terms of the percent of liabilities
Answer:
The opportunity cost of holding money is measured by:
A) short-term nominal interest rate
B) short-term real interest rate
C) long-term nominal interest rate
D) long-term real interest rate
Answer:
International financial transactions are most likely to affect the U.S. monetary base
when
A) the United States is in recession.
B) the United States is experiencing a severe inflation.
C) the Fed tries to influence the foreign-exchange value of the dollar.
D) interest rates in the United States are highly variable.
Answer:
The Federal Reserve issues a report indicating that future inflation will be higher than
had previously seemed likely. As a result
A) the supply curve for bonds shifts to the right.
B) the demand curve for loanable funds shifts to the left.
C) the equilibrium interest rate falls.
D) the equilibrium price of bonds rises.
Answer:
The money multiplier
A) equals 1 over the required reserve ratio.
B) is an expression that converts the monetary base to the money supply.
C) is larger than the simple deposit multiplier.
D) is completely controlled by the Fed.
Answer:
In practice, the Board of Governors and FOMC typically defer to the policy proposals
of the:
A) President
B) Chair of the Fed
C) Secretary of Treasury
D) Speaker of the House
Answer:
How does an increase in the short-term interest rate affect peoples’ desire to hold real
money balances?
A) People will hold more money to compensate for the higher interest rate.
B) People will hold more money in anticipation of higher inflation.
C) People will hold less money since they would be sacrificing more interest by holding
money.
D) People will hold less money since it is not worth as much.
Answer:
A change in the dollar value of the British pound from $1.60 to $1.50 represents
A) an increase in the pound price of British goods.
B) an appreciation of the dollar relative to the pound.
C) an appreciation of the pound relative to the dollar.
D) an increase in the dollar price of British goods.
Answer:
Why isn’t the current yield a good indicator of holding a bond?
A) It doesn’t account for the yield to maturity.
B) It doesn’t account for capital gains or losses.
C) It doesn’t account for the coupon.
D) It assumes that the current price equals its par value.
Answer:
The beige book is prepared by
A) district banks.
B) Board of Governors.
C) FOMC staff members.
D) commerce department.
Answer:
The original intent of the Federal Reserve Act of 1913 was to provide the Fed with what
role?
A) regulator of the banking system
B) lender of last resort
C) manage the exchange rate
D) maintain a balanced budget
Answer:
Which of the following did NOT play a role in keeping Greece from defaulting between
2010 and 2012?
A) International Monetary Fund
B) United Nations
C) European Union
D) European Central Bank
Answer:
By providing and communicating information, the financial system
A) reduces the difference between the return on three-month U.S. Treasury bills and the
return on thirty-year U.S. Treasury bonds.
B) relieves individual savers from the necessity of searching out individual borrowers.
C) eliminates the risk in investing in the stock market.
D) guarantees investors a reasonable return on their money.
Answer:
Speculators are primarily interested in
A) betting on anticipated changes in prices.
B) reducing their exposure to the risk of price fluctuations.
C) increasing market liquidity.
D) reducing the spread between bid and ask prices on bonds.
Answer: