In Keynes’s liquidity preference framework, if there is excess demand for money, there
is
A) an excess demand for bonds.
B) equilibrium in the bond market.
C) an excess supply of bonds.
D) too much money.
Answer:
Everything else held constant, a decrease in the currency ratio will mean ________ in
the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
The strongest argument for an independent Federal Reserve rests on the view that
subjecting the Fed to more political pressures would impart
A) an inflationary bias to monetary policy.
B) a deflationary bias to monetary policy.
C) a disinflationary bias to monetary policy.
D) a countercyclical bias to monetary policy.
Answer:
When gold production was low in the 1870s and 1880s, the money supply grew
________ causing ________.
A) rapidly; inflation
B) rapidly; disinflation
C) slowly; deflation
D) slowly; disinflation
Answer:
Because it is a unit of account, money
A) increases transaction costs.
B) reduces the number of prices that need to be calculated.
C) does not earn interest.
D) discourages specialization.
Answer:
Factors that influenced planned investment spending include:
A) real interest rates.
B) financial frictions.
C) emotional waves of optimism and pessimism.
D) all of the above.
E) A and C.
Answer:
The business term for economies of scope is
A) economies of scale.
B) diversification.
C) cooperation.
D) synergies.
Answer:
The Federal Reserve Bank of ________ plays a special role in the Federal Reserve
System because it houses the open market desk.
A) Boston
B) New York
C) Chicago
D) San Francisco
Answer:
If the consumption function is C = 20 + 0.8YD, then an increase in disposable income
by $100 will result in an increase in consumer expenditure by
A) $58.
B) $64.
C) $80.
D) $100.
Answer:
Suppose that the Federal Reserve enacts expansionary policy. Everything else held
constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to
________.
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
Answer:
The present value of an expected future payment ________ as the interest rate
increases.
A) falls
B) rises
C) is constant
D) is unaffected
Answer:
When I purchase ________, I own a portion of a firm and have the right to vote on
issues important to the firm and to elect its directors.
A) bonds
B) bills
C) notes
D) stock
Answer:
The concept of diversification is captured by the statement
A) don’t look a gift horse in the mouth.
B) don’t put all your eggs in one basket.
C) it never rains, but it pours.
D) make hay while the sun shines.
Answer:
When the federal funds rate equals the discount rate
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
Answer:
The current supervisory practice toward risk management
A) focuses on the quality of a bank’s balance sheet.
B) determines whether capital requirements have been met.
C) evaluates the soundness of a bank’s risk-management process.
D) focuses on eliminating all risk.
Answer:
Everything else held constant, a decrease in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
Answer:
The spread between the interest rates on bonds with default risk and default-free bonds
is called the
A) risk premium.
B) junk margin.
C) bond margin.
D) default premium.
Answer:
A credit market instrument that provides the borrower with an amount of funds that
must be repaid at the maturity date along with an interest payment is known as a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer:
The expected return on dollar deposits in terms of foreign currency can be written as the
________ of the interest rate on dollar deposits and the expected appreciation of the
dollar.
A) product
B) ratio
C) sum
D) difference
Answer:
Which of the following is not an advantage to exchange-rate targeting?
A) It provides a strong nominal anchor to keep inflation under control.
B) It provides an automatic rule for policy to help avoid the time-inconsistency
problem.
C) It is simple and clear so that the public can easily understand it.
D) It increases the accountability of policymakers.
Answer:
In the ISLM framework, an expansionary fiscal policy causes aggregate output to
________ and the interest rate to ________, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer:
The bond supply curve is ________ sloping, indicating a(n) ________ relationship
between the price and quantity supplied of bonds.
A) downward; inverse
B) downward; direct
C) upward; inverse
D) upward; direct
Answer:
The name economists give the process by which stockholders gather information by
frequent monitoring of the firm’s activities is
A) costly state verification.
B) the free-rider problem.
C) costly avoidance.
D) debt intermediation.
Answer:
Which of the following are reported as assets on a bank’s balance sheet?
A) Borrowings
B) Reserves
C) Savings deposits
D) Bank capital
Answer:
Everything else held constant, a decrease in government spending will cause the IS
curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
During times of financial crisis, mark-to-market accounting
A) requires that a financial firms’ assets be marked down in value which can worsen the
lending crisis.
B) leads to an increase in the financial firms’ balance sheets since they can now get
assets at bargain prices.
C) leads to an increase in financial firms’ lending.
D) results in financial firms’ assets increasing in value.
Answer:
For which of the following is the change in reserves necessarily different from the
change in the monetary base?
A) Open market purchases from a bank
B) Open market purchases from an individual who deposits the check in a bank
C) Open market purchases from an individual who cashes the check
D) Open market sale to a bank
Answer:
One reason China has been able to grow so rapidly even though its financial
development is still in its early stages is
A) the high savings rate of around 40%.
B) the shift of labor to the agricultural sector.
C) the stringent enforcement of financial contracts.
D) the ease of obtaining high-quality information about creditors.
Answer:
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent,
and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.
Answer:
Under the Gramm-Leach-Bliley Act states retain regulatory authority over
A) bank holding companies.
B) securities activities.
C) insurance activities.
D) bank subsidiaries engaged in securities underwriting.
Answer: