The most comprehensive measure of aggregate output is
A) gross domestic product.
B) net national product.
C) the stock value of the industrial 500.
D) national income.
Answer:
One factor contributing to the rapid growth of the commercial paper market since 1970
is
A) the fact that commercial paper has no default risk.
B) improved information technology making it easier to screen credit risks.
C) government regulation.
D) FDIC insurance for commercial paper.
Answer:
Total Reserves minus vault cash equals
A) bank deposits with the Fed.
B) excess reserves.
C) required reserves.
D) currency in circulation.
Answer:
If nominal GDP is $10 trillion, and velocity is 10, the money supply is
A) $1 trillion.
B) $5 trillion.
C) $10 trillion.
D) $100 trillion.
Answer:
Which of the following are short-term financial instruments?
A) A repurchase agreement
B) A share of Walt Disney Corporation stock
C) A Treasury note with a maturity of four years
D) A residential mortgage
Answer:
The decade during which the growth rates of monetary aggregates diverged the most is
A) the 1960s.
B) the 1970s.
C) the 1980s.
D) the 1990s.
Answer:
Disintermediation resulted from
A) interest rate ceilings combined with inflation-driven increases in interest rates.
B) elimination of Regulation Q (the regulation imposing interest rate ceilings on bank
deposits).
C) increases in federal income taxes.
D) reserve requirements.
Answer:
A fall in inventories is synonymous with ________ investment.
A) negative fixed
B) positive fixed
C) positive inventory
D) negative inventory
Answer:
Fear of a major recession causes stock prices to fall, everything else held constant,
which in turn causes consumer spending to
A) increase.
B) remain unchanged.
C) decrease.
D) cannot be determined.
Answer:
Reserves are equal to the sum of
A) required reserves and excess reserves.
B) required reserves and vault cash reserves.
C) excess reserves and vault cash reserves.
D) vault cash reserves and total reserves.
Answer:
When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of
Treasury funds from the Federal Reserve, the open market operation is said to be
A) defensive.
B) offensive.
C) dynamic.
D) reactionary.
Answer:
The interest rate on Treasury Inflation Protected Securities is a direct measure of
A) the real interest rate.
B) the nominal interest rate.
C) the rate of inflation.
D) the rate of deflation.
Answer:
Real interest rates are difficult to measure because
A) data on them are not available in a timely manner.
B) real interest rates depend on the hard-to-determine expected inflation rate.
C) they fluctuate too often to be accurate.
D) they cannot be controlled by the Fed.
Answer:
In general, banks make profits by selling ________ liabilities and buying ________
assets.
A) long-term; shorter-term
B) short-term; longer-term
C) illiquid; liquid
D) risky; risk-free
Answer:
Which of the following is a contractual savings institution?
A) A life insurance company
B) A credit union
C) A savings and loan association
D) A mutual fund
Answer:
Everything else held constant, an increase in the currency-checkable deposit ratio will
mean
A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply but no change in reserves.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.
Answer:
If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
A) 0.2.
B) 5.
C) 10.
D) 20.
Answer:
If there are economies of scale in the transactions demand for money, as income
increases, money demand
A) increases proportionately.
B) increases less than proportionately.
C) increases more than proportionately.
D) does not change.
Answer:
If the optimal forecast of the return on a security exceeds the equilibrium return, then
A) the market is inefficient.
B) no unexploited profit opportunities exist.
C) the market is in equilibrium.
D) the market is myopic.
Answer:
Which bank regulatory agency has the sole regulatory authority over bank holding
companies?
A) The FDIC
B) The Comptroller of the Currency
C) The FHLBS
D) The Federal Reserve System
Answer:
Since depositors, like any lender, only receive fixed payments while the bank keeps any
surplus profits, they face the ________ problem that banks may take on too ________
risk.
A) adverse selection; little
B) adverse selection; much
C) moral hazard; little
D) moral hazard; much
Answer:
When an individual sells a $100 bond to the Fed, she may either deposit the check she
receives or cash it for currency. In both cases
A) reserves increase.
B) high-powered money increases.
C) reserves decrease.
D) high-powered money decreases.
Answer:
In a ________ banking system, commercial banks provide a full range of banking,
securities, and insurance services, all within a single legal entity.
A) universal
B) severable
C) barrier-free
D) dividerless
Answer:
In a(n) ________ market, dealers in different locations buy and sell securities to anyone
who comes to them and is willing to accept their prices.
A) exchange
B) over-the-counter
C) common
D) barter
Answer:
Everything else held constant, an increase in the interest rate paid on checkable deposits
will cause ________ in the amount of checkable deposits held relative to currency
holdings and ________ in the currency ratio.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
Everything else held constant, an increase in the currency ratio causes the M1 money
multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
Answer:
When the interest rate rises,
A) planned investment falls.
B) planned investment rises.
C) planned investment will be unaffected.
D) equilibrium income increases.
Answer:
Everything else held constant, a stronger dollar benefits ________ and hurts ________.
A) American businesses; American consumers
B) American businesses; foreign businesses
C) American consumers; American businesses
D) foreign businesses; American consumers
Answer:
A major controversy involving the banking industry in its early years was
A) whether banks should both accept deposits and make loans or whether these
functions should be separated into different institutions.
B) whether the federal government or the states should charter banks.
C) what percent of deposits banks should hold as fractional reserves.
D) whether banks should be allowed to issue their own bank notes.
Answer:
A decrease in the quantity of money supplied shifts the money supply curve to the
________, and the equilibrium interest rate ________, everything else held constant.
A) right; falls
B) right; rises
C) left; falls
D) left; rises
Answer:
The goals of bank asset management include
A) maximizing risk.
B) minimizing liquidity.
C) lending at high interest rates regardless of risk.
D) purchasing securities with high returns and low risk.
Answer:
According to the purchasing power parity theory, a rise in the United States price level
of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso.
B) the dollar to depreciate 1 percent relative to the peso.
C) the dollar to depreciate 5 percent relative to the peso.
D) the dollar to appreciate 5 percent relative to the peso.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to depreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Answer:
If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from
year 1 to year 2 is
A) 20%.
B) 10%.
C) 11%.
D) 120%.
Answer: