If the expected path of 1-year interest rates over the next five years is 2 percent, 4
percent, 1 percent, 4 percent, and 3 percent, the expectations theory predicts that the
bond with the lowest interest rate today is the one with a maturity of
A) one year.
B) two years.
C) three years.
D) four years.
Answer:
Under the current managed float exchange rate regime, countries with balance of
payments ________ frequently do not want to see their currencies ________ because it
makes foreign goods more expensive for domestic consumers and can stimulate
inflation.
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
Answer:
If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Manuel the Mexican the expected rate of return on euro-denominated assets is
A) 11 percent.
B) 13 percent.
C) 17 percent.
D) 19 percent.
Answer:
The yield to maturity is ________ than the ________ rate when the bond price is
________ its face value.
A) greater; coupon; above
B) greater; coupon; below
C) greater; perpetuity; above
D) less; perpetuity; below
Answer:
Although the subprime mortgage market problem began in the United States, the first
indication of the seriousness of the crisis began in
A) Europe.
B) Australia.
C) China.
D) South America.
Answer:
The ________ describes points for which the goods market is in equilibrium.
A) LM curve
B) IS curve
C) consumption function
D) investment schedule
Answer:
If the possibility of a default increases because corporations begin to suffer losses, then
the default risk on corporate bonds will ________, and the bonds’ returns will become
________ uncertain, meaning that the expected return on these bonds will decrease,
everything else held constant.
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
Answer:
Critics of the current system of Fed independence contend that
A) the current system is undemocratic.
B) voters have too much say about monetary policy.
C) the president has too much control over monetary policy on a day-to-day basis.
D) the Board of Governors is held responsible for policy missteps.
Answer:
Which of the following statements is false?
A) A bank’s assets are its uses of funds.
B) A bank issues liabilities to acquire funds.
C) The bank’s assets provide the bank with income.
D) Bank capital is recorded as an asset on the bank balance sheet.
Answer:
Since it does not have to be converted into anything else to make purchases, ________
is the most liquid asset.
A) money
B) stock
C) artwork
D) gold
Answer:
The Basel Accord, an international agreement, requires banks to hold capital based on
A) risk-weighted assets.
B) the total value of assets.
C) liabilities.
D) deposits.
Answer:
Under a fixed exchange rate system, countries that ran large, persistent balance of
payments surpluses would ________ international reserves, thereby pressuring them
into ________ their exchange rate.
A) gain; devaluing
B) gain; revaluing
C) lose; devaluing
D) lose; revaluing
Answer:
The Bretton Woods agreement created the ________, which was given the task of
promoting the growth of world trade by setting rules for the maintenance of fixed
exchange rates and by making loans to countries that were experiencing balance of
payments difficulties.
A) IMF
B) World Bank
C) Central Settlements Bank
D) Bank of International Settlements
Answer:
A bank has excess reserves of $10,000 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 be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
Answer:
If the economy is characterized by a certain and stable LM curve, then ________ target
produces ________ fluctuations in aggregate output.
A) an interest rate; smaller
B) a money supply; smaller
C) a money supply; larger
D) an exchange rate; larger
Answer:
If real estate prices are expected to drop, all else equal, the demand for bonds ________
and the interest rate_______.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
Answer:
Arguments for adopting a policy rule include
A) discretion avoids the straightjacket that would lock in the wrong policy if the model
that was used to derive the policy rule proved to be incorrect.
B) discretion enables policy makers to change policy settings when an economy
undergoes structural changes.
C) discretionary policies pursue overly expansionary monetary policies to boost
employment in the short run but generate higher inflation in the long run.
D) all of the above.
Answer:
When real income ________, the demand curve for money shifts to the ________ and
the interest rate ________, everything else held constant.
A) falls; right; rises
B) rises; right; rises
C) falls; left; rises
D) rises; left; rises
Answer:
Conditions that likely contributed to a credit crunch during the global financial crisis
include:
A) capital shortfalls caused in part by falling real estate prices.
B) regulated hikes in bank capital requirements.
C) falling interest rates that raised interest rate risk, causing banks to choose to hold
more capital.
D) increases in reserve requirements.
Answer:
A stock’s price will fall if there is
A) a decrease in perceived risk.
B) an increase in the required rate of return.
C) an increase in the future sales price.
D) current dividends are high.
Answer:
In practice, the Fed’s policy of targeting ________ in the 1960s proved to be ________,
destabilizing the economy.
A) money market conditions; countercyclical
B) money market conditions; procyclical
C) monetary aggregates; countercyclical
D) monetary aggregates; procyclical
Answer:
In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent
and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________
percent.
A) 5; 15
B) 4; 11.5
C) 4; 18
D) 5; 10
Answer:
One reason for the extraordinary growth of foreign financial markets is
A) decreased trade.
B) increases in the pool of savings in foreign countries.
C) the recent introduction of the foreign bond.
D) slower technological innovation in foreign markets.
Answer:
Stock prices are
A) relatively stable trending upward at a steady pace.
B) relatively stable trending downward at a moderate rate.
C) extremely volatile.
D) unstable trending downward at a moderate rate.
Answer:
When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A) the liabilities of the First National Bank decrease by $10.
B) the reserves of the First National Bank increase by $10.
C) the liabilities of Citibank decrease by $10.
D) the assets of Citibank decrease by $10.
Answer:
A ________ is a provision that restricts or specifies certain activities that a borrower
can engage in.
A) residual claimant
B) risk hedge
C) restrictive barrier
D) restrictive covenant
Answer:
According to Tobin’s q theory, ________ policy can affect ________ spending through
its effect on the prices of common stock.
A) fiscal; consumption
B) fiscal; investment
C) monetary; consumption
D) monetary; investment
Answer:
The duration of a coupon bond increases
A) the longer is the bond’s term to maturity.
B) when interest rates increase.
C) the higher the coupon rate on the bond.
D) the higher the bond price.
Answer:
From before the financial crisis began in September of 2007 to when the crisis was over
at the end of 2009, the huge expansion in the Fed’s balance sheet and the monetary base
did not result in a large increase in monetary supply because
A) most of it just flowed into holdings of excess reserve.
B) the Fed also increased the required reserve ratio
C) the Fed also conducted open market sales.
D) the discount loan decreased.
Answer:
Evidence in support of the efficient markets hypothesis includes
A) the failure of technical analysis to outperform the market.
B) the small-firm effect.
C) the January effect.
D) excessive volatility.
Answer:
If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2
years would experience a decrease in its net worth of
A) 9 percent of its assets.
B) 9 percent of its liabilities.
C) 8 percent of its liabilities.
D) 8 percent of its assets.
Answer: