Secondary reserves include
A. deposits at Federal Reserve Banks.
B. deposits at other large banks.
C. short-term U.S. government securities.
D. state and local government securities.
Answer:
Using the Gordon growth model, a stock’s current price will increase if
A. the dividend growth rate increases.
B. the growth rate of dividends falls.
C. the required rate of return on equity rises.
D. the expected sales price rises.
Answer:
Adverse selection is a problem associated with equity and debt contracts arising from
A. the lender’s relative lack of information about the borrower’s potential returns and
risks of his investment activities.
B. the lender’s inability to legally require sufficient collateral to cover a 100% loss if the
borrower defaults.
C. the borrower’s lack of incentive to seek a loan for highly risky investments.
D. the borrower’s lack of good options for obtaining funds.
Answer:
The main center of the Eurodollar market is
A) London.
B) Basel.
C) Paris.
D) New York.
Answer:
The ________ the returns on two securities move together, the ________ benefit there
is from diversification.
A. less; more
B. less; less
C. more; more
D. more; greater
Answer:
The practice of factoring involves
A. the syndication of underwriting large security issues.
B. the selling of accounts receivable at a discount in return for cash.
C. breaking up large mutual funds into smaller funds.
D. spreading the risk of insurance through reinsurance.
Answer:
Everything else held constant, an autonomous tightening of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to increase.
D. aggregate demand to decrease.
Answer:
Using Taylor’s rule, when the equilibrium real federal funds rate is 3 percent, the
positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual
inflation rate is 2 percent, the nominal federal funds rate target should be
A. 5 percent.
B. 5.5 percent.
C. 6 percent.
D. 6.5 percent.
Answer:
The economic hardship resulting from a financial crises is severe, however, there are
also social consequences such as
A. increased crime.
B. difficulty getting a loan.
C. currency devaluations.
D. loss of output.
Answer:
Inflation results in
A) ease of planning for the future.
B) ease of comparing prices over time.
C) lower nominal interest rates.
D) difficulty interpreting relative price movements.
Answer:
________ means people are more unhappy when they suffer losses than they are happy
when they achieve gains.
A. Loss fundamentals
B. Loss aversion
C. Loss leader
D. Loss cycle
Answer:
If the dollar depreciates relative to the Swiss franc
A. Swiss chocolate will become cheaper in the United States.
B. American computers will become more expensive in Switzerland.
C. Swiss chocolate will become more expensive in the United States.
D. Swiss computers will become cheaper in the United States.
Answer:
If there are five goods in a barter economy, one needs to know ten prices in order to
exchange one good for another. If, however, there are ten goods in a barter economy,
then one needs to know ________ prices in order to exchange one good for another.
A. 20
B. 25
C. 30
D. 45
Answer:
Charging risk-based insurance premiums is a time-honored principle of insurance
management to reduce
A. moral hazard.
B. adverse selection.
C. free riding.
D. principal-agent problems.
Answer:
________ bubble is driven entirely by unrealistic optimistic expectations.
A. An irrational exuberance
B. A credit-driven
C. A stock
D. A debt-driven
Answer:
In the long-run the ISLM model predicts that ________ can change real output.
A. only monetary policy
B. only fiscal policy
C. both monetary and fiscal policy
D. neither monetary nor fiscal policy
Answer:
Under the current managed float exchange rate regime, countries with ________ in
their balance of payments frequently do not want to see their currencies ________
because it makes their goods more expensive abroad and foreign goods cheaper in their
countries.
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
Answer:
The presence of so many commercial banks in the United States is most likely the result
of
A) consumers’ strong desire for dealing with only local banks.
B) adverse selection and moral hazard problems that give local banks a competitive
advantage over larger banks.
C) prior regulations that restricted the ability of these financial institutions to open
branches.
D) consumers’ preference for state banks.
Answer:
When a primary dealer sells a government bond to the Federal Reserve, reserves in the
banking system ________ and the monetary base ________, everything else held
constant.
A. increase; increases
B. increase; decreases
C. decrease; increases
D. decrease; decreases
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
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 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:
Which of the following benefits directly from any increase in the corporation’s
profitability?
A. a bond holder
B. a commercial paper holder
C. a shareholder
D. a T-bill holder
Answer:
Everything else held constant, an increase in wealth will cause the holdings of
checkable deposits to the holdings of currency to ________ and the currency ratio will
________.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
Answer:
During hyperinflations
A. the value of money rises rapidly.
B. money no longer functions as a good store of value and people may resort to barter
transactions on a much larger scale.
C. middle-class savers benefit as prices rise.
D. money’s value remains fixed to the price level; that is, if prices double so does the
value of money.
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:
Everything else held constant, when the current value of the domestic currency
increases, the ________ domestic assets ________.
A. demand for; increases
B. quantity demanded of; increases
C. demand for; decreases
D. quantity demanded of; decreases
Answer:
What makes the Federal Reserve so unique compared to other central banks around the
world is its
A. centralized structure.
B. decentralized structure.
C. regulatory functions.
D. monetary policy functions.
Answer:
As bonds become a riskier asset, the demand for money ________ and, all else
constant, the equilibrium interest rate ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Answer:
A ________ makes investments in new start-up businesses.
A. capital buyout fund
B. sovereign wealth fund
C. venture capital fund
D. hedge fund
Answer:
Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to sever the link between underwriting and research is an example of
A. regulate for transparency.
B. supervisory oversight.
C. separation of functions.
D. socialization of information production.
Answer:
The classical economists’ contention that prices double when the money supply doubles
is predicated on the belief that in the short run velocity is ________ and real GDP is
________.
A. constant; constant
B. constant; variable
C. variable; variable
D. variable; constant
Answer:
To reduce moral hazard problems, banks include restrictive covenants in loan contracts.
In order for these restrictive covenants to be effective, banks must also
A. monitor and enforce them.
B. be willing to rewrite the contract if the borrower cannot comply with the restrictions.
C. trust the borrower to do the right thing.
D. be prepared to extend the deadline when the borrower needs more time to comply.
Answer: