Which of the following is NOT an entity of the Federal Reserve System?
A. Federal Reserve Banks
B. the Comptroller of the Currency
C. the Board of Governors
D. the Federal Open Market Committee
Answer:
When the central bank ________ the money supply, the LM curve shifts to the right,
interest rates ________, and equilibrium aggregate output ________, everything else
held constant.
A. increases; fall; increases
B. increases; rise; decreases
C. decreases; rise; decreases
D. decreases; fall; increases
Answer:
A share of common stock is a claim on a corporation’s
A. debt.
B. liabilities.
C. expenses.
D. earnings and assets.
Answer:
Which of the following is least likely to lead to inflationary monetary policy?
A. rising unemployment
B. expanding federal budget deficits
C. declining oil prices
D. conflict in the Middle East
Answer:
A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield
to maturity of
A. 3 percent.
B. 20 percent.
C. 25 percent.
D. 33.3 percent.
Answer:
When bad storms slow the check-clearing process, float tends to ________ causing the
Fed to initiate ________ open market ________.
A. decrease; defensive; sales
B. decrease; dynamic; purchases
C. increase; defensive; sales
D. increase; dynamic; purchases
Answer:
According to the interest parity condition, if the domestic interest rate is 12 percent and
the foreign interest rate is 10 percent, then the expected ________ of the foreign
currency must be ________ percent.
A. appreciation; 4
B. appreciation; 2
C. depreciation; 2
D. depreciation; 4
Answer:
Because of asymmetric information, the failure of one bank can lead to runs on other
banks. This is the
A. too-big-to-fail effect.
B. moral hazard problem.
C. adverse selection problem.
D. contagion effect.
Answer:
Only when budget deficits are financed by money creation does the increased
government spending lead to ________ in the ________.
A. a decrease; monetary base
B. an increase; monetary base
C. a decrease; money multiplier
D. an increase; money multiplier
Answer:
A financial panic was averted in October 1987 following “Black Monday” when the
Fed announced that
A. it was lowering the discount rate.
B. it would provide discount loans to any bank that would make loans to the security
industry.
C. it stood ready to purchase common stocks to prevent a further slide in stock prices.
D. it was raising the discount rate.
Answer:
A shift in tastes toward American goods ________ net exports in the U.S. and causes
the IS curve to shift to the ________ in the U.S., everything else held constant.
A. decreases; right
B. decreases; left
C. increases; right
D. increases; left
Answer:
A theory of aggregate economic fluctuations called real business cycle theory holds that
A. changes in the real money supply are the only demand shocks that affect the natural
rate of output.
B. aggregate demand shocks do affect the natural rate of output.
C. aggregate supply shocks do affect the natural rate of output.
D. changes in net exports are the only demand shocks that affect the natural rate of
output.
Answer:
From the standpoint of ________, specialization in lending is surprising but makes
perfect sense when one considers the ________ problem.
A. moral hazard; diversification
B. diversification; moral hazard
C. adverse selection; diversification
D. diversification; adverse selection
Answer:
Off-balance sheet activities involving guarantees of securities and back-up credit lines
A. have no impact on the risk a bank faces.
B. greatly reduce the risk a bank faces.
C. increase the risk a bank faces.
D. slightly reduce the risk a bank faces.
Answer:
Which of the following are NOT traded in a capital market?
A. U.S. government agency securities
B. state and local government bonds
C. repurchase agreements
D. corporate bonds
Answer:
In the Keynesian cross diagram, an increase in autonomous consumer expenditure
causes the aggregate demand function to shift ________ and the equilibrium level of
aggregate output to ________, everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Answer:
For a commodity to function effectively as money it must be
A. easily standardized, making it easy to ascertain its value.
B. difficult to make change.
C. deteriorate quickly so that its supply does not become too large.
D. hard to carry around.
Answer:
Regulation of the financial system
A. occurs only in the United States.
B. protects the jobs of employees of financial institutions.
C. protects the wealth of owners of financial institutions.
D. ensures the stability of the financial system.
Answer:
Interest-rate risk is the riskiness of an asset’s returns due to
A. interest-rate changes.
B. changes in the coupon rate.
C. default of the borrower.
D. changes in the asset’s maturity.
Answer:
U.S. Treasury bills are considered the safest of all money market instruments because
there is a low probability of
A. defeat.
B. default.
C. desertion.
D. demarcation.
Answer:
An expansionary monetary policy may cause asset prices to rise, thereby reducing the
likelihood of financial distress and causing consumer durable and housing expenditures
to rise. This monetary transmission mechanism is referred to as
A. the household liquidity effect.
B. the wealth effect.
C. Tobin’s q theory.
D. the cash flow effect.
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:
When the federal funds rate equals the interest rate paid on excess reserves
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:
Modern liability management has resulted in
A. increased sales of negotiable CDs to raise funds.
B. increase importance of deposits as a source of funds.
C. reduced borrowing by banks in the overnight loan market.
D. failure by banks to coordinate management of assets and liabilities.
Answer:
Keough plans and IRAs are
A. individual pension plans.
B. government pension plans.
C. corporate pension plans.
D. public pension plans.
Answer:
Financial innovations occur because of financial institutions search for
A. profits.
B. fame.
C. stability.
D. recognition.
Answer:
If the central bank targets a monetary aggregate, it is likely to lose control over the
interest rate because
A. of fluctuations in the demand for reserves.
B. of fluctuations in the consumption function.
C. bond values will tend to remain stable.
D. of fluctuations in the business cycle.
Answer:
Paper currency that has been declared legal tender but is not convertible into coins or
precious metals is called ________ money.
A. commodity
B. fiat
C. electronic
D. funny
Answer:
All ________ are required to be members of the Fed.
A. state chartered banks
B. national banks chartered by the Office of the Comptroller of the Currency
C. banks with assets less than $100 million
D. banks with assets less than $500 million
Answer:
The channels through which monetary policy affects economic activity are called the
________ of monetary policy.
A. transmission mechanisms
B. flow mechanisms
C. distribution mechanisms
D. allocational mechanisms
Answer:
All of the following are operating expenses for a bank EXCEPT
A. service charges on deposit accounts.
B. salaries and employee benefits.
C. rent on buildings.
D. servicing costs of equipment such as computers.
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: