An increase in the discount rate charged to banks who borrow at the Fed will cause the
excess reserve ratio to ____ and the multiplier to ____.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
Answer:
A panic-induced withdrawal of currency from banks will induce a contraction of the
money supply because
a. banks must sell several dollars of assets to obtain a dollar of reserves
b. bank securities sales do not increase reserves in the banking system
c. banks will be reluctant to sell off assets
d. the Federal Reserve is likely to overreact
Answer:
Assuming a 10% reserve requirement, the direct effect of a purchase of $100 of
securities from a dealer by the Fed is to increase the money supply by ____; the
induced effect is to increase the money supply by ____.
a. $100; $1,000
b. $90; $900
c. $100; $900
d. $0; $900
Answer:
The segmented markets theory of term structure asserts that:
a. borrowers prefer to borrow short term and lend long term
b. buyers are basically indifferent to the maturity of debt instruments
c. expectations determine the nature of the term structure of yields
d. substitution among various maturities by both lenders and borrowers is quite limited
Answer:
Which of the following statements about money market instruments is true?
a. Eurodollars are deposits in foreign banks denominated in U.S. dollars.
b. Federal funds are long-term secured loans in the form of deposits at the Federal
Reserve Banks.
c. Banker’s acceptances are a relatively new form of credit in the United States.
d. None of the above is true.
Answer:
Within the ESCB, major policy decisions are generally made by
a. the Executive Board
b. the Governing Council
c. the Council of Economics and Finance Ministers
d. none of the above
Answer:
Choose the statement which is not true:
a. Since they must be converted to cash or checkable deposits before they can be spent,
savings accounts are not included in M1.
b. Because they cannot be cashed in before a certain date, time deposits (CDs) are not
included in M1.
c. Because they are checkable, MMMF shares are included in M1.
d. None of the above is true.
Answer:
Which of the following financial assets is a commercial bank allowed by regulators to
hold?
a. municipal bonds
b. corporate bonds
c. common stock
d. commercial banks are prohibited from holding any of the above
Answer:
Stocks, as compared to bonds,
a. have lower market risk and default risk
b. have higher market risk and default risk
c. have higher market risk but lower default risk
d. have lower market risk but higher default risk
Answer:
If banks simultaneously purchase $300 million of Treasury bonds and expand loans by
$600 million, the net effect on the U.S. money supply is to
a. decrease it by $300 million
b. decrease it by $900 million
c. increase it by $300 million
d. increase it by $900 million
Answer:
The largest source of the base is
a. the Fed’s holdings of gold certificates
b. the Fed’s portfolio of securities
c. Treasury deposits at the Fed
d. the volume of Federal Reserve Notes outstanding
Answer:
In the long run, the U.S. dollar appreciates if
a. U.S. prices fall and the U.S. increases tariffs on imports
b. U.S. prices fall and U.S. productivity falls
c. U.S. prices fall and the U.S. removes all import quotas
d. U.S. interest rates rise and the U.S. removes all import quotas
Answer:
The corporate bond rate would probably be most likely to be chosen as an intermediate
target of policy by
a. a hardcore Keynesian
b. a hardcore monetarist
c. both of the above
d. neither of the above
Answer:
Any Corporation’s stock sells for $35 a share, earns profits of $7 per share, and pays an
annual dividend of $1.75 per share. Additionally, Any Corporation’s book value is
approximately $20 million. Which of the following is true?
a. Any Corporation’s PE ratio is 20.0.
b. Any Corporation’s price-to-book ratio is 5.0.
c. Any Corporation’s dividend yield is 5 percent.
d. None of the above is correct.
Answer:
The monetary authority for the Economic and Monetary Union is the
a. Bundesbank
b. Credit Suisse
c. European Central Bank
d. Federal Reserve Bank
Answer:
During the period 1982 to 1999,
a. stock prices rose steadily and rapidly
b. stock prices declined steadily
c. stock prices displayed cyclical increases and decreases, but no net change over the
period
d. the general trend in stock prices was flat
Answer:
The implementation lag is probably shorter for ____ policy than for ____ policy.
a. monetary; fiscal
b. fiscal; monetary
c. there is probably no difference in the implementation lag
d. not enough information is given to answer the question
Answer:
The National Banking Act of 1863 accomplished the following:
a. allowed for issuance of a uniform currency
b. allowed the federal government to charter banks
c. ended the Free Banking Era
d. all of the above
Answer:
Tobin’s q theory suggests that firms looking to expand capacity
a. are likely to buy other firms when stock prices are unusually high
b. are likely to finance new investment projects when interest rates are unusually low
c. are likely to finance new investment projects when their stock price is relatively high
d. do none of the above
Answer:
If the liquidity premium theory of term structure is correct, and we observe a
downward-sloping yield curve, then short-term forward interest rates must be ____ than
current short-term rates.
a. equal to
b. less than
c. greater than
d. cannot determine answer with given information
Answer:
If money is a luxury good, increases in income will ____ the demand for money and
____ velocity.
a. reduce; reduce
b. increase; increase
c. reduce; increase
d. increase; reduce
Answer:
The short-run Phillips curve shifts leftward (or southwest)
a. if expected inflation increases
b. if the NAIRU decreases
c. in both of the above cases
d. in neither of the above cases
Answer:
For commercial banks, the ratio of loans to assets ____ during economic expansions,
while the ratio of bank securities holdings to assets ____ during periods of recession.
a. decreases; decreases
b. increases; increases
c. decreases; increases
d. increases; decreases
Answer:
The depository institution with the greatest specialization in its asset structure is the:
a. life insurance company
b. savings and loan association
c. credit union
d. commercial bank
Answer:
It is clear that the recession of 2001 was caused by
a. reductions in aggregate demand due to government budget cuts
b. reductions in investment demand
c. reductions in consumption demand
d. an adverse supply shock
Answer:
The equation of exchange
a. cannot possibly be invalid
b. has been proven to be invalid
c. has occasionally been proven incorrect in some countries
d. must be tested empirically to ascertain its validity
Answer:
The Federal Reserve System was created
a. to supervise all national banks
b. primarily to hold large quantities of the ever-expanding government debt
c. to provide liquidity to the banking system in time of crisis
d. to conduct monetary policy for purposes of stabilizing the economy
Answer:
The foreign exchange market is the market where
a. different currencies are traded
b. international financial assets are traded
c. goods and services are exchanged between nations
d. none of the above
Answer:
An increase in the currency ratio (Cp/DDO) causes the money supply multiplier to
a. decrease
b. increase
c. remain unchanged–such changes influence the base, not the multiplier
d. not enough information is given to answer the question
Answer:
Put in very simple terms, money:
a. is what the U.S. Treasury says it is
b. is what others will accept as payment
c. is detrimental to economic efficiency
d. is not likely to be as important in the future as it was in the past
Answer:
In periods of sharply rising interest rates, depository institutions can be vulnerable to
the extent that they:
a. borrow short term and make short-term loans
b. borrow short term and make long-term loans
c. borrow long term and make short-term loans
d. borrow long term and make long-term loans
Answer: