The purpose of the commitment by the Fed to keep the federal funds rate at zero for a
long period of time is to
A) lower the long term interest rates.
B) lower the short term interest rates.
C) increase the long term interest rates.
D) increase the short term interest rates.
Answer:
Other things being equal, a decrease in the default risk of corporate bonds shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
Answer:
Channeling funds from individuals with surplus funds to those desiring funds when the
saver does not purchase the borrower’s security is known as
A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.
Answer:
Off-balance-sheet activities
A) generate fee income with no increase in risk.
B) increase bank risk but do not increase income.
C) generate fee income but increase a bank’s risk.
D) generate fee income and reduce risk.
Answer:
Which of the following statements comparing the European System of Central Banks
and the Federal Reserve System is TRUE?
A) The budgets of the Federal Reserve Banks are controlled by the Board of Governors,
while the National Central Banks control their own budgets and the budget of the
European Central Bank.
B) The European Central Bank has similar power over the National Central Banks
when compared to the level of power the Board of Governors has over the Federal
Reserve Banks.
C) Just like the Federal Reserve System, monetary operations are centralized in the
European System of Central Banks with the European Central Bank.
D) The European Central Bank’s involvement in supervision and regulation of financial
institutions is comparable to the Board of Governors’ involvement.
Answer:
Assume that you borrow $2000 at 10% annual interest to finance a new business
project. For this loan to be profitable, the minimum amount this project must generate
in annual earnings is
A) $400.
B) $201.
C) $200.
D) $199.
Answer:
The price paid for the rental of borrowed funds (usually expressed as a percentage of
the rental of $100 per year) is commonly referred to as the
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.
Answer:
________ in the domestic interest rate causes the demand for domestic assets to
decrease and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer:
A capital ________ can promote financial instability in an emerging-market country
because it can lead to a lending boom and excessive risk-taking on the part of banks,
which helps trigger a ________.
A) inflow; financial crisis
B) inflow; currency devaluation
C) outflow; financial crisis
D) outflow; currency devaluation
Answer:
Which of the following are true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the
coupon rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above
the par value.
D) The yield is less than the coupon rate when the bond price is below the par value.
Answer:
Which of the following statements is true?
A) A liquid asset is one that can be quickly and cheaply converted into cash.
B) The demand for a bond declines when it becomes less liquid, decreasing the interest
rate spread between it and relatively more liquid bonds.
C) The differences in bond interest rates reflect differences in default risk only.
D) The corporate bond market is the most liquid bond market.
Answer:
If the price level increases, everything else held constant, the ________ curve shifts to
the ________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
Answer:
The interest rate the Fed charges banks borrowing from the Fed is the
A) federal funds rate.
B) Treasury bill rate.
C) discount rate.
D) prime rate.
Answer:
When the exchange rate for the British pound changes from $1.80 per pound to $1.60
per pound, then, holding everything else constant, the pound has ________ and
________ expensive.
A) appreciated; British cars sold in the United States become more
B) appreciated; British cars sold in the United States become less
C) depreciated; American wheat sold in Britain becomes more
D) depreciated; American wheat sold in Britain becomes less
Answer:
A decrease in interest rates
A) increases the value of the dollar, net exports, and equilibrium output.
B) increases the value of the dollar, reducing net exports and equilibrium output.
C) reduces the value of the dollar, net exports, and equilibrium output.
D) reduces the value of the dollar, increasing net exports and equilibrium output.
Answer:
The experience of disintermediation in the banking industry illustrates that
A) more regulation of financial markets may avoid such problems in the future.
B) banks are unable to remain competitive with other financial intermediaries.
C) consumers no longer desire the services that banks provide.
D) markets invent alternatives to costly regulations.
Answer:
Which of the following statements uses the economists’ definition of money?
A) I plan to earn a lot of money over the summer.
B) Betsy is richshe has a lot of money.
C) I hope that I have enough money to buy my lunch today.
D) The job with New Company gave me the opportunity to earn more money.
Answer:
Large fluctuations in money supply growth and smaller fluctuations in the federal funds
rate between October 1982 and the early 1990s indicate that the Fed had shifted to
________ as an operating target.
A) borrowed reserves
B) nonborrowed reserves
C) excess reserves
D) required reserves
Answer:
Everything else held constant, in the market for reserves, when the supply for federal
funds intersects the reserve demand curve along the horizontal section of the demand
curve, lowering the interest rate paid on excess reserves
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect of the federal funds rate.
Answer:
According to rational expectations,
A) expectations of inflation are viewed as being an average of past inflation rates.
B) expectations of inflation are viewed as being an average of expected future inflation
rates.
C) expectations formation indicates that changes in expectations occur slowly over time
as past data change.
D) expectations will not differ from optimal forecasts using all available information.
Answer:
A difference between inventory investment and fixed investment is that
A) fixed investment is never unplanned.
B) fixed investment is never planned.
C) inventory investment is never unplanned.
D) unplanned inventory investment is always zero.
Answer:
The free-rider problem occurs because
A) people who pay for information use it freely.
B) people who do not pay for information use it.
C) information can never be sold at any price.
D) it is never profitable to produce information.
Answer:
Everything else held constant, a decrease in the required reserve ratio on checkable
deposits will mean
A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.
Answer:
Members of the Board of Governors are
A) chosen by the Federal Reserve Bank presidents.
B) appointed by the newly elected president of the United States, as are cabinet
positions.
C) appointed by the president of the United States and confirmed by the Senate.
D) never allowed to serve more than 7-year terms.
Answer:
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the monetary
base is
A) $300 billion.
B) $600 billion.
C) $333 billion.
D) $667 billion.
Answer:
An agreement to exchange dollar bank deposits for euro bank deposits in one month is a
A) spot transaction.
B) future transaction.
C) forward transaction.
D) deposit transaction.
Answer:
The formula linking the money supply to the monetary base is
A) M = m/MB.
B) M = m × MB.
C) m = M × MB.
D) MB = M × m.
E) M = m + MB.
Answer:
During the beginning on the global financial crisis in the United States when the effects
of the crisis were mostly confined within the United States, the U. S. dollar ________
because demand for U.S. assets ________.
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
Answer:
When the interest rate on a bond is above the equilibrium interest rate, in the bond
market there is excess ________ and the interest rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
Answer:
Argentina’s financial crisis was due to
A) poor supervision of the banking system.
B) a lending boom prior to the crisis.
C) fiscal imbalances.
D) lack of expertise in screening and monitoring borrowers at banking institutions.
Answer: