A problem for equity contracts is a particular type of ________ called the ________
problem.
A) adverse selection; principal-agent
B) moral hazard; principal-agent
C) adverse selection; free-rider
D) moral hazard; free-rider
Answer:
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on dollar-denominated assets is
A. 11 percent.
B. 9 percent.
C. 5 percent.
D. 3 percent.
E. 1 percent.
Answer:
Starting in 1974, the conventional M1 money demand function began to severely
________ the demand for money. Stephen Goldfeld labeled this phenomenon “the case
of the missing ________.”
A. underpredict; velocity
B. overpredict; velocity
C. underpredict; money
D. overpredict; money
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:
Which of the following statements best explains how the use of money in an economy
increases economic efficiency?
A. Money increases economic efficiency because it is costless to produce.
B. Money increases economic efficiency because it discourages specialization.
C. Money increases economic efficiency because it decreases transactions costs.
D. Money cannot have an effect on economic efficiency.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate
equals the discount rate, lowering the discount rate
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:
The bond markets are important because they are
A. easily the most widely followed financial markets in the United States.
B. the markets where foreign exchange rates are determined.
C. the markets where interest rates are determined.
D. the markets where all borrowers get their funds.
Answer:
Monetarists directly study the link between money and economic activity using
A. structural models.
B. reduced-form models.
C. scientific models.
D. experimental models.
Answer:
Tobin’s model of the speculative demand for money improves on Keynes’s analysis by
showing that
A. the speculative demand for money is interest insensitive.
B. the transactions demand for money is interest insensitive.
C. people will hold a diversified portfolio.
D. people will hold money or bonds but not both.
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:
A sales commission is charged for the purchase of
A. no-load mutual funds.
B. load mutual funds.
C. sinking mutual funds.
D. syndicated funds.
Answer:
Property and casualty insurance companies are organized
A. both as stock and mutual companies.
B. only as stock companies.
C. only as mutual companies.
D. primarily as cooperatives.
Answer:
The two types of open market operations are
A. offensive and defensive.
B. dynamic and reactionary.
C. active and passive.
D. dynamic and defensive.
Answer:
There is a ________ association between inflation and the growth rate of money
________.
A. positive; demand
B. positive; supply
C. negative; demand
D. negative; supply
Answer:
In the late 1990s, the stock market bubble ________ the value of Tobin’s q, and caused
________ in business equipment.
A. increased; underinvestment
B. increased; overinvestment
C. decreased; underinvestment
D. decreased; overinvestment
Answer:
Competition between banks
A. encourages greater risk taking.
B. encourages conservative bank management.
C. increases bank profitability.
D. eliminates the need for government regulation.
Answer:
The Governing Council usually meets ________ times a year.
A. four
B. six
C. eight
D. twelve
Answer:
The money supply is ________ related to expected deposit outflows, and is ________
related to the market interest rate.
a. negatively; negatively
b. negatively; positively
c. positively; negatively
d. positively; positively
Answer:
Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or
0.05, then the current stock price is
A. $10.
B. $20.
C. $30.
D. $40.
Answer:
An increase in the domestic interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A. right; appreciate
B. right; depreciate
C. left; appreciate
D. left; depreciate
Answer:
If the Federal Reserve conducts open market purchases, the money supply ________,
shifting the LM curve to the ________, everything else held constant.
A. decreases; right
B. decreases; left
C. increases; right
D. increases; left
Answer:
The interest rate on Baa corporate bonds is ________, on average, than interest rates on
Treasuries, and the spread between these rates became ________ in the 1970s.
A. lower; smaller
B. lower; larger
C. higher; smaller
D. higher; larger
Answer:
An increase in the money supply, other things equal, shifts the ________ curve to the
________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Answer:
Evidence suggests that the market ________ take into account the credibility of
analyst’s recommendations of IPOs that were underwritten at the analyst’s investment
bank because the performance of these recommendations was about 50% ________
compared to recommendations made by other analysts at different investment banks.
A. does; better
B. does; worse
C. does not; better
D. does not; worse
Answer:
Suppose the Bank of China permanently decreases its purchases of U.S. government
bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything
else held constant, a open market ________ would be the appropriate monetary policy
action for the Fed to take to offset the expected ________ in the monetary base in the
United States.
a. purchase; decrease
b. purchase; increase
c. sale; decrease
d. sale; increase
Answer:
Which of the following statements concerning bank regulation in the United States is
TRUE?
A. The Office of the Comptroller of the Currency has the primary responsibility for
state banks that are members of the Federal Reserve System.
B. The Federal Reserve and the state banking authorities jointly have responsibility for
the state banks that are members of the Federal Reserve System.
C. The Office of the Comptroller of the Currency has sole regulatory responsibility over
bank holding companies.
D. The state banking authorities have sole regulatory responsibility for all state banks.
Answer:
A ________ is bought at a price below its face value, and the ________ value is repaid
at the maturity date.
A. coupon bond; discount
B. discount bond; discount
C. coupon bond; face
D. discount bond; face
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:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement decreases
the demand for reserves, ________ the federal funds interest rate, everything else held
constant.
A. rise; lowering
B. decline; raising
C. decline; lowering
D. rise; raising
Answer:
Moral hazard in equity contracts is known as the ________ problem because the
manager of the firm has fewer incentives to maximize profits than the stockholders
might ideally prefer.
A) principal-agent
B) adverse selection
C) free-rider
D) debt deflation
Answer:
The monetary policy strategy that directly ties down the price of internationally traded
goods is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
Suppose that the European Central Bank enacts expansionary policy. Everything else
held constant, this will cause the demand for U.S. assets to ________ and the U.S.
dollar to ________.
A. increase; appreciate
B. decrease; appreciate
C. increase; depreciate
D. decrease; depreciate
Answer:
A borrowed reserves target is ________ because increases in income ________ interest
rates and discount loans, causing the Fed to ________ the monetary base, everything
else held constant.
A. procyclical; increase; increase
B. countercyclical; increase; increase
C. procyclical; reduce; reduce
D. countercyclical; reduce; reduce
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
currency-deposit ratio is
a. 0.25.
b. 0.50.
c. 0.40.
d. 0.05.
Answer: