The balance sheet channel describes ways in which interest rate changes resulting from
monetary policy affect
A) the portfolio decisions of households.
B) the portfolio decisions of businesses.
C) borrowers’ net worth.
D) lenders’ net worth.
Answer:
Which of the following accurately describes possible positions taken by hedgers?
A) may take a short position in the futures market to offset a long position in the spot
market
B) may take a short position in the spot market to offset a long position in the futures
market
C) may take a long position in the spot market to offset a short position in the futures
market
D) may take a long position in the futures market to offset a long position in the spot
market
Answer:
The aggregate expenditure line is upward sloping since as GDP increases,
A) consumption increases
B) investment increases
C) government purchases increase
D) net exports increase
Answer:
In the spot foreign exchange market,
A) only dollars, yen, and pounds may be traded.
B) only dollars and yen may be traded.
C) currencies or bank deposits are exchanged immediately.
D) currencies or bank deposits are exchanged at a fixed date (or spot) in the future.
Answer:
According to the efficient markets hypothesis,
A) common stock prices should be constant.
B) the price of a corporation’s stock is likely to fluctuate substantially in response to
news about changes in the company’s short-term prospects.
C) the price of a corporation’s stock will fluctuate significantly only in response to news
about changes in the company’s long-term prospects.
D) price fluctuations in common stock are a response to fads and are only infrequently
the result of changes in the expected profitability of the companies involved.
Answer:
If i is the yield to maturity of a fixed-payment loan,
A) the value of the loan today equals i times the sum of the values of all the loan
payments.
B) i equals the present value of the loan payments.
C) the value of the loan today equals the sum of the values of the loan payments.
D) the value of the loan today equals the present value of the loan payments discounted
at rate i.
Answer:
Which of the following statements about potential GDP is false?
A) The Fed’s goal is to have equilibrium GDP close to potential GDP.
B) When GDP is at potential, cyclical unemployment is zero.
C) It occurs when firms are producing at their maximum level of output.
D) It occurs when firms are producing with a workforce of normal size working normal
hours.
Answer:
Barter is
A) another name for money.
B) an exchange of goods and services directly for goods and services.
C) the basis for economic specialization.
D) the main system of exchange in the United States today.
Answer:
The policy directive from the FOMC is carried out by
A) the presidents of the district banks.
B) the presidents of commercial banks that are members of the Federal Reserve System.
C) the account manager at the Federal Reserve Bank of New York.
D) private dealers in the bond market.
Answer:
The segmented markets theory
A) has difficulty explaining why yield curves usually slope up.
B) has difficulty explaining why yield curves usually slope down.
C) has difficulty explaining why yields on instruments of different maturities tend to
move together.
D) provides a good explanation of why yields on instruments of different maturities
tend to move together.
Answer:
What is the price of a coupon bond that has annual coupon payments of $75, a par value
of $1000, a yield to maturity of 5%, and a maturity of two years?
A) $1043.08
B) $1046.49
C) $1000.00
D) $1150.00
Answer:
If the forward exchange rate of the dollar in terms of pounds is less than the spot
exchange rate,
A) inflation must be lower in the United States than in Britain.
B) inflation must be higher in the United States than in Britain.
C) market participants must be expecting the dollar to appreciate against the pound.
D) market participants must be expecting the dollar to depreciate against the pound.
Answer:
When did the Federal Reserve Act become law?
A) 1836
B) 1913
C) 1936
D) 1951
Answer:
Why do CDs have lower rates of return than stocks?
A) CDs are much riskier investments than stocks.
B) CDs are less risky than stocks.
C) CDs are not taxed while stock s returns are taxable.
D) CDs are not as liquid as stocks.
Answer:
The largest financial market in the world is the:
A) stock market
B) bond market
C) options market
D) foreign exchange market
Answer:
The nominal exchange rate is
A) the difference between the interest rate in one country and the interest rate in another
country.
B) the rate at which a bond may be exchanged for currency.
C) the rate at which a stock may be exchanged for currency.
D) the price of one country’s currency in terms of another’s.
Answer:
Which of the following is the source of funds for bank loans?
A) marketable securities
B) required reserves
C) excess reserves
D) bank capital
Answer:
The supply curve for loanable funds would decline due to
A) an increase in wealth.
B) an increase in the expected return on bonds.
C) an increase in expected inflation.
D) a decrease in the riskiness of bonds relative to other assets.
Answer:
If labor costs rise at the same time that the federal government decreases its purchases,
in the short run
A) aggregate output and the price level will both increase.
B) aggregate output will increase, but the price level will fall.
C) aggregate output and the price level will both fall.
D) aggregate output will fall, but the price level may either increase or decrease.
Answer:
Which of the following is the largest measure of money in the United States?
A) Federal Reserve notes
B) definitive money
C) M1
D) M2
Answer:
If a one-year bond currently yields 5% and is expected to yield 7% next year, the
liquidity premium theory predicts that the yield today on a two-year bond should be
A) 5%.
B) less than 6%, but more than 5%.
C) 6%.
D) more than 6%.
Answer:
In 1913, Congress and the President did not envision that the Fed would control
A) the money supply.
B) discount loans.
C) lender-of-last-resort activity.
D) broad control over most aspects of money and the banking system.
Answer:
If the required reserve ratio is 5%, what is the value of the simple deposit multiplier?
A) 0.05
B) 0.20
C) 5
D) 20
Answer:
Which of the following is NOT a problem with barter?
A) each good has multiple prices
B) high transactions costs
C) the commodity money having value for other uses besides money
D) lack of standardization of products exchanged
Answer:
Investment banks are vulnerable because
A) the maturity of their liabilities is less than the maturity of their assets.
B) the maturity of their assets is less than the maturity of their liabilities.
C) they tend to be underleveraged.
D) they tend to primarily hold short-term assets.
Answer:
In the context of the evaluation of the efficient markets hypothesis, pricing anomalies
refer to
A) the existence of trading strategies that appear to have offered above-normal returns.
B) the gap between actual and expected prices.
C) the spread between the price at which a broker will purchase stock from an investor
and the price at which the broker will sell stock to an investor.
D) the difficulty in practice of computing stock prices on the basis of expectations of
future dividends.
Answer:
The greatest appeal of U.S. Treasury securities is that
A) they have high yields.
B) they have no default risk.
C) the U.S. Treasury will repurchase them at any time.
D) their market prices fluctuate very little.
Answer:
Which economist is credited with having been the first to discuss the “lemons
problem”?
A) George Akerlof
B) Milton Friedman
C) Robert Shiller
D) James Tobin
Answer:
An increase in the tax rate on dividends, other things equal, is likely to result in a(n):
A) increased demand for bonds due to an increase in the expected return on bonds
relative to stocks
B) increased supply of bonds due to an increase in the expected return on bonds relative
to stocks
C) reduced demand for bonds due to a decrease in the expected return on bonds relative
to stocks
D) reduced demand for bonds due to an increase in the expected return on bonds
relative to stocks
Answer:
As a result of the financial crisis of 2007-2009, the size of the shadow banking system:
A) became smaller than the commercial banking system
B) became larger than the commercial banking system
C) declined, but remained larger than the commercial banking system
D) increased, but remained smaller than the commercial banking system
Answer:
What other markets were affected by the decline in the housing market beginning in
2006? Briefly explain why.
Answer:
Suppose a bond has a coupon of $75, face value of $1000, and current price of $1100.
What is the coupon rate? What is its current yield? Report a percentage with two
decimal places.
Answer:
What services are finance companies able to offer consumers and businesses that banks
do not offer?
Answer:
Why do some economists think that taxing capital gains results in a locked-in effect?
Answer:
Why may some investors prefer forward contracts to futures?
Answer:
Explain why some economists claim that the persistence of high unemployment rates
during the recovery from the recession of 20072009 is evidence of “hysteresis.”
Answer:
What were the two main rationale for exempting nonbanks from restrictions on assets
and degrees of leverage?
Answer:
What is potential GDP? What happens to unemployment when GDP is at its potential?
Answer:
What criteria should be used in deciding the best definition of the money supply?
Answer:
How can stock prices affect spending by businesses and households?
Answer:
Briefly explain the process of multiple deposit creation.
Answer:
How do expectations of higher inflation become embedded in the economy and affect
actual inflation?
Answer:
How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
affect the Fed’s
Answer:
If the three-month Treasury bill has an interest rate of 0.2%, the ten-tear Treasury bond
has an interest rate of 2.75%, and a ten-year bond issued by Time Warner has an interest
rate of 6%, what is the risk premium on Time Warner’s bond?
Answer:
How are the operations of the Federal Reserve financed?
Answer:
What is an important difference between certificates of deposits (CDs) worth less than
$100,000 compared to those worth $100,000 or more?
Answer:
Assess the impact on the bond market of the rise in Internet trading of stocks.
Answer:
What is the difference between money, income, and wealth?
Answer:
Describe the facts found in the bond market about the relationship between interest
rates on bonds of different maturities.
Answer: