Using the one-period valuation model, assuming a year-end dividend of $0.11, an
expected sales price of $110, and a required rate of return of 10%, the current price of
the stock would be
A. $110.11.
B. $121.12.
C. $100.10.
D. $100.11
Answer:
If aggregated demand is less than actual output, unplanned inventory ________ will
cause output to ________.
A. accumulation; rise
B. depletion; fall
C. depletion; rise
D. accumulation; fall
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:
If future changes in stock prices are unpredictable, then we say that the stock prices
follow a
A. random walk.
B. straight and narrow path.
C. meandering path.
D. generalized walk.
Answer:
To eliminate the abuses of the state-chartered banks, the ________ created a new
banking system of federally chartered banks, supervised by the ________.
A. National Bank Act of 1863; Office of the Comptroller of the Currency
B. Federal Reserve Act of 1863; Office of the Comptroller of the Currency
C. National Bank Act of 1863; Office of Thrift Supervision
D. Federal Reserve Act of 1863; Office of Thrift Supervision
Answer:
One way of describing the solution that high net worth provides to the moral hazard
problem is to say that it
A) collateralizes the debt contract.
B) makes the debt contract incentive compatible.
C) state verifies the debt contract.
D) removes all of the risk in the debt contract.
Answer:
Which of the following types of information most likely allows the exploitation of a
profit opportunity?
A. financial analysts’ published recommendations
B. technical analysis
C. hot tips from a stockbroker
D. insider information
Answer:
If the Fed injects reserves into the banking system and they are held as excess reserves,
then the money supply
a. increases by only the initial increase in reserves.
b. increases by only one-half the initial increase in reserves.
c. increases by a multiple of the initial increase in reserves.
d. does not change.
Answer:
Subject to the approval of the Board of Governors, the decision of choosing the
president of a district Federal Reserve Bank is made by
A. all nine district bank directors.
B. the six district bank directors elected by the member banks.
C. three district bank directors who are professional bankers.
D. district bank directors who are not professional bankers.
E. class A and class B directors.
Answer:
Firms that are designated as systemically important financial institutions (SIFIs) are
subject to all of the following additional Federal Reserve regulations EXCEPT
A. higher capital standards.
B. stricter liquidity requirements.
C. providing a plan for orderly liquidation if necessary.
D. interest rate ceilings on time deposits.
Answer:
If you sell a $100,000 interest-rate futures contract for 105, and the price of the
Treasury securities on the expiration date is 108, your ________ is ________.
A. profit; $3000
B. loss; $3000
C. profit; $8000
D. loss; $8000
Answer:
According to the quantity theory of money demand
A. an increase in interest rates will cause the demand for money to fall.
B. a decrease in interest rates will cause the demand for money to increase.
C. interest rates have no effect on the demand for money.
D. an increase in money will cause the demand for money to fall.
Answer:
The regulatory agency responsible for regulating the activities of life insurance
companies is
A. the FDIC.
B. the Fed.
C. the FHLBS.
D. the appropriate state agency where the company is operating.
Answer:
The result of the too-big-to-fail policy is that ________ banks will take on ________
risks, making bank failures more likely.
A. small; fewer
B. small; greater
C. big; fewer
D. big; greater
Answer:
In the loanable funds framework, the ________ is measured on the vertical axis.
A. price of bonds
B. interest rate
C. quantity of bonds
D. quantity of loanable funds
Answer:
If a contractionary monetary policy lowers the price level by more than expected, it
raises the real value of consumer debt. This reduces consumer expenditure through
A. the bank lending channel.
B. Tobin’s q.
C. the traditional interest-rate channel.
D. the household liquidity effect.
Answer:
The account that shows international transactions involving currently produced goods
and services is called the
A) trade balance.
B) current account.
C) balance of payments.
D) capital account.
Answer:
An option that can be exercised at any time up to maturity is called
A) a swap.
B) a stock option.
C) an European option.
D) an American option.
Answer:
The monetary transmission mechanism that links monetary policy to GDP through real
interest rates and investment spending is called the
A. traditional interest-rate channel.
B. Tobins’ q theory.
C. wealth effects.
D. cash flow channel.
Answer:
A country that dollarizes
A) maximizes its seignorage.
B) earns the same amount of seignorage as it would with a currency board.
C) earns the same amount of seignorage as it would with exchange-rate targeting.
D) eliminates its seignorage.
E) must pay seignorage to other governments to use their currency.
Answer:
The Fed’s policy actions of reacting to higher inflation by raising the real interest rate
during 2004-2006 were
A. upward movements along the monetary policy curve.
B. downward movement along the monetary policy curve.
C. upward shifts of the monetary policy curve.
D. downward shifts of the monetary policy curve.
Answer:
Debt contracts
A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic
intervals.
B) have a higher cost of state verification than equity contracts.
C) are used less frequently to raise capital than are equity contracts.
D) never result in a loss for the lender.
Answer:
In the market for money, an interest rate below equilibrium results in an excess
________ money and the interest rate will ________.
A. demand for; rise
B. demand for; fall
C. supply of; fall
D. supply of; rise
Answer:
Everything else held constant, when a country’s currency depreciates, its goods abroad
become ________ expensive while foreign goods in that country become ________
expensive.
A. more; less
B. more; more
C. less; less
D. less; more
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of an autonomous increase in investment is to ________ real output and ________ the
interest rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Answer:
The Second Bank of the United States was denied a new charter by
A. President Andrew Jackson.
B. Vice President John Calhoun.
C. President Benjamin Harrison.
D. President John Q. Adams.
Answer:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an decrease in the currency-deposit ratio to 30%
causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.8 to 3.25
b. decrease from 3.25 to 2.8
c. increase from 2.8 to 3.5
d. decrease from 3.5 to 2.8
Answer:
The Federal Reserve has been ________ preemptive because of the changing view that
monetary policy has to be ________ looking.
A. more; forward
B. more; backward
C. less; forward
D. less; backward
Answer:
Prior to 2008, the bank’s cost of holding reserves equaled
A. the interest paid on deposits times the amount of reserves.
B. the interest paid on deposits times the amount of deposits.
C. the interest earned on loans times the amount of loans.
D. the interest earned on loans times the amount on reserves.
Answer:
According to the segmented markets theory of the term structure
A. the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds.
B. buyers of bonds do not prefer bonds of one maturity over another.
C. interest rates on bonds of different maturities do not move together over time.
D. buyers require an additional incentive to hold long-term bonds.
Answer:
Which of the following are TRUE for discount bonds?
A. A discount bond is bought at par.
B. The purchaser receives the face value of the bond at the maturity date.
C. U.S. Treasury bonds and notes are examples of discount bonds.
D. The purchaser receives the par value at maturity plus any capital gains.
Answer:
Of money’s three functions, the one that distinguishes money from other assets is its
function as a
A. store of value.
B. unit of account.
C. standard of deferred payment.
D. medium of exchange.
Answer: